Yes this is proxy ARP in https://en.wikipedia.org/wiki/Proxy_ARP. HostAPd has 
an option called proxy_arp which setups up proxy_arp with additional 
requirements to meet the Hotspot 2.0 standards. It comes built in with a couple 
of snoopers, including a DHCP snooper to configure proxy_arp without the need 
for additional software.

I've attached a pcap file, if you need any more logs or information please let 
me know. Only thing I've changed for this capture is setting the lease time to 
2m in order to make it faster for me to capture this for you, in normal 
operation it was set to 8hours.

Note that the capture includes a ARP probe from the ESP and no response, just 
keep in mind that the WiFi router does in fact respond to it, it just doesn't 
do so over that bridge port so it didn't get captured on the gateway's end.

I think your issue starts earlier:
Your pcap indicates a failing lease renewal.

Lines 12 to 18 show your ESP is attempting to renew its DHCP lease through 10.46.109.1 after ~62 seconds as expected (about half the 120secs leasetime) - but those requests seem to never have received a reply.

In absence of a reply from the known DHCP server, lines 19 to 27 then show your ESP to send renewal requests to the broadcast address.

As those are not answered either, your ESP finally releases its expired lease (line 28).

It then initiates DHCP negotiation for a completely new lease, by broadcasting for DHCP servers, and it's only then that ARP probing would prompt it to DHCPDECLINE.

But I'd have expected dnsmasq to have extended your ESP's existing lease straight for the first DHCPREQUEST for renewal (line 12).

This would suggest that dnsmasq has not received or ignored both those DHCPREQUESTs for renewal as well as the DHCPRELEASE, which could explain both the failed renewal as well as the offending DHCPDECLINEs.

Are you splitting your network, e.g. into several VLANs?

It would be interesting to see what dnsmasq has been logging for that exchange, to verify whether and how dnsmasq would have received those DHCPREQUESTs for renewal.

Kind regards,
Buck
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