This September, the biggest event of the Ethereum community is The Merge. There is doubt that Layer 2 solutions will become redundant after The Merge. However, it turns out that both Layer 1 and Layer 2 can co-exist, and Layer 2 has its role to fill in.
Currently Arbitrum is the leading Layer 2 solution with Optimistic Rollup technology. Let’s take a deep dive into the Arbitrum ecosystem in 2022 to see how Arbitrum has evolved since its launch.
What is Arbitrum?
Arbitrum is a Layer 2 solution designed to improve the speed of Layer 1 Ethereum while adding security features to it. Layer 2 is the technology or system that runs on Layer 1, they inherit the security from Layer 1 while being able to process more transactions and reduce costs. Currently, Layer 2 is having a faster transaction confirmation speed than Layer 1.
At the moment, Arbitrum does not have its own platform token. According to Offchain Labs, the development team behind Arbitrum, “there will be no Arbitrum token and we do not intend to create it. Smart contracts on Arbitrum can use any token based on Ethereum. We decided there was no need to create another token.” However, the team of Optimisim, Arbitrum’s biggest Layer 2 compeitor, made the same statement before they released their OP token.
Arbitrum’s Strengths and Weaknesses
High EVM compatibility
Arbitrum is considered one of the most EVM-compatible blockchain. It is compatible with EVM at the bytecode level, and any language that can be compiled to EVM will work on Arbitrum – Solidity and Vyper for example.
Powerful tools for developers
The Arbitrum development team is working to reduce the barriers to entry when building a layer 2 solution. They have created comprehensive development documentation for Arbitrum. Developers can also use existing tools for Ethereum.
Low transaction fees
As a Layer 2 scaling solution for Ethereum, Arbitrum is not only designed to enhance Ethereum’s transaction throughput but also minimize the transaction fees. Thanks to its extremely efficient rollup technology, Arbitrum is able to cut fees to a fraction of what they are on Ethereum, while still providing enough incentives for validators.
The “multi-round rollup” approach has also made the dispute resolution process take longer.
Arbitrum is ambitious as it plans to support many other scaling solutions (Side Chains and Channels). The complex transition between these solutions is an issue.
The Arbitrum project is founded by professor Ed Felten and his co-founders, CEO Steven Goldfeder and CTO Harry Kalodner. Felten previously served as Vice President of US Technology at the White House under Obama with Goldfeder – author of a leading textbook on cryptocurrencies.
In addition, the project also has many other experienced software engineers.
Arbitrum Ecosystem Overview 2022
We will look into these pieces of the Arbitrum eocsystem
- DeFi: AMM – DEX, Lending Borrow, Yeild – Farming, Synthetic – Derivatives, Stablecoin
- Infrastructure: Oracle, Bridge, Data, Wallet, Explore.
The Arbitrum ecosystem currently has quite a lot of active AMM projects.
- Currently, the AMM / DEX segment has 21 projects. Compared to the same period last year, the quantity and quality of projects have increased quite a lot.
- Most of the market-leading AMM/ DEX exchanges are present on Arbitrum and are active. Compared to their peak, TVLs has decreased quite a lot. However, compared to AMM/ DEX in other blockchains, AMM / DEX on Arbitrum has still attracted a lot of capital in the bear market. The top 4 projects: CRV (TVL: $81.7 million), Sushi (TVL: $85 million), Uniswap V3 (TVL: $75.5 million), Balancer (TVL: $13.18m) contributed more than $255 million to TVL.
Lending – Borrowing
There are currently 17 lending projects operating on Arbitrum. Aave, the largest DeFi bank today, is also present on Arbitrum.
- The projects that have been active. High TVL projects include Radiant (TVL: 74 million USD), Ave (TVL: 34 million USD), dForce (TVL: 4.9 million USD), Sushiswap Kashi (TVL: 4.9 million USD).
- Iin the past, lending projects were lacking and weak. Now they are quite crowded, and work very well during this bear season.
Yeild Farming is also an active area on Arbitrum with many projects, but in terms of TVL value, it is still low.
- Projects that have operated have high TVL are Badger (TVL $2.6 million), Impermax Finance (nearly $1.4 million), Pickle (TVL $ 1.5 million).
- Other projects have fairly small TVL.
Synthetic & Derivatives
After 1 year, the number of projects in this segment has increased in both quantity and quality.
- Projects that have been active and have achieved good TVL growth: GMX (TVL: $281 million).
- The TVL difference between the top project and the next is too large. While the No. 1 position is GMX (TVL: $281 million), No. 2 is Mycelium (TVL: $19 million) and No. 3 is FutureSwap (TVL: only $2.4 million). However, given the on-going Bear market, this can still be considered good compared to the overall market.
DeFi’s largest stablecoins operate on Arbitrum include centralized coins like USDT, USDC or decentralized coins like DAI, FRAX.
- USDC’s TVL value remains the highest with $327 million, following by USDT’s TVL of $184 million and DAI’s of $27.8 million.
- USDC and USDT are the 2 most commonly used stablecoins on Arbitrum.
1 year after Arbitrum’s mainnet launch, the DeFi segment on Arbitrum has been completed and has been developed solidly in both quality and quantity. The above statistics show that Arbitrum’s bullish trend is still going on, although the market is still in the frozen phase. Compared to other L1 blockchain projects, Arbitrum is already superior and makes a significant difference in term of growth. Perhaps, if the market turns into “bullrun”, the Arbitrum ecosystem will probably be very crowded and bustling.
Chainlink, the No. 1 Oracle platform, has supported Arbitrum since the beginning. Besides, DIA also supports Arbitrum.
There are many bridges for Arbitrum, which confirms the huge attraction of Arbitrum.
Compared to 1 year ago, all projects are launched and working very well.
Many data tool projects have been active on Arbitrum. There are well-known projects have been present since the early days of mainnet such as The Graph, Covalent, Truffle Suite … The early presence of the Data segment helps helps the Arbitrum ecosystem expand rapidly after 1 year of Mainnet.
The Wallet segment on Arbitrum has a lot of projects. The competition in this array is very high, which is beneficial for users. Compared to 1 year ago, this segment has developed well, meeting all user needs.
Users can immediately use Arbiscan, a product built by the Offchain labs team.
1 year ago, Arbitrum had very few projects. Now the NFT segment has many projects.
- NFTs: There are currently 21 projects already active on Arbitrum. However, none have really exploded.
- NFT marketplaces: there are currently 4 active projects: Lootex, Stratos, Tofunft, Trove.
- NFT tools: there are currently 2 active projects: Nftscan and Zero Code Nft.
The DAO segment on Arbitrum also has many outstanding projects, such as SnapShot, Collab.land…