Arbitrum is a layer-2 blockchain for Ethereum. The Arbitrum ecosystem, over the past couple of days, has been making huge moves in the crypto market. Ethereum is going to marge from Proof of Work Consensus Mechanism to Proof of Stake Mechanism in a few days, but according to the founder, it’s not going to reduce gas fees on the ethereum blockchain. The importance of layer-2 solution here to stay for solve scalability and higher gas fee issue. Arbitrum is one of the prominent name of Layer-2 battle.
What Is Arbitrum?
Arbitrum is a layer-2 blockchain for Ethereum using optimistic rollups as scaling technology. It processes transactions on its proprietary sidechain and relays the new chain state to the Ethereum mainnet. This allows Arbitrum to achieve a throughput of up to 40,000 transactions per second at a significantly lower gas cost than on the Ethereum mainnet. The transactions on Arbitrum are rolled up into one transaction recorded on the ETH mainnet. This saves gas costs and avoids mainnet congestion.
Since transactions are not computed on the Ethereum mainnet, a minimal amount of data is needed for state storage and computation. As a result, Ethereum is less clogged and gas fees decrease. Arbitrum allows running EVM-compatible smart contracts and is secured by the Ethereum mainnet.
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Since the official mainnet launched in Q3 2021, Arbitrum has been quickly adopted by numerous protocols, and countless developers jumped into the ecosystem, starting to build up a new decentralized application on top of it. The TVL on Arbitrum is going in a stable range of $2B, indicating that the cash flow is either going out or flowing in the ecosystem. And this ecosystem is growing very fast and the total value lock is increasing day by day many developers are also showing interest to build Dapp on araitrum.
Below we have discussed some of the Arbitrum ecosystem projects that have caught people’s attention and may yield a good return on investment in the future.
GMX is a decentralized spot and perpetual exchange that prides itself on its low swap fees and deep liquidity that guarantees trading with zero slippage. GMX differs from traditional order book models in that it does not support trading pairs. It instead provides liquidity through its multi-asset GLP (GMX Liquidity Provider) to execute trades. Users trade against the automated market maker (AMM), which gets prices through an oracle.
The price of the GLP tokens is derived from the total value of the assets in the pool divided by the total supply. When the liquidity provider adds assets to the liquidity pool, they mint GLP tokens and when the liquidity is removed, these GLP tokens are burned. Thus, fees are reduced when the supply of an asset in a pool is low, providing an incentive to add the asset to the pool.
Furthermore, GLP holders receive esGMX, which can be converted to GMX tokens after one year. They also receive 70% of the platform’s revenue. GMX tokens can be staked to receive esGMX, a 30% share of the platform’s revenue, and multiplier points for GMX. This intricate token design and staking incentives allowed GMX to become the second-biggest protocol on Arbitrum with over $300 million in total value locked.
Treasure DAO (MAGIC)
Treasure DAO (MAGIC) is an NFT marketplace that wants to bridge the gap between NFTs and DeFi. Its Bridgeworld metaverse is the protocol’s flagship product, which offers DeFi functionality like staking and mining MAGIC tokens, providing liquidity, and trading NFTs on the marketplace. Treasure DAO is also working on an increasing number of partnerships with other DeFi protocols and NFT projects.
dForce (DF) strives to provide DeFi infrastructure in web3 through lending, trading and staking services. dForce is a community-driven DAO with dForce USD (USX) as a stablecoin at the heart of its protocol matrix. This algorithmic stablecoin implements a pool-based and vault-based model with a hybrid interest rate policy. It is powered by protocol-to-protocol integrations and a cross-chain bridge to facilitate its adoption. dForce also provides lending, staking, trading, and bridge services as part of its all-in-one DeFi infrastructure solution.
Dopex (DPX) is a decentralized options protocol. It aims to maximize liquidity provision while keeping losses for option writers to a minimum. Dopex implemented a rebate system for losses based on exercised options for every epoch. Options writers receive rebates based on their percentage losses and are paid in the protocol’s rebate token rDPX. This allows options writers to engage in sophisticated trading strategies that go beyond regular hedging. Dopex also boasts constant innovation in the form of its Atlantic options and has partnerships with several DeFi protocols like OlympusDAO and Jones DAO.
Jones DAO (JONES)
Jones DAO (JONES) is a yield-maximizer and liquidity protocol for options. It is built on top of Dopex and enables one-click access to options strategies for users that do not want to manage their options investments themselves. Jones DAO offers vaults for multiple assets and risk profiles.
Bridges are getting more and more famous in the crypto world. Since moving your tokens or coins from one blockchain to another became a little bit harder, bridge projects allow you to do that directly without spending too much and making it easier.
Synapse took Arbitrum road as well, allowing them to get more liquidity for their bridging offers. This way they could provide a lot more to people with the funds they get. It certainly brought a good amount of liquidity allowing them to bridge more funds all at once.
Tracer is building a perpetual trading platform that had an earth-shaking launch on Arbitrum in late 2021. However, as time goes on, the platform is losing most of its TVL. However, we believe the best metric to assess a derivatives platform is the trading volume which is yet to be public by the team.
Also Read: What Is Wrapped Tokens and How Do They Work
Arbitrum Token and Potential Airdrop
Arbitrum does not have a token yet. However, considering that its competitor Optimism launched its OP token with an airdrop, Arbitrum will likely introduce an Arbitrum native token in the future. If you want to be eligible for an Arbitrum token airdrop, you should bridge to the Arbitrum ecosystem and use some of the Arbitrum DApps listed below. Here is also our guide to airdrops called What Are Crypto Airdrops.
Even after Ethereum’s promotion to proof-of-stake, various problems will remain same, so the importance of L-2 solution will increase. The number of users of layer 2 projects is growing at a very fast rate and among them the Arabtrum ecosystem is growing very fast. If you use and invest in projects in this ecosystem, you can get a fast mover advantage in upcoming crypto bull markets.
Developers are also showing great interest in Arbitrum as they build their decentralized applications, Offchain Labs (devoloper of arbitrum) has received a total of $123.7 million in three investment rounds from 2019 to 2021 by Lightspeed Venture Partners and other investors like Polychain Capital, Ribbit Capital, Redpoint Ventures, Pantera Capital, Alameda Research and Mark Cuban. Strong Team, Grown systems and well funding are said without a doubt that projects in its ecosystem can be very good investment opportunities.