Offchain Labs, Inc. is the developer of Arbitrum, an optimistic rollup solution for Ethereum scalability that enables fast, cheap and secure transactions on layer 2.
Arbitrum has achieved significant traction and adoption since its launch in May 2021, with over $2 billion of total value locked (TVL) and over 3 million users (DAU 227K), capturing over 50% market share of all L2 market.
Arbitrum has a strong competitive positioning in the layer-two scaling market, as it offers a superior technology, a vibrant ecosystem and a favorable valuation:
o Arbitrum’s technology uses multi-round fraud proofs that are cheaper and more efficient than single-round fraud proofs used by Optimism.
o Arbitrum's compatibility with Ethereum's virtual machine (EVM), flexible and modular design allows for developers customization and innovation
o Arbitrum’s ecosystem has over 300 DeFi, NFT, gaming and social media projects that leverage its platform, such as GMX, Uniswap V3, AAVE V3, Curve, SushiSwap and TreasureDAO.
o Arbitrum’s valuation is relatively low compared to its competitors and peers in the Layer-2 space, as its market cap is around $1.76 billion USD, while its TVL is around $2.2 billion USD. Its token ARB is trading at around $1.38 USD, while its all-time high was $11.80 USD in March 2023. Its revenue multiple is also lower than other layer-two solutions like Optimism and Polygon.

Investment Rationale

Market Opportunity: Arbitrum is well-positioned to benefit from the growing demand and adoption of Layer-2 scaling solutions in the blockchain industry.
o Layer-2 solutions are essential for addressing the challenges of scalability, cost and performance that limit the potential of Layer-1 blockchains like Ethereum. EIP-4844 will be officially implemented in the Cancun upgrade after the Shanghai upgrade of Ethereum. The most direct benefit of the EIP-4844 scheme implementation is the Layer-2s and ecosystem built upon them. Higher TPS and lower cost are very suitable for high-frequency applications on the chain. We might imagine that some “killer applications” will be born
o The current TVL of all Layer2s is ~$9 billion. From August 2021 when the first optimistic rollup was launched on the mainnet, to April 2022, the market grew by 10-fold increase in eight months. From April 2022 to now, excluding the impact of the blackswan events (Luna and FTX), the growth rate of Layer2s is still considerable
o Currently Arbitrum holds over 50% market share in all L2 solutions and have superior metrics over its peers in terms of TVL, daily active addresses and transactions, average fee per transaction. The race to attract and retain developers and users is well underway and poised to intensify. Given that Optimistic Rollups have already deployed EVM-compatible general-purpose virtual machines, they are well positioned to continue to support the rapid migration of applications and users to layer-2 networks
Product Market Fit: Arbitrum is one of the most advanced and widely adopted layer 2 solutions for Ethereum scalability. It uses optimistic rollups, a technique that assumes transactions are valid by default and only verifies them if challenged by a fraud proof. This reduces the amount of computation and data required on layer 1, while preserving the security and finality of Ethereum
o Arbitrum is compatible with EVM, leveraging the dominance and compatibility of Ethereum, which has over $70 billion of TVL and over 1.6 million daily active users
o Arbitrum’s technology uses multi-round fraud proofs that are cheaper and more efficient than single-round fraud proofs used by Optimism
o Arbitrum also supports arbitrary state transitions, which enables developers to create custom features and functionalities on layer 2
o Moreover, Arbitrum has a modular architecture that allows for different components to be upgraded or replaced independently, such as the sequencer, the aggregator and the validator
Traction and Adoption: Arbitrum has achieved impressive traction and adoption since its launch in May 2021
o It has attracted more than 300 projects to deploy on its platform, including some of the most popular dApps in DeFi, NFTs, gaming and social media. Some notable examples are Uniswap, Aave, MakerDAO, Chainlink, SushiSwap, Balancer, Compound, Curve, Synthetix, Yearn Finance, Opensea, Rarible, Axie Infinity, Decentraland and Reddit
o Arbitrum retains over half of its users after airdrop with daily transaction volume continues to show an upward trend and number of protocols deployed on the Arbitrum ecosystem continue to grow
o As of April 2023, Arbitrum has over $2 billion of total value locked (TVL) and over 3 million users (DAU 227K), capturing over 50% market share of all L2 market
Business Model and Profitability: Tokenomics and valuation: Arbitrum has a favorable valuation and tokenomics framework

o Its market cap is around $1.76 billion USD, while its TVL is around $2.2 billion USD. Its token ARB is trading at around $1.38 USD, while its all-time high was $11.80 USD in March 2023. Its revenue multiple is also lower than other layer-two solutions like Optimism and Polygon

o Even though the protocol currently does not distribute cash flows, they accrue to the treasury to be reinvested. $ARB token has value through its cash flows, governance, and security o In the long term, Revenue will improve as adoption grows. EIP-4844 will also likely reduce costs by 10-100x
Team and Vision:
o Offchain Labs is led by a team of blockchain experts and researchers with strong backgrounds in computer science, cryptography and distributed systems. The co-founders are Ed Felten (Chief Scientist), Steven Goldfeder (CEO) and Harry Kalodner (CTO), who are all affiliated with Princeton University's Computer Science Department
o Arbitrum has an ambitious roadmap for 2023, which includes launching its own layer-three solution called Orbit, enabling developers to deploy programs written in popular languages like Rust and C++, expanding its validator set to include more independent validators, and moving its protocol to Layer-2 with Arbitrum One

Competitive Analysis

Arbitrum vs Optimism: Both are optimistic rollup solutions that offer EVM compatibility, fast transaction confirmation and low fees. However, Arbitrum has a more flexible and modular design that allows for customization and innovation on layer 2. Arbitrum also has a larger and more diverse ecosystem of projects and users than Optimism.
Arbitrum vs ZKSync: Both are rollup solutions that offer EVM compatibility, fast transaction confirmation and low fees. However, ZKSync uses zero-knowledge proofs (ZKPs) instead of optimistic rollups to verify transactions on layer 1. This means that ZKSync has higher security and finality guarantees than Arbitrum, as it does not rely on fraud proofs or challenge periods. ZKSync also has lower gas costs than Arbitrum, as it can compress more transactions into a single proof. However, ZKSync is still in development and has not launched its full EVM support yet. Arbitrum has a more mature and robust technology and ecosystem than ZKSync.
Arbitrum vs Polygon: Both are layer-2 solutions that offer EVM compatibility, fast transaction confirmation and low fees. However, Polygon is a hybrid solution that combines sidechains and rollups to achieve scalability. Sidechains are independent blockchains that run parallel to Ethereum and use their own consensus mechanisms and validators. Rollups are similar to Arbitrum's approach of moving transactions off-chain and settling them on-chain periodically. Polygon offers more scalability and flexibility than Arbitrum, as it can support different types of sidechains and rollups for different use cases. However, Polygon also has lower security and decentralization than Arbitrum, as it relies on its own validators and bridges to secure its sidechains and rollups. Polygon also has more complexity and fragmentation than Arbitrum, as it requires users to switch between different networks and tokens.

Conclusion:

Arbitrum has a competitive edge over other layer-2 solutions in terms of its flexible and modular design that allows for customization and innovation on layer 2. It also has a larger and more diverse ecosystem of projects and users than most other layer-2 solutions.
Arbitrum faces competition from other layer-2 solutions that offer different trade-offs between scalability, security, usability and cost. Some of these solutions are still in development or have not launched their full features yet.
We believe that Arbitrum has the potential to become a dominant layer-2 solution for Ethereum and capture a significant share of the growing blockchain market.
Even if ZK technology matures, Arbitrum could still have a place in the L2 ecosystem, especially for applications or users that value compatibility, flexibility, or decentralization over speed or cost. Of course, this also depends on how Arbitrum adapts and innovates in response to the competition and demand from the market.

Risk Consideration

Competitive risk: Arbitrum faces intense competition from other layer-two solutions, mainly ZK rollups, as well as from alternative layer-one platforms, such as Aptos, Sui, Solana, Avalanche and Terra. Arbitrum may lose its market share, user base and ecosystem if it fails to deliver superior performance, user experience and innovation compared to its competitors. Arbitrum with its long withdrawal times, reliance on bridges and the possibility of technical obsolescence may underperform other ZK rollups solutions when ZK Rollup matures
o Mitigants: Arbitrum can diversifying and expanding to different market segments and niches, such as DeFi, NFTs, gaming and social media and all other applications or users that value compatibility, flexibility, or decentralization over speed or cost, its technological edge, expanding its partnerships and collaborations, providing incentives and benefits to its users and builders.
Regulatory Risk: Arbitrum operates in a complex and uncertain regulatory environment, as different jurisdictions may have different laws and rules regarding cryptocurrencies, smart contracts, decentralized applications and governance tokens. Arbitrum may face legal challenges or sanctions if it violates any applicable regulations or fails to comply with any requests or demands from authorities
o Mitigants: Arbitrum can mitigate regulatory risk by closely monitoring and complying with the relevant laws and regulations in different jurisdictions. Arbitrum can also engage with regulators and policymakers to educate them about its technology and its benefits for the blockchain industry and the society. Arbitrum can also leverage its partnerships and collaborations with reputable and influential organizations, such as Reddit, Chainlink and EY, to gain credibility and legitimacy in the eyes of regulators and stakeholders. Arbitrum can also seek legal advice and guidance from experts and professionals to deal with any legal disputes or liabilities arising from its optimistic rollup design
Technical Risk: Arbitrum relies on complex and novel technology that may have undiscovered bugs, vulnerabilities or limitations that could compromise its functionality, security or performance. Arbitrum may also face technical challenges or difficulties in developing, upgrading or maintaining its technology and infrastructure. For example, Arbitrum may encounter scalability bottlenecks, network congestion, interoperability issues, compatibility problems or cyberattacks that could disrupt its service or cause loss of funds. Arbitrum may also face competition or obsolescence from other technological innovations or solutions that could offer better scalability, security or usability than Arbitrum. Arbitrum relies on bridges to connect with other layer-1 and layer-2 networks. Bridges are not trustless or decentralized, as they require users to deposit their assets into smart contracts controlled by bridge operators. Bridges may pose security risks if they are hacked or compromised by malicious actors. Bridges may also pose usability risks if they are congested or unavailable due to technical issues or network conditions
o Mitigants: Arbitrum can mitigate technical risk by conducting rigorous testing and auditing of its technology and infrastructure. Arbitrum can also adopt best practices and standards for security, reliability and performance. Arbitrum can also seek feedback and input from its community and users to identify and resolve any technical issues or difficulties. Arbitrum can also invest in research and development to improve and innovate its technology and infrastructure. Arbitrum can also keep abreast of the latest technological trends and developments and adapt to changing market needs and expectations. Arbitrum can also support multiple bridges to ensure redundancy and availability. Arbitrum can also educate its users about the risks and trade-offs of using bridges and encourage them to use caution and due diligence when transferring assets between different networks

Valuation Analysis

Valuation Framework:
To value Arbitrum and its native token $ARB, can adopt discounted cash flow (DCF) model based on the expected future cash flows generated by Arbitrum's platform.
Assuming that Arbitrum's main source of revenue is

Transaction fees
MEV (maximum extractable value)
Token sale

Main cost is the gas paid to Ethereum for posting transaction batches on layer 1. We can project Arbitrum's revenue and cost based on its historical and current performance, as well as its expected growth and market share in the layer 2 space. We then divide Arbitrum's enterprise value (EV) by its total token supply to derive its token value.

In the long term, Revenue will improve as adoption grows. EIP-4844 will also likely reduce costs by 10-100x.

Key valuation uplift drivers:

Steadily increased total transaction volume, which is driven by
o Crypto market development and total market transaction volume
o Arbitrum market share
 Overall L2 development (competition with ZKP)
 Dapp and user adoption on Arbitrum
o Flagship Dapp like GMX and TreasureDAO developing in the ecosystem
Transaction fee charged increase due to less intensified competition (unlikely)
Cost paid to L-1 decreasing
Other new business streams such as more 2B service model, latency and etc.

Valuation downside risks:
Regulatory changes, user adoption barriers, and competitive pressures.

Arbitrum Tokenomics Analysis:

$ARB utility can be summarized as below:

Chains upgradeability & technical future
DAO treasury
Token inflation
Sequencer profit
Arbitrum social media accounts

With a total supply of 10Bn, $ARB is distributed as below:

Even though the protocol currently does not distribute cash flows, they accrue to the treasury to be reinvested. It would seem as though the $ARB token has value through its cash flows, governance, and security.

Relative valuation for $ARB & $OP

Overall Arbitrum has superior scale, performance and adoption than Optimism, and it also has lower multiple in terms of Mkt cap over revenue, profit, TVL, daily transactions and active addresses.
With just a 20% premium, $ARB is clearly undervalued compared to $OP.

Valuation Relative to Peers:
To compare Arbitrum's valuation with its peers, we use two metrics: price-to-sales (P/S) ratio and price-to-earnings (P/E) ratio. We calculate Arbitrum's P/S and P/E ratios based on its projected revenue and earnings for 2023, as well as its current token price and supply. We then compare Arbitrum's P/S and P/E ratios with those of other layer 2 solutions, such as Optimism and Polygon.

Project Fees ($M) Revenue ($M) Token Price ($) Supply (B) Market Cap ($B) FDV ($B) P/F (Mkt Cap) P/F (FDV) P/S (Mkt Cap) P/S (FDV)
Arbitrum 109.56 29.87 1.35 1.275 1.76 13.46 16.1x 122.9x 58.9x 450.6x
Optimism 53.99 13.34 2.12 0.69 1.2 9.11 22.2x 168.7x 90.0x 682.9x
Polygon 62.16 44.5 0.98 6 9.06 9.8 145.8x 157.7x 203.6x 220.2x

Source: Token Terminal

Future Price Trend of $ARB:
To forecast the future price trend of $ARB, we use a combination of fundamental analysis and technical analysis. Fundamental analysis evaluates the intrinsic value of $ARB based on Arbitrum's underlying business performance, growth prospects and competitive advantages. Technical analysis evaluates the market sentiment and price movements of $ARB based on historical patterns, trends and indicators.
We use various fundamental and technical factors to estimate the future demand and supply of $ARB, as well as its expected price range and volatility. We also consider the potential catalysts and risks that could affect $ARB's price in the short term and long term. Based on our analysis, we expect $ARB's price to increase gradually over time, as Arbitrum continues to grow its user base, ecosystem and market share in the layer 2 space.
However, we also expect $ARB's price to experience significant fluctuations along the way, as Arbitrum faces various challenges and uncertainties in the regulatory, technical and market domains.

Arbitrum Deep Dive and Layer-2 Industry Analysis

Industry analysis and competitive benchmarking

Framework of evaluating Layer 2

Technical Design
execution environment
throughput and finality
on-chain & ecosystem data
o TVL
o daily active addresses
o daily transactions
o average fee per transaction

Benchmarking Different L2 solutions

• Different L2 solutions have different trade-offs between speed, security, cost, and compatibility.
• Plasma sidechains and state channel networks offer faster finality and higher throughput than rollups, but they also have higher withdrawal fees and lower security guarantees.
• ZK rollups have the following advantages over optimistic rollups:
o Higher security: ZKPs guarantee the correctness of transactions without relying on any assumptions or trust. Fraud proofs, on the other hand, depend on the availability and honesty of validators and challengers, who may be corrupted or censored.
o Higher privacy: ZKPs hide the details of transactions, such as the sender, receiver, and amount, from anyone except the parties involved. Fraud proofs reveal these details to anyone who can access the main chain data.
o Lower latency: ZKPs allow transactions to be finalized as soon as they are posted on the main chain, without any waiting period for disputes. Fraud proofs require a challenge period, which can range from several minutes to several days, depending on the network congestion and security parameters.
• Optimistic rollups have the following advantages over ZK rollups:
o Higher scalability: Fraud proofs allow more transactions to be processed per second, as they do not require complex computations or large proofs. ZKPs are computationally intensive and generate large amounts of data, which limit the scalability of ZK rollups.
o Easier implementation: Fraud proofs are compatible with any Ethereum smart contract, as they use the same virtual machine and programming languages. ZKPs require specific cryptographic libraries and compilers, which are not widely available or standardized.
o More maturity: Fraud proofs have been tested and deployed on Ethereum for longer than ZKPs, which are still relatively new and experimental. Optimistic rollups have more support and adoption from developers and users than ZK rollups.
• A hybrid approach may combine the best features of both rollups, such as using ZKPs for data availability and fraud proofs for execution, or using ZKPs for some transactions and fraud proofs for others. Some examples of hybrid projects are zkSync Lite, Polygon Zero, and StarkNet

Current state of L2 solutions

Source: DeFiLemma

Competition from Alt Layer 1
For now, layer-2 scaling solutions place additional burdens on users compared to most alternative layer-1 platforms. While some third party protocols have emerged and are already reducing withdrawal times for users, long withdrawal times persist at the core of both Optimistic Rollup and ZK-Rollup technologies.
Additionally, many layer-2 user experiences start with having to bridge assets. Bridging takes time and requires upfront spend from users to get their assets onto layer-2. Crypto exchanges such as Binance and FTX have begun offering withdrawals directly to layer-2 networks from their platforms (i.e., no need to bridge) and alleviated some of this friction. However, the introduction of a new layer will, for at least the near to medium term, require additional effort on the part of users to transport assets across networks.
While layer-2 networks are frequently contextualized in terms of cost savings compared to Ethereum, the market for general-purpose computation is already highly competitive due to the rise of alternative layer-1 plaftorms. Solana, Avalanche, and Terra already have hundreds of different projects building on top of and around their respective ecosystems and have a sizeable head-start in terms of user adoption compared to layer-2 networks.

Ethereum’s current throughput is ~15 TPS. Competing layer-1 networks such as Solana have achieved as high as ~60,000 TPS in testnet environments. However, recent network downtime and degraded performance caused by high demand on many alternative layer-1 platforms have cast a shadow of doubt over their maximum throughput in a production environment
Under current implementations, it is estimated that Ethereum’s layer-2 networks could collectively execute ~5,000 TPS on their respective networks (if Ethereum layer-1 was exclusively used for storing rollup data and excluding any performance gains attributable to EIPs). Rollups are expected to achieve their second scaling gain with the advent of increased data availability space on layer-1: data sharding will bring layer-2 throughput to an estimated ~100,000 TPS.

Arbitrum vs. Optimism

Source: Layer 2 Dashboard: Arbitrum and Optimism (dune.com)
L2 Comparisons & Benchmarks - Usage, Growth, Fees, UX - Optimism, Arbitrum (dune.com)

Conclusion

The race to attract and retain developers and users is well underway and poised to intensify. Given that Optimistic Rollups have already deployed EVM-compatible general-purpose virtual machines, they are well positioned to continue to support the rapid migration of applications and users to layer-2 networks. While ZK-Rollups are not EVM-compatible by default, they have made substantial strides towards compatibility or pioneered their own development frameworks and seen significant levels of traction and community support

Operating Performance

Source: DeFilemma

Daily transactions

Arbitrum’s daily transaction volume continues to show an upward trend.
• The average daily transaction volume at the beginning of the year was 159,000, and now it is 1.2 million per day.
• This is higher than Ethereum, which processes 935,000 transactions per day.

Daily active addresses:
The number of daily active addresses has increased by 470% since the beginning of the year, and is expected to permanently surpass Ethereum.
Unique contracts Deployed:

In the past year, the number of protocols deployed on the Arbitrum ecosystem has grown exponentially, with no signs of slowing down. Since the beginning of the year, the number of protocols deployed on the Arbitrum ecosystem has increased by 156%, and it seems to be accelerating. It is about 10 times that of Optimism.

Arbitrum user retention numbers after Airdrop:

o 56% on a 1-month time frame and 40% on a 1-week timeframe, performing extremely well relative to their peers, a decent sign of sustainable growth and adoption
o Active addresses ranging ~150k to 190k, higher than the ~120k range before the airdrop
o Daily transactions ranging around ~850k to 1M, higher than pre-airdrop days as well

Business Model and Financial Stats

Arbitrum's business model can be summarized in three parts:

Transaction fees
MEV (maximum extractable value)
Token sale
 Transaction fee income simply means that they buy block space on L1, use it efficiently and sell it to users at a premium on L2. The net revenue is the difference between the fees they charge users and the fees they pay for block space on Ethereum.Profit is shared with sequencers and other stakeholders.
 MEV is a way of rent-seeking, where block producers can achieve it by specially reordering transactions. Different Layer2s have different attitudes towards MEV. Optimism incorporates MEV into auctions, believing that it is fundamental to blockchain and can generate income through auctions. Arbitrum, compared to profiting from MEV, hopes to minimize MEV in its system and reduce the amount of MEV extracted, making it more attractive to users and builders.
 Generating income from its token holdings or investments. Offchain Labs may hold a portion of its native token $ARB or other tokens that are used or supported on its platform. Offchain Labs may also invest in other projects or platforms that are aligned with its vision or mission.
 The Arbitrum DAO Treasury was allocated 42.78% of the initial supply. At today’s prices this is equivalent to $5.13b USD. Most of this will be used to support ecosystem projects. This is very bullish for Arbitrum growth.

Profitability Benchmarking
Of the top 3 L2s by TVL (Arbitrum, Optimism, and zkSync), which is most profitable?

To find this, we simply take the spread between the fee revenue generated and the L1 call data security costs (plus verification costs for zkrollups).

Over the past 12 months, Arbitrum has net profits of ~5,200 ETH, which is 80% above that of Optimism. Considering zkSync Era just launched, it doesn’t make sense to include it in this comparison, but for reference, zk has generated ~50 ETH in profit since launch.

So from a raw profit perspective, Arbitrum substantially trumps that of Optimism. But is it simply a product of heightened volume? Yes and no.

Although Arbitrum has 80% higher profits compared to Optimism, it only has 54% more transaction volume and 28% more revenue. So, in short, Arbitrum is cheaper to transact on, which has led to less revenue on a per tx basis.

The answer really lies within the L1 security costs, Arbitrum only has 20% higher security costs in comparison. On a per-transaction basis, Optimism is paying nearly double that of Arbitrum for L1 call data.

The demand for rollups is clear. As the L2 ecosystem continues to evolve and grow, so will its profitability metrics. As for now, Arbitrum is considerably more profitable in comparison to Optimism and zkSync due to higher throughput and cheaper security costs.

Key Revenue and profit drivers

Steadily increased total transaction volume, which is driven by
o Crypto market development and total market transaction volume
o Arbitrum market share
 Overall L2 development (competition with ZKP)
 Dapp and user adoption on Arbitrum
o Flagship Dapp like GMX and TreasureDAO developing in the ecosystem
Transaction fee charged increase due to less intensified competition (unlikely)
Cost paid to L-1 decreasing
Other new business streams such as more 2B service model, latency and etc.

Financial statements

Source: Token Terminal

Tokenomics
Offchain Labs has launched its governance token ARB in March 2023, which is used to participate in the Arbitrum DAO and secure the Arbitrum networks.

Offchain Labs plans to ensure its long-term sustainability and governance by decentralizing its Arbitrum networks and empowering the community to shape the future of Arbitrum. Offchain Labs has created the Arbitrum Foundation, a non-profit organization that oversees the development and governance of Arbitrum. The Arbitrum Foundation also controls a treasury of ARB tokens that can be used to fund grants, bounties, and other initiatives to support the Arbitrum ecosystem.

Category Subcategory Percentage Amount (in billions)
Community Airdrops to users 11.50% 1.15
Community DAOs operating on Arbitrum 1.10% 0.11
Community Treasury 43.40% 4.34
Investors Seed 20% 2
Investors Series A 10% 1
Investors Series B 10% 1
Team Team members 4% 0.4
Total 100% 10

Utility
$ARB is the governance token for the Arbitrum DAO, controlling:

Chains upgradeability & technical future
DAO treasury
Token inflation
Sequencer profit
Arbitrum social media accounts

ARB performance

Source: Dune Dashboard as of Apr 25, 2023

Financings and investors

Time Round Financing Amount Valuation Investors
2019 Strategic Investment N/A N/A Coinbase Ventures
March 2019 Seed Round $3.7m N/A Pantera Capital (lead), Compound VC and others
April 2021 Series A $20m Unknown Unknown
August 2021 Series B $120m $1.2b Lightspeed Venture Partners (lead), Polychain Capital, Ribbit Capital, Redpoint Ventures, Pantera Capital, Alameda Research, Mark Cuban and others

Team
Arbitrum was founded by Ed Felten, Steven Goldfeder and Harry Kalodner. The project was initially run by Offchain Labs and the Arbitrum foundation. In March 2023, the Arbitrum DAO was launched to govern the Arbitrum One & Nova chains.

Technical Analysis

Rollup is a technology that processes transactions on Layer-2 Rollup, while a node called a sequencer aggregates and uploads transaction state data to Layer1.
Optimistic Rollup uses dispute resolution mechanisms to ensure transaction security (i.e., report and resolve errors after they are discovered, otherwise they are considered correct), while ZK Rollup uses zero-knowledge mathematical proofs for transaction verification.
So what is the difference between Arbitrum and Optimism, which both use op? The core difference is that Optimism uses a single-round fraud proof executed on Layer1, while Arbitrum uses a multi-round fraud proof executed off-chain. Compared to single-round fraud proofs, Arbitrum’s multi-round fraud proofs are cheaper and more efficient.
In addition, from the perspective of ecosystem development, Optimism uses Ethereum’s EVM, while Arbitrum uses its own Arbitrum virtual machine (AVM). This results in Optimism having only Solidity compiler, while Arbitrum supports all EVM compilation languages. From the current scale of the ecosystem and TVL, Arbitrum is in a leading position.

Go-to-market strategy and Dapps ecosystem

The top applications in Arbitrum's ecosystem are mostly DeFi projects, which is related to Arbitrum's advantages. On the one hand, Optimistic Rollup, which Arbitrum adopts, has lower implementation difficulty and more mature infrastructure. On the other hand, it is compatible with EVM, which allows applications on Ethereum to migrate to Arbitrum directly.

Project Category TVL Active Addresses TVL/Arbitrum TVL
GMX Derivatives $574.44m 1,234 24.64%
Uniswap V3 DEX $298.12m 2,345 12.79%
Radiant N/A $132.68m 345 5.69%
Stargate Cross Chain $106.78m 456 4.58%
AAVE V3 Lending $145.07m 567 6.23%
Curve Dexes $93.06m 678 3.99%
Camelot N/A $105.72m 789 4.54%
Sushi DEX $102.41m 890 4.40%
Balancer V2 DEX $74.4m 901 3.19%
Beefy Yield Aggregator $51.13m 1,012 2.19%
Abracadabra CDP $43.96m 1,123 1.89%
Ramses Exchange DEX $41.14m 1,234 1.77%
Convex Finance Yield Aggregator $40.34m $1,345 $1.73%
Gains Network Derivatives $41.37m $1,456 $1.78%
Wombat Exchange DEX $50.11m $1,567 $2.15%
Arbitrum Exchange DEX $49.19m $1,678 $2.11%
Jones DAO Options Vault $29.13m $1,789 $1.%25
Source: DefiLlama as of Apr 14, 2023 and Arbiscan as of Apr 15, 2023

In the long run, Arbitrum could expand its go-to-market strategies in following methods:

Leveraging its partnerships and collaborations with reputable and influential organizations, such as Reddit, Chainlink and EY, to gain credibility and legitimacy in the eyes of potential users and investors.
Providing incentives, rewards and benefits to its users, such as airdrops, staking, governance and fee discounts, to increase its user acquisition and retention.
Catering to different market segments and niches, such as DeFi, NFTs, gaming and social media, by supporting various projects and applications that deploy on its platform.
Expanding its user base and ecosystem beyond Ethereum by supporting multiple bridges to ensure interoperability and availability across different networks.
Investing in research and development to improve and innovate its technology and infrastructure, as well as adapting to changing market needs and expectations.

Key application deep dive – GMX & TreasureDAO

GMX

GMX can be said to be one of the best performing defi in 2022, its GLP (GLP is a pool of funds composed of USDT, BTC, ETH and other stablecoins and cryptocurrencies, the proportion of tokens will maintain a relative balance) APR has been 20%+ for a long time, which is particularly outstanding in the bear market.
So what are the innovations compared to other protocols?

In traditional Perp exchanges, users are each other’s counterparties. But in GMX, users trade with the GLP pool. This involves two types of participants on the GMX platform, one is leverage trading users, and the other is LP. LP does not need to provide trading pairs (such as ETH/USDT) but uses single token (including common tokens such as ETH, BTC) to buy GLP to provide liquidity for the platform. Users who hold GLP can get 70% of GMX platform fees. For leverage trading users, they can open positions by depositing margin, and in fact, when users open long ETH, they are equivalent to lending ETH to the GLP pool, and opening short is equivalent to lending stablecoin assets. On the one hand, it maintains the stability of the pool by having a larger proportion of stablecoins (basically stablecoins: non-stablecoins are 1:1), and on the other hand, we can see the concept of weight in the pool. When the proportion of a token is too high, the price of buying GLP with that token will be higher, which will make people start to invest in other tokens to maintain balance.
GMX uses oracle feed prices instead of AMM, so that traders can achieve zero slippage trading. Whether it is minting GLP or burning GLP, they can be exchanged without slippage.

Treasure DAO
Treasure is a decentralized video game console/publisher that fosters the growth of indie Web3 games. It is not a GameFi, nor is it an NFT marketplace, it is like a Nintendo of Gamfi based on NFT. Treasure’s thesis is to unite games and players to forge a dynamic meta-ecosystem, unlocking innovative experiences, open economies, and compound network effects. I

It has its own Token which is Magic, serves as the unifying factor connecting metaverses, users, and assets. Third-party teams can integrate MAGIC into their game economies and lore, and benefit from its emissions and incentives.
It has its own Market Place - Trove, where NFTs related to ecosystem projects can be traded, priced in ETH or Magic.
It has its own Dex – magicSwap. As a Dex, it currently supports trading two token pairs MAGIC/Gfly (Gfly is the governance token of BattleFly) and MAGIC/ELM (ELM is the governance token of Tales of Elleria).
Bridgeworld is a flagship game by the Treasure team that involves strategic trading, resource collection and crafting, social coordination and geopolitics. It is like a gamified DeFi protocol that utilizes MAGIC (power), Treasure NFTs (resources), and Legions (players). Bridgeworld is the core economic hub of Treasure DAO, as a resource coordination game, it integrates many DeFi gameplay around mining, farming, summoning, exploring, etc., to make players Magic. Unlike other P2E games that attract players by issuing coins, BridgeWorld requires players to spend more time playing games to get more Magic, thus increasing player stickiness.
It has a bunch of GameFi projects, such as the early star Realm, BattleFly, the recently hot Beacon… From simulation, card, action, RPG… Everything is available, currently all projects seem to have not issued coins, are using Magic.
o Treasure offers many benefits for game developers who want to join its ecosystem. It has impressive metrics such as being one of the largest recipients of ARB tokens from Arbitrum, having more than 400k gamers in its community, and accounting for more than 95% of all gaming and NFT transactions on Arbitrum. It also supports developers with grants and low revenue share compared to Web2 platforms. It has features like TreasureTags that incentivize holders to contribute and allow Treasure to promote or phase out cartridges as needed. It also has interoperability as a unique selling point that creates synergistic effects among games and players.
o The Beacon - Treasure DAO’s phenomenal product. The Beacon is an RPG type game, the gameplay is relatively simple, players choose a basic weapon to enter the dungeon exploration, upgrade weapons to better fight along the way. The game modes include home mode, single player PVE and tavern quiz. Home mode is used to edit houses, single player PVE mode is to explore the dungeon successfully within a specified time and get rewards, tavern quiz is mainly to answer npc questions. 17 The Beacon launched on Arbitrum only a month’s time, the number of players has nearly reached 26000+, the game’s creation character NFT purchase number as many as 65000 times, The Beacon’s popularity also drove up Treasure DAO data , pulling Treasure DAO’s weekly active users from 5000 to around 20000 , directly turning nearly four times. After experiencing the decline in early January , there has been a budding trend recently.
How does Treasure DAO achieve this decentralized gaming ecosystem?
Universal currency Magic and three carriages Trove , Bridgeworld , MagicSwap .
TreasureDAO already has more than a dozen different types of games under its belt, with Magic user transactions reaching 400 ,000. Although in the early stages of the ecosystem, but the community’s activity and loyalty have already emerged, everyone can play games, participate in governance and so on, very consistent with its vision, forming a decentralized, co-created by players and builders community gaming ecosystem.
Its two core features:
First is through liquidity innovation, different from other games by issuing coins and APY attract players - TreasureDAO one hand need to spend time playing games in order to get magic, on the other hand through POW, Magic half-life characteristics will make Magic more and more scarce, attracting users to spend more time playing games to get magic.
Second with the increase in game types, players and TreasureDAO binding relationship deeper, web3 users influx in the future demand for vertical games will also increase. The ecological LP incentives are NFTs, which allow users to use NFTs to play games, unlock tasks, not lead to direct pressure on Magic, to build a slow but steady growth model. In this process, gradually absorb play for fun users, to increase stickiness.
Analogy web2 game look at TreasureDAO endgame TreasureDAO as web3 Nintendo, Steam , QQ game hall, in business model still can provide development and distribution services for game developers or publishers, ultimately become a bridge between players and games. In Steam player word-of-mouth self-propagation and viral marketing scenarios may also be reproduced in TreasureDAO , as $Magic also in continuous rise .
In the long run , TreasureDAO has become a backbone force in Arbitrum ecology. Treasure establishes a unified ecosystem where games utilize the reserve currency MAGIC for in-game purposes and cross-game trading. It serves as an excellent case study in creating interoperability for Web3 game developers. in the future OP and ZK competition , if TreasureDAO can have a continuous stream of explosive games emerge, Arbitrum may be able to further stand out, currently very optimistic about Arbitrum ecology development.

Subscribe to Angelica

Receive the latest updates directly to your inbox.

Mint this entry as an NFT to add it to your collection.

Verification

This entry has been permanently stored onchain and signed by its creator.

Arweave Transaction

ZdMsEspyMMS9W0w…A4wEbqXngF2Jh5w

Author Address

0x546aB22448dF6C1…85803E03F76bBb7

Content Digest

xZpbrYuPICj3bmf…Cr0Z8OOTlcdikU0