Deconstructing the Mainstream Narrative of February: The Technology, Ecology, and Future Development of Arbitrum

Summary

As the Federal Reserve slows down interest rate hikes, the crypto market saw a slight bull run at the end of January, with Bitcoin breaking through $23,700 to reach a six-month high. Ethereum's layer 2 solutions have frequently received positive news, with Arbitrum injecting new vitality into the entire crypto market. On one hand, Arbitrum underwent a technical upgrade in 2022 to cope with the increasingly frequent trading activities. On the other hand, the popularity of the Odyssey event in its first week has garnered significant attention for Arbitrum's ecosystem projects.

This article will focus on the development history of Arbitrum, analyzing its technological upgrades and future roadmap. At the same time, we will explore the success factors and development prospects of the popular DeFi and gaming projects in the ecosystem, such as GMX, which has innovative mechanisms and has performed well in terms of protocol revenue during the bear market. In addition, the expectation of Arbitrum's token issuance will continue to bring positive effects.

Overview

The most outstanding track at the beginning of 2023 is undoubtedly Layer 2, which aligns with the predictions of most institutions and industry opinion leaders. In terms of cryptocurrency performance, the ecosystem tokens on Optimism, Polygon, and Arbitrum have all performed well. Against the backdrop of trust crises faced by new public chains like Terra and Solana during the bear market, Ethereum will still maintain its dominant position, with future competition more likely to occur between new public chains and Layer 2. As the crypto market shows slight signs of recovery, Arbitrum particularly stood out in February, creating remarkable results.

Currently, Arbitrum is the project with the largest TVL in Ethereum's Layer 2 scaling solutions, reaching 2.98B, accounting for 3.01% of the total TVL across all networks, and holding 49.51% of the TVL share in L2. Arbitrum Rollup is an off-chain protocol managed by on-chain Ethereum contracts, which uploads off-chain transactions to the Ethereum mainnet through compression algorithms. This method can alleviate the congestion issues faced by Ethereum to a certain extent, achieving advantages such as fast transactions, low gas fees, guaranteed security, and a good user experience.

Technical Upgrade

In 2022, Arbitrum made continuous innovations in technology upgrades, mainly including the launch of the Arbitrum Nova and Arbitrum One dual chains, and the introduction of a new programming environment, Stylus.

Arbitrum Nova - AnyTrust Chain

On July 12, 2022, the Arbitrum network announced the construction of a new chain called "Arbitrum Nova". This chain is built on AnyTrust technology and is designed specifically for games, social applications, and use cases that are more cost-sensitive. The AnyTrust technology ensures minimal trust assumptions through a data availability committee, which is responsible for managing off-chain transaction data and providing data support batches. As a result, AnyTrust eliminates the 7-day withdrawal waiting period that users would typically have to endure, enhancing the user experience.

Nitro

At the end of August 2022, Arbitrum One successfully upgraded to the Nitro version. The Nitro upgrade significantly improved network speed and reduced transaction costs. The main technical upgrades include:

• Modify the previous AVM architecture and ArbOS
• Adopting the WebAssembly (WASM) architecture to replace the old AVM architecture
• Replace the custom EVM simulator with Geth
• ArbOS has been scaled down and rewritten in Go to provide a more optimized batching and compression system for transactions.

Stylus

The Arbitrum development team Offchain Labs has announced the launch of the next-generation programming environment Stylus for Arbitrum One and Arbitrum Nova. Stylus enables users to deploy applications using programming languages such as Rust, C, and C++ through WebAssembly smart contract functionality, allowing them to run alongside EVM programs on Arbitrum. Stylus is faster, reduces costs, and is fully interoperable with the Ethereum Virtual Machine (EVM).

Ecological Cooperation

In the past year, Arbitrum's market share has significantly increased, primarily due to the continued optimism for Layer 2, expectations for the issuance of Arb tokens, and the growth of ecological applications, especially the growth of native applications. Since the mainnet Arbitrum One went live in September last year, leading DeFi protocols on Ethereum Layer 1, such as Uniswap, Sushiswap, and Curve, have all integrated and deployed on Arbitrum One, along with some well-known cross-chain protocols like Synapse and StarGate.

In June 2022, although the Odyssey event only lasted for a week, it still attracted a lot of attention. The event combined NFTs and was conducted weekly, stimulating user participation enthusiasm, helping users understand the Arbitrum ecosystem, and bringing traffic to ecosystem projects while increasing the number of users. According to data, from the start of the Odyssey event on June 21 to the end of the first week's tasks, Arbitrum added 207,000 new addresses, and on June 27, the number of new addresses in a single day reached 55,000.

After the Odyssey event, Arbitrum continued to make technical advances, constantly launching innovative mechanism projects in its ecosystem, which attracted significant attention during the small bull market at the end of January. Currently, the average monthly active addresses for Arbitrum from October 2022 to January 2023 is 608,000, an increase of 51.2% compared to September.

Popular Project Analysis

In the past two months, native ecological projects on Arbitrum have gained attention from the entire cryptocurrency market. The market capitalization of these projects still has a certain gap compared to similar projects on other public chains, remaining in an undervalued state. With the issuance of Arbitrum's tokens and future development, they all have significant room for improvement.

DeFi type

On Arbitrum, there are well-known projects with multi-chain deployments such as Uniswap and AAVE, as well as native projects that have shown astonishing explosive power, such as the perpetual contract exchange GMX and the yield aggregator Jones DAO.

GMX

GMX is a decentralized perpetual contract exchange that allows users to trade ETH, BTC, LINK, and UNI perpetual contracts with up to 30x leverage on a decentralized platform. GMX's TVL has reached $543 million, accounting for 31.46% of the total TVL of all DeFi protocols on Arbitrum. The protocol has generated $33.9 million in revenue over the past year, making the GMX token one of the best-performing assets of 2022.

Camelot

Camelot, as the native DEX of Arbitrum, completed its token sale in December 2022. It is a DEX of the Uniswap V2 + Curve type, adding features such as a Launchpad, customizable trading fees, and the combination of LPs with NFTs.

RDNT

RDNT is a lending protocol on Arbitrum with two innovations: multi-chain lending using LayerZero and circular lending (currently unavailable). It is currently the leader on Arbitrum, with a TVL exceeding the Arb version of AAVE V3.

Game category

Arbitrum has a rapidly growing GameFi ecosystem, especially three popular projects: Treasure DAO, The Beacon, and Trident DAO.

Treasure DAO

Treasure aims to build a "decentralized Nintendo", a series of on-chain games interconnected through in-game asset interoperability and the native token MAGIC.

Trident DAO

Trident has proposed a sustainable GameFi economic model called "Risk To Earn," which has attracted the attention of players and the community. Its official Token PSI will be used for various game features in future versions.

Future Development

The success of Arbitrum indicates that the Layer 2 track may become the starting point of the next bull market. In the future, the Arbitrum project will continue to develop in three areas:

1. Technology upgrades: including continued reduction of fees, increased TPS, decentralized ordering, and permissionless proof validation.

2. Ecosystem Support: In addition to the existing DeFi, cross-chain, and gaming applications, there may be more social and NFT projects deployed on this platform in the future. At the same time, Arbitrum Nova chain is expected to gain more applications, solidifying Arbitrum's position in the gaming sector.

3. Economic Model: The launch of the token is crucial for the long-term success of Arbitrum, including the token distribution plan, airdrops, incentive ecosystem plans, and governance plans. A good economic model will help Arbitrum develop in a more positive direction, attracting users and developers.

In summary, 2023 is expected to be a year of continuous explosion for Arbitrum. It may continue to advance the Odyssey project, strengthen existing DeFi and gaming projects, while launching characteristic social and NFT projects. In addition, the long-awaited token issuance may also be realized this year, bringing rewards to users and protocols. Finally, the actual activation of the Nova chain and protocol deployment will also bring new development opportunities for Arbitrum.