The Arbitrum L2 solution or the Ethereum network was developed by Offchain Labs, an American company founded in 2018 in New York by Ed Felten, Steven Goldfeder and Harry Kalodner. All three are specialists in cryptography and blockchain technologies, Felten was a professor of computer science at Princeton University.
In 2019, Offchain Labs raised $3.7 million in seed investments. In the spring of 2021, before the launch of the alpha version of the Arbitrum network, the startup held a series A investment round, which resulted in $20 million.
The official launch of the Arbitrum One mainnet took place on August 31, 2021. At the same time, Offchain Labs announced that it had raised $120 million in a Series B round led by Lightspeed Venture Partners. Other notable investors include Polychain Capital, Ribbit Capital, Redpoint Ventures, Pantera Capital, Alameda Research, and Mark Cuban. After this round, the company received a valuation of $1.2 billion.
The low transaction speed and high fees in Ethereum led to the emergence of several projects at once, which were engaged in the development of solutions on top of the main network in order to increase its performance.
The Arbitrum network uses the Optimistic Rollups technology for this purpose. This technology combines the recording and deployment of transactions in batches (rollups) and the use of Proof of fraud to quickly verify transactions. Transaction processing takes place on the second layer network, while the main Ethereum network is responsible for the security layer. During processing in the L2 network, many transactions are combined into a compact block, which is included by validators in the main Ethereum network.
The Arbitrum network uses ETH to pay transaction fees, just like Ethereum. Transfers on the Arbitrum network are on average 90-95% cheaper than Ethereum, and there remains a lot of potential for further reductions in fees.
Arbitrum is deployed on the first (L1) and second (L2) levels. The EthBridge component, which is a set of smart contracts, operates on the Ethereum network and contains folders for incoming and outgoing transactions.
The transfer of transactions from L1 to L2 and vice versa is handled by its own virtual machine (Arbitrum Virtual Machine, AVM), which is fully compatible with the Ethereum virtual machine (EVM). AVM supports all EVM programming languages such as Vyper, Solidity, Flint, YUL+, LLLL, which greatly simplifies application development.
In the L2 network, the ArbOS operating system is responsible for executing smart contracts and processing transactions. It transmits transactions through the AVM to the outgoing transaction folder of the Rollup protocol for their further addition to the block, its confirmation and inclusion in the main Ethereum chain.
New blocks are approved by validators who receive transaction fees for this. The architecture of Arbitrum is designed so that one honest validator can approve a block, no matter how many malicious validators exist.Among the validator nodes, the roles are distributed as follows:
- active validator – stakes (places his ETH in a deposit smart contract) and offers new blocks to be added to the main Ethereum chain. If the proposed block is incorrect, the validator will forfeit the stake;
- defensive validator – monitors the work of the convolution protocol and intervenes in case of detection of incorrect blocks, offering its own block or placing a bet on the block of another validator;
- watchdog validator – only monitors the operation of the Rollup protocol without making a bet.
Due to the fact that the protective and watchdog validators have 8 days to challenge the block, the same period takes the withdrawal of assets through the native bridge from Arbitrum to Ethereum.
Today, the Arbitrum ecosystem includes more than 300 crypto projects. These include powerful DeFi protocols like SushiSwap, Uniswap, 1inch and Curve, stablecoins like USDT, USDC, TUSD, FRAX, DAI, Vesta Finance, Fluidity Money, perpetual contract trading platforms, yield aggregators like yEarn Finance, Pickle, Badger. , Beefy Finance, NFT marketplaces OpenSea, Lootex, Stratos, Trove, ToFunFT, etc.
Arbitrum supports many wallets – Coin98, MetaMask, Rainbow, Trust Wallet, Coinbase Wallet, MathWallet and others. More than 30 cross-chain bridges work with Arbitrum, including Carrier, Multichain, NerveNetwork, Hop Exchange, Angle Protocol, Stargate, Across and others.
The Arbitrum network is supported by about a dozen powerful centralized exchanges, including Binance, Coinbase, Kucoin, Bybit and others, which have already announced the listing of the native ARB token.
The project is currently transitioning to DAO, an autonomous system on the blockchain, which is controlled by program code and does not depend on the human factor.
After the distribution of all tokens, power will pass to the DAO. This decentralized autonomous organization will take ownership of the network and will be responsible for the development and expansion of the Arbitrum ecosystem. Arbitrum DAO decisions are self-executing, i.e. the DAO voting on network changes will directly have the authority to influence and enforce its decisions on the chain, without relying on an intermediary to enforce those decisions.
To ensure that the proposal is thoroughly discussed, voted on, and users have time to react to any future changes, the voting process will last at least 21-37 days before the proposal is implemented. Although DAO proposals cannot make changes to the protocol quickly, in emergency situations (for example, to fix a vulnerability) it may be necessary to act quickly.
For these reasons, the Arbitrum Foundation has also established the Arbitrum Security Council, a group of 12 high-level community representatives that will secure the network and be able to act quickly in the event of a security vulnerability. In urgent cases, the Arbitrum Security Council will be able to act quickly, but this will require the participation of 9 out of 12 members.The Council will be the Arbitrum's highest security governing body and is elected twice a year.
According to the Arbitrum Foundation, 10% of the total supply of the token will be allocated to the airdrop – while those who have been active on Arbitrum will receive more coins. Nansen, an analytics company, will help distribute ARB according to transaction volume, dApp usage, and time spent in the protocol. With a total supply of 10 billion and a currently unknown circulating volume, the value of each token could range from $0.1 to more than $1. Ultimately, the Arbitrum token will become the property of the community (about 56%).
A total of 10 billion ARB tokens will be issued. They will be distributed as follows:
- investors – 17.53%;
- individual wallets – 11.62%;
- team and advisors – 26.94%;
- DAO Treasury – 42.78%.
The Arbitrum Foundation and the DAO will be tasked with subsequently distributing additional community tokens. To speed up this process and ensure that the community remains well-represented at first, members of the Offchain Labs team have been instructed not to vote with their tokens, but are encouraged to delegate their tokens to community members. Thus, the community gets more power.
In addition, although unlocking for users and DAO will be available one week after receipt, all investor and team tokens are subject to a 4-year lock: the first unlock occurs after a year, with the subsequent extension of this process for the next 3 years.When issuing a token, the idea of the upcoming decentralization of Arbitrum is in the first place, and not just the desire for profit and the release of a token for the sake of a token.
1% of ARB's total supply is for Decentralized Autonomous Organizations (DAOs) that are part of the Arbitrum ecosystem, such as Jones DAO, Plutus DAO, Camelot Exchange and GMX. All of them will be rewarded in ARB tokens and then either leave them in the DAO treasury or use them as rewards for DeFi users. ARB will only be required to give holders voting rights in the DAO, and ETH will still be used to pay for transactions on the network.
Transferring control to the DAO is intended to allow Offchain Labs to focus more on attracting new developers and users. Therefore, whether there will be significant demand for a token that, apart from the right to vote, no longer provides any advantages, remains a big question.
Arbitrum One is not only the most popular L2 scaling solution for Ethereum, but also one of the top 10 decentralized networks in terms of TVL and the number of DeFi applications. Arbitrum is considered a serious competitor for Tier 1 solutions and could take a large share of the market from networks such as Solana, Polygon and Avalanche.
