In-Depth Analysis of Ethereum Layer 2 Scaling Solution Arbitrum

Arbitrum is an Ethereum layer 2 scaling solution developed by the Offchain Labs team based on Optimistic Rollup technology. It significantly enhances transaction speed and reduces costs by moving transaction processing off-chain and submitting the compressed results to the Ethereum mainnet.

1. Technical Features

Arbitrum uses a multi-round fraud proof mechanism to verify transaction validity. Compared to Optimism, which only requires one interaction to determine the result, Arbitrum divides the fraud proof into several steps, only needing to prove that a certain instruction was executed abnormally. This approach reduces the gas required for a single challenge and improves efficiency.

In addition, Arbitrum has stronger compatibility with EVM, and existing projects can migrate without major code modifications. However, the multi-step transaction mechanism may also bring certain security risks.

2. Market Position

Currently, Arbitrum is the largest project in terms of TVL in the Ethereum Layer 2 scaling solutions, reaching 3.85 billion USD, accounting for 3.63% of all networks. In L2, the TVL share is as high as 55.97%.

In March 2023, Arbitrum launched the governance token ARB, with an initial total supply of 10 billion tokens and a maximum annual inflation of 2%. 11.62% is allocated for airdrops to users, and 1.13% is allocated for airdrops to ecological projects.

3. Technical Upgrade

In 2022, Arbitrum underwent a series of technical upgrades:

• Launched Arbitrum Nova chain, based on AnyTrust technology, specifically designed for gaming and social applications.
• Arbitrum One upgraded to Nitro version, enhancing network speed and reducing transaction costs.
• Launched the Stylus programming environment, supporting the deployment of applications in multiple programming languages.

4. Ecological Development

Top DeFi protocols such as Uniswap, Sushiswap, and Curve have already been deployed on Arbitrum. The Odyssey event held in June 2022 lasted only a week but attracted a large number of user attention.

Currently, the number of monthly active addresses on Arbitrum exceeds 600,000, an increase of 51.2% compared to September last year. A number of high-quality native projects have emerged in the ecosystem, such as GMX, Camelot, RDNT, and so on.

5. Future Outlook

Arbitrum will continue to focus on the following areas in the future:

• Technical upgrade: further reduce fees, improve TPS, promote decentralization
• Ecological construction: developing new applications such as social networking and NFTs, fully utilizing the Nova chain.
• Economic model: reasonable allocation of tokens, design incentive schemes, improve governance mechanisms

Overall, Arbitrum is expected to maintain strong growth momentum in 2023 and continue to solidify its leading position in the L2 space.