What is Arbitrum? Everything you need to know about the project

Main

• Arbitrum is a second layer (L2) solution for the Ethereum network developed by the American company Offchain Labs. The project aims to increase the speed and scalability of the underlying blockchain.
• Arbitrum uses the concept of Optimistic Rollups, allowing developers to easily run smart contracts and Ethereum decentralized applications with lower transfer fees and increased throughput without any changes.
• In the first half of 2022, Arbitrum became the leading L2 solution for Ethereum in terms of transactions, applications, and TVL.

Who created Arbitrum?

Arbitrum’s L2 solution was developed by an American company Offchain Labscreated 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.

What are the features of Arbitrum and what are Optimistic Rollups?

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. 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 term “optimistic” is a reference to the principle that any transaction is “optimistically” considered genuine until proven otherwise. This concept was developed for a competing L2 network called Optimism. However, Arbitrum developers have improved the technology by introducing multi-stage anti-fraud protection, which consumes significantly less gas than one-stage protection in Optimism.

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.

Unlike other L2 networks, Arbitrum does not have native token. Representatives of Offchain Labs did not announce specific plans for its release. In August 2021, Ed Felten, in an interview, said that in the future, the management of the network may be transferred to the DAO, which involves the issuance of a governance token. This statement supports the hope of the crypto community for the distribution of tokens to early adopters, similar to what happened in early June 2022 on the Optimism network.

How does Arbitrum work?

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 defensive and sentinel validators have 8 days to challenge the block, the same period takes the withdrawal of assets by native bridge from Arbitrum to Ethereum.

What is included in the Arbitrum ecosystem?

As of early July 2022 based on Arbitrum work already more than 200 blockchain projects. Among them:

• the largest DeFi protocols are Uniswap, SushiSwap, Curve and 1inch;
• reserve and algorithmic stablecoins USDT, USDC, DAI, FRAX, TUSD, etc.;
• original services such as perpetual contract trading platform GMX and landing service dForce;
• yield aggregators yEarn Finance, Pickle Finance, Badger, Beefy Finance;
• NFT marketplaces Lootex, Stratos, ToFunFT, etc.

The Arbitrum network is supported by many Web3 wallets – MetaMask, Trust Wallet, MathWallet and others. In the first half of 2022, the largest centralized crypto exchanges, including Binance, OKX, Gate.io, KuCoin, FTX, etc., announced support for the Arbitrum network and the possibility of withdrawing ETH and a number of stablecoins to it. In addition, more than 20 cross-chain bridges work with Arbitrum, including Multichain, Hop Exchange, Stargate, Across and others.

How is Arbitrum developing?

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.

In June 2022, to popularize the Arbitrum One L2 network and attract users, they launched the 8-week Arbitrum Odyssey program. It includes eight stages, each of which focuses on a specific aspect of the Arbitrum ecosystem.

More than 140 thousand users took part in the first and second stages, causing network congestion and an increase in transaction fees. Users who complete the tasks of each stage are rewarded with special NFTs from the service Project Galaxy. According to the terms of the competition, upon receiving 12 tokens, the participant also receives another NFT, the purpose of which is not yet known. Only those who have fulfilled all the conditions of the first stage can participate in Arbitrum Odyssey.

In the near future, they plan to release the Arbitrum Nitro update, which will further reduce transaction fees and increase network bandwidth. The essence of the update is that for large projects on the network, for example, for blockchain games, AnyTrust chains will be deployed, which will be managed by a “committee” of 20 validators and should become a faster and cheaper analogue of side chains.