ARBITRUM- Is the Best layer-2 Scaling solution for Ethereum?
Arbitrum is a layer 2 (L2) scaling solution built on the Ethereum blockchain. It was launched by Offchain Labs on August 31, 2021, and they have raised $120 million in a series B funding. The native coin of Arbitrum is ARB, a governance token. Due to a surge in the last 24 hours, the current value of ARB rose to $1.19 at the time of writing.
What is Arbitrum?
It is a scaling layer 2 solution to enhance the capabilities of the Ethereum blockchain using optimistic rollups (off-chain computation). It helps to boost speed, scalability, and cost-efficiency without compromising on privacy. Developers can build decentralized apps (dapps) on this layer 2 protocol by taking advantage of the Arbitrum rollup and Anytrust protocols.
Arbitrum launched its flagship chain Arbitrum One in 2021 and later upgraded to the Arbitrum Nitro stack in 2022. It also launched Arbitrum Nova using the Anytrust chain to process low-cost transactions and support Dapps for gaming. Arbitrum Nova is more centralized than Abitrum One.
The Arbitrum ecosystem consists of Derivatives, DeFi, DEX, Lending protocols, and the NFT marketplace.The prominent players include Uniswap, Chainlink, Aave, MakerDAO, and Coinbase.There are over 80+ Dapps on the Arbitrum ecosystem.
Arbitrum has launched its own DEX called Arbiswap which is Game-Fi optimized that helps users to trade and earn popular game projects on Arbitrum.
Decentralized exchanges that run on Arbitrum are:
- Sushiswap
- GMX
- Curve
- Uniswap
- Balancer
What is an Arbitrum DAO?
Arbitrum fundation is shifted to a Decentralized Autonomous Organization (DAO) structure- the Arbitrum DAO (a decision-making authority). The ARB token holders will have voting power to impact the decisions including funds allocation, features, protocol upgrades, and the election of the security council.
The security council consists of 12 members, elected by the members of the Arbitrum DAO. The primary responsibility of the security council is to address critical risks encountered in the Arbitrum ecosystem.11.62% of the tokens will be initially distributed to the users and 1.13% will be distributed to the DAOs.
Delegates are a type of users who are involved in the governance of the ecosystem. Token holders can select a delegate on their behalf to participate in the governance.
Airdrops were announced for early users on March 16, 2023, and stage 0.5 starts from March 31 till April 4. To participate in Airdrop, you have to complete the verification process and start collecting Arbeggs by completing social tasks posted on Discord.
Why do we need Arbitrum?
The Ethereum blockchain can conduct only a certain number of transactions per second. Due to the heavy load of transactions and the increasing number of people every day, the users compete with each other for their transactions to be recorded after the limit is reached and thus causing an increase in gas fees and low transaction speed. This created a need for scaling solutions.
Arbitrum helps to overcome shortcomings and enhance high transaction speed and transaction throughput (high transactions per second). Arbitrum is secured by the Ethereum mainnet and is capable of handling EVM- compatible smart contracts.
Ethereum uses a proof-of-stake mechanism to conduct transactions using nodes and each node has to process every transaction. By using Arbitrum, we don’t require the Ethereum node to perform every Arbitrum transaction as the Optimistic Rollups process transactions and send the result back to Ethereum for final inclusion in the main chain.
Arbitrum uses multiple-round fraud proofs. The other validators can issue a challenge if they feel that the transaction is incorrect and if they are proven wrong, their stake is seized to ensure the validators play fair.
Features of Arbitrum include:
- Scalability
- High EVM Compatibility
- Flexibility
- Decentralization
- Faster transaction and low gas fees
- Interoperability
Latest Arbitrum news in a nutshell
On April 2, 2023: Arbitrum foundation had to take a back step on the governance voting system following community backlash from the token holders (78%) that sparked controversy. The foundation tweeted that its first governance proposal AIP-1 will not be passed as a result of the feedback received from the community.
The API-1( ratification) proposed to allocate 750M ARB tokens for Admin, and op costs that were opposed by the token holders and there was also news spreading that $50M was already utilized.
Following the criticism, Arbitrum Foundation tweeted that they did not sell $50M tokens as rumored. Out of $50M ARB tokens, $40M has been allocated as a loan to a sophisticated actor in the financial marketplace and the remaining $10M has been converted to fiat and used for operational costs.
