Home Substantial portion Arbitrum’s Story – Here’s This Ethereum Scaling Solution From A to Z

Arbitrum’s Story – Here’s This Ethereum Scaling Solution From A to Z

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Blockchain projects, for the most part, are validated by people in the community for their vision and ambition. Even though scalability, decentralization, and security remain the backbone of this technology, it is quite difficult to keep all of the aforementioned core features together.

Well, problems are always disguised as opportunities, aren’t they? Over time, the crypto-space has been able to come up with a diverse range of Layer 1 and Layer 2 solutions to address this main hurdle.

Ethereum, arguably, remains the go-to blockchain network for creating and executing smart contracts. With adoption increasing sharply over the years, it remains afflicted with network congestion and sometimes high fees. Speed ​​and scalability also play a big role in spoiling things. But, the network has already come up with an internal remedy for the same.

The 2.0 upgrade offered by Ethereum aims to improve the speed, efficiency and scalability of the network. 2.0 is, without a doubt, a step in the right direction for Ethereum, but there is still time for it to go live on the mainnet. In the meantime, other solution providers like Arbitrum are helping Ethereum connect the three dots.

Wait… What is Arbitrum?

Arbitrum is essentially an L2 solution designed to enhance the capabilities of Ethereum smart contracts. It does this by adding additional privacy features and increasing their speed and scalability. The platform is designed to allow developers to execute unmodified EVM contracts and Ethereum transactions on a second layer and benefit from Ethereum’s L1 security at the same time.

Launched on the mainnet less than three weeks ago, Arbitrum is already breaking records. With each passing day, the total value locked up on the platform has only skyrocketed. In the last week alone, for example, TVL has grown exponentially by over 2000%.

In addition, Arbitrum has counted 73.75% of the cumulative $ 3 billion locked to Ethereum’s Layer 2 network, at the time of publication. The decentralized second layer dYdX exchange was right behind Arbitrum in the queue and represented 10.89%.

Source: l2beat.com

Mega downpour of liquidity

During the early days, a fair share of the capital flowing to the L2 platform seemed to come from the so-called “Ethereum Killers”. For example, James Spediacci of Blockchain Investor, September 12, Underline that as Arbitrum’s TVL increased, the locked-in value on the Solana, Fantom and Harmony bridges plunged 58%, 36% and 62%, respectively.

In fact, Spediacci categorically stated,

“Arbitrum (Ethereum Layer 2) is Solana’s killer.”

However, on September 17, things seemed to have changed. The value locked in on the aforementioned three platforms managed to recover from the decline. In fact, according to data from Dune Analytics, they had all climbed a notch higher in the rankings.

Here it should be noted that almost all of the bridges have made their presence felt in the ecosystem within a very short period of time. Solana’s Wormhole, to begin with, was only launched in August but has already managed to secure a position in the top 5.

Now, that clearly highlights the competitive L2 environment that Arbitrum has entered into.

Source: Dune Analytics

Yield hunters who rushed to invest in the network’s first agricultural dApps also contributed significantly to Arbitrum’s TVL exponentially. Take the case of ArbiNYAN, for example.

The aforementioned Yield Farming platform has attracted investors by offering them an extremely high yield for staking its native token. The euphoria was nonetheless momentary. NYAN ended up losing over 90% of its value in the early hours of September 12.

According to data from Defined, the token was at its peak of $ 7.8 around 6:30 a.m., but was only valued at just $ 0.8 exactly 24 hours later.

Moreover, the fall did not stop there. The USD / NYAN pair was valued at just $ 0.4 at the time of writing. Due to the free fall in prices, the amount stuck on ArbiNYAN dropped from $ 1.6 billion to $ 38.6 million in just a few days.

Source: DeFiLlama

Wavey, a pseudonymous DeFi farmer, took to Twitter to highlight how the sudden withdrawal of Ether worth over $ 640 million from one of Curve’s pools created a slip arbitrage opportunity. As such, the aforementioned pool had 525.4k ETH when the NYAN farm was launched.

However, right after the crash, the pool only had 331.2,000 tokens, highlighting the instantaneous migration of cash to Arbitrum.

Additionally, rumors of a potential token drop have also been successful in generating excitement and additional cash on the platform. However, it should be noted that Arbitrum does not have its own native token.

Leaving aside the aforementioned factors, a substantial part of TVL’s growth has been quite organic and, in retrospect, a host of new people have been testing the waters of Arbitrum lately.

S2C – Speed, size, cost

Overall, Arbitrum’s transaction fees remain quite low compared to Ethereum. This is because when the speed limit is increased, the charge has the possibility of reducing even more.

However, it should be noted that Arbitrum is not yet operating at full capacity. Transaction speed will only come into play when there is more demand than capacity.

Consider This – As Arbitrum’s adoption rate increases further, congestion will also increase in parallel. In hindsight, the platform’s gas price would inevitably increase using the EIP-1559 gas auction mechanism. It is only at such a stage where the speed is increased that the costs would eventually drop.

In fact, one of the Smart Content authors pointed out the same thing in a recent Twitter thread. He affirmed,

“Arbitrum’s speed limit is currently set to match Ethereum’s throughput and will increase over time as the chain is tested in production more… Super bullish on Arbitrum and Rollups.”

People who use the platform at this point have virtually no complaints when it comes to fees and speed.

Source: l2fees.info

Achilles’ heel

The crypto-space has undoubtedly welcomed Arbitrum warmly. Despite the hype and the hype, it should be remembered that the solution is still in its infancy and is quite prone to snags. For example, the platform experienced a breakdown quite recently and, in essence, the block validation process has been hampered.

Additionally, from stable trading to launch pads and stablecoin support, Arbitrum is still faded away some key primitives. Over time, the gaps would eventually close. Until then, the platform would remain exposed to unadorned competition from pre-existing solution providers.

Then, while being completely decentralized has always been part of Arbitrum’s plan, it’s worth noting that it’s not there yet. The team [Offchain Labs] currently has a fair share of control over the network and has taken an approach quite congruent with that of other scaling solutions like Polygon and Optimism.

However, Arbitrum has the ability to maintain scalability, and that’s an added benefit every day. In addition, the solution’s fluid compatibility with dApps [that are designed to run on Ethereum] has the potential to act as its asset.

The Fallacy of the Fixed Pie

Well, people unaware of crypto subliminally assume that the L2 playing field is a fixed pie and the more slices there are. [adoption] a particular solution gets the least are left for the rest. Much of the logical error stems from the misconception that the success of one particular platform will come at the expense of others.

Duhhh, there is no fixed pie per se!

The launch of Arbitrum is a testament to how new roll-ups can storm the market. In the coming months, like more solutions to live, the space would become even more avant-garde. The market must therefore be prepared accordingly. Users, in the end, would face a good [selection] headache.

On the backs of the L2s, decentralization would emerge victorious.



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