Why Is Arbitrum The Most Popular L2 Scaling Solution?
Read in 6 mins
In this Blockcrunch episode, A.J Warner, Chief Strategy Officer at Offchain Labs joins Jason Choi to share the Roll up landscape of Arbitrum and its path towards decentralization.
Read our notes below to learn.
Introduction to Arbitrum
Arbitrum is a scaling solution on Ethereum that leverages optimistic roll-ups.
Arbitrum One, which is the flagship roll-up is now the number one Layer 2 in terms of value lock.
Arbitrum One owns more than 50% of the entire market value lock.
According to Dune, Arbitrum has over 2 million active accounts.
Arbitrum is now home to popular applications like DEX GMX and also GameFi project TreasureDAO.
Opensea announced last year that they will support Arbitrum NFTs.
Roll-Up Landscape Now vs A year A Go
A.J
In the 2021 bull market, there was a lot of opportunity in alternative Layer 1s.
The Ethereum base layer is extremely expensive since it is a bull market.
People were looking outside of Ethereum for alternative EVM chains.
As Arbitrum matured, throughput increased and costs have gone down they have seen a little bit of a return.
They are seeing a lot of folks believing that Ethereum is the mode to use.
Arbitrum had significant growth from a throughput perspective.
Arbitrum can do 10x capacity before it hits any congestion.
The cost of using Arbitrum has fallen by over 70%.
Arbitrum One Gas Fees vs Ethereum
Arbitrum One has two digital gas: Layer 2 resources and Call data cost.
Layer 2 resources mean how much bandwidth taking on the network.
Call data cost means how much data is required to post to Ethereum for the transaction to be recorded.
If you want to do a swap in Arbitrum the fee is $0.20 while in Ethereum it is around $7.
To do a transaction in Arbitrum it will cost less than $0.10 while in Ethereum it is $1.50.
Arbitrum is a hundred times cheaper compared to Ethereum.
Arbitrum Nova; Arbitrum Chain for Social Game
Arbitrum Nova and Arbitrum One share the exact same code base.
The only distinction is whereas Arbitrum One puts all transaction data on Ethereum all the time, Nova makes use of a data availability committee.
A Nova chain is technically superior to a side chain since it has a lot of functionality that people want in a roll-up environment.
Every application has to make a trade-off in some capacity between security, throughput, and decentralization.
They encourage every game to launch on Nova.
In the gaming vertical the teams are abstracting gas fees from their users.
Since Nova doesn’t post-call data to Ethereum it doesn’t have those gas spikes.
Trade-Offs of Arbitrum One and Nova
When they build Nova, they try to get a wide and robust set of community actors.
Regardless of who is the set of community actors, they should be able to have confidence and trust that one member of that committee.
The committees are Off-chain Labs, Google cloud, Reddit, Consensus, OpenSea, etc.
The ability to say that they only have to trust one member versus a cartel of members where you can lose the supermajority honesty assumption is a much better technical design.
As long as there is one person that they can trust, the role of that person in the ecosystem has not been diminished.
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Apps Verticalizing into their own app roll-ups
Blur (an NFT marketplace gaining popularity) dropped on L1 which caused the price of using L1 to increase.
Public chains are going to continue to try as much as throughput they can.
Stylus is a technical upgrade that Offchain Labs announced last week.
Further improvements in inefficient can be seen.
Some of its competitors of Arbitrum are more focused on multiple public environments.
There will be applications that are successful enough and don’t have many dependencies that will move to their own application-specific environments.
Partnership with Reddit & Social Use-Cases
In July 2020, Reddit put out a request for proposals from different scaling solutions.
Reddit wants to bring its community coins on the chain.
When the Nova chain was launched, Reddit migrated that day.
Moon token is doing cool things.
Nova chain is branded as social and gaming use cases
Arbitrum One is going to be the hub of liquidity because it is a roll-up.
Arbitrum Stylus & Team
When they launched the original version of Arbitrum, six days later they commit to the Nitro codebase
Stylus will enable to use of more than EVM-based languages like Solidity and Viper.
One of the philosophical components of the Arbitrum team is that they are open-minded to technology.
Arbitrum is EVM equivalent.
EVM should be the floor and not the ceiling.
The Arbitrum team always looks for the things they can improve and find solutions for.
Arbitrum vs Optimism
Optimism and Arbitrum appreciate the importance of EVM compatibility.
ZK tech cannot just add those languages.
Optimism is using MIPS.
Arbitrum converged on the floor to identify what might be necessary for the ecosystem's growth and adoption.
Arbitrum is using a data availability committee.
Value Accrual Across Different Blockchain Layers
Ethereum as a business is incredible.
The ecosystem as a whole is still incredibly small.
Narratives, business models, and economics will change.
Some projects will be focused on value accrual.
There will be a convergence in focussing on sustainability and understanding each component in a blockchain.
Path Towards Decentralization
They are very close to achieving permissionless validation.
A major European Institution reached out to the team and said that they wanted to run Arbitrum validators.
The whitelist is designed to understand the running validators and is not intended to be limited in scope.
The sequencer’s role is very limited.
Optimism vs ZK Roll-Ups
ZK solves the seven-day withdrawal period.
If users are moving between different chains, the seven-day withdrawal is irrelevant.
Everyone is using a third-party bridge to go cross-chain.
The main problem between Optimistic roll-ups and ZK roll-ups is diminished every day.
One of the limitations of ZK roll-up is approver cost.
It is much easier for Optimistic roll-up to add programmer languages.
Scalability is more than throughput and fees but the environment.
Optimistic roll-up today is the best technology.
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