Arbitrum is a crypto ecosystem best known for Arbitrum One, a leading Layer 2 (L2) network created as a scaling solution for Ethereum that now boasts over 19 billion in TVL (total value locked), making it the biggest L2 by far with a market share of 40%, followed by Base with 16%. 

As with other scaling solutions, Arbitrum aims to improve transaction speed and gas fee costs without compromising security. Over one billion transactions have been processed so far across Arbitrum One and Arbitrum Nova chains, and gas costs have been reduced to around $0.02 per transaction since the Ethereum Dencun blobspace upgrade.

More than just an extension of Ethereum, Arbitrum features its own innovative applications and infrastructure. This blog dives into what Arbitrum is, its background, the technology, recent onchain metrics, and more. 

What is Arbitrum?

Ethereum's quick rise to popularity introduced congestion issues, uncovering the need for scaling solutions that could offload the bulk of computation to a secondary chain. In 2021, Arbitrum launched as a way for Ethereum users to continue to benefit from Ethereum’s security while reducing friction, for a more efficient experience. 

What most people mean when they say Arbitrum is Arbitrum One, the Layer-2 Optimistic Rollup which increases scalability by processing transactions offchain and bundling them together. By bundling only the essential data resulting from a computation, data requirements and overall costs are significantly reduced. These bundles are submitted to the Ethereum mainnet to be embedded in the blockchain, where they become as immutable as a regular Ethereum transaction.

Today, Arbitrum is more than a single chain. It has become a powerful suite of scaling solutions that includes Arbitrum One, Arbitrum Nova, and Arbitrum Orbit. Building on the success of the original Arbitrum chain, the Arbitrum stack was upgraded to Arbitrum Nitro in 2022, expanding the ecosystem with two new chains, Arbitrum One, replacing the L2 rollup, and Arbitrum Nova, a high-performance AnyTrust chain. Arbitrum Orbit launched at the end of 2023 as a platform that allows teams to launch specialized chains of their own.

What is Arbitrum (ARB) token?

Arbitrum launched its native governance token ARB in March 2023 as a way to further decentralize the project and put decision-making power in the hands of its users and investors.

Unlike some chain-specific tokens, ARB is not used to pay for transaction costs. It is a token that grants holders the ability to vote on changes to how the network operates and how its funds are used. 

ARB token was distributed through an airdrop where users who met certain criteria were eligible to claim a share tokens. The airdrop was designed to reward early adopters while aiming to boost decentralization.

Introducing the Arbitrum ecosystem

The Arbitrum ecosystem has grown to include several networks, each serving different purposes:

Arbitrum One

Arbitrum One is the primary Layer 2 network built as an Optimistic Rollup. It offers high throughput, low fees, and full compatibility with the Ethereum Virtual Machine (EVM). It is designed to be used to run decentralized applications (dApps) and smart contracts that require scalability and efficiency. 

Arbitrum One is the chain that most people refer to when they mention Arbitrum. You can trade on Abritrum One using Matcha for fast and efficient trading across multiple exchanges.

Trade on Arbitrum with Matcha!

Arbitrum Nova

Arbitrum Nova is an AnyTrust chain, a Layer 2 network designed for applications that require ultra-low transaction fees and high scalability, such as games and social platforms. It relies on a Data Availability Committee to store and surface data for settlement on Ethereum, where at least two members of the committee are assumed to be honest. 

AnyTrust makes additional trust assumptions in exchange for greater performance and affordability. Part of what Arbitrum One and Nova have in common is that both are built using the Nitro technology stack. As a more specialized chain, Arbitrum Nova isn’t as widely used as Arbitrum One and has just a 0.12% market share across L2s. 

Arbitrum Orbit

Arbitrum Orbit is a product that lets external teams launch customized chains that leverage the Nitro stack, either as a rollup or as an AnyTrust chain. It ensures high resource availability and EVM compatibility, allowing developers to launch their own high-performance chains as independent L2s settling on Ethereum or Layer-3 chains (L3s) settling on Arbitrum. 

An example of an Arbitrum L3 gaming-specific chain is Xai, developed by Offchain labs. Another notable example of an L3 network built using Arbitrum Orbit is Degen Chain, which launched in March 2024 and saw over $50 million in bridged volume in its first week. As covered in our blog What is Layer3?, Degen chain aims to enable low-cost onchain applications and experiences like gaming by leveraging the scalability benefits of L3. 

Beyond gaming, L3s could open up new possibilities for onchain microtransactions, data integrity assurances, and specialized blockchain functionality optimized for specific use cases that current L2s cannot provide cost-effectively. The emergence of user-friendly tooling like Arbitrum Orbit's "rollup as a service" model may spur further innovation and adoption of these vertically scaled L3 networks.

The technology behind Arbitrum One

As an Ethereum Layer 2 scaling solution based on Optimistic Rollups, Arbitrum assumes that all transaction data in the rollup is valid, enabling faster and cheaper transactions. Being optimistic allows Arbitrum's transactions to be proposed faster, with confirmation or disputes over validity occurring at a later stage. Optimistic Rollups are different from the more deterministic model of zero-knowledge (ZK) rollups, which cryptographically verify blocks before being published to the mainchain (Ethereum).  

Since Arbitrum retains Ethereum’s security and is fully EVM compatible, you can use Arbitrum networks simply by bridging your ETH over. Bridging from Arbitrum to Ethereum is also possible thanks to EVM compatibility, but a waiting period is enforced to allow time for any invalid transactions to be disputed, making bridging out of Arbitrum much slower. 

Unlike many other Layer 2 solutions, Arbitrum uses Ethereum (ETH) as its native token for transaction fees rather than introducing a new token. You don’t pay gas fees in ARB! As covered above, Arbitrum token (ARB) is a governance token that allows holders to participate in the protocol's decision-making through voting on proposals. 

The Arbitrum One Sequencer

The sequencer is a key component of the Arbitrum protocol responsible for ordering and batching incoming transactions to be executed on Ethereum. It implements a first-in-first-out queueing system, meaning transactions are ordered and processed in the exact sequence they were received. As transactions come in, the sequencer queues them up in this linear order.

However, rather than executing each transaction individually, the sequencer bundles or batches multiple transactions together for more efficient processing. This batching helps improve throughput and reduce costs by allowing many transactions to be executed and recorded on Ethereum in a single batch.

The sequencing and batching functions are needed to provide an orderly flow of transaction execution and recording on the Arbitrum rollup chain while leveraging Ethereum's security model. Currently, Offchain Labs centrally operates this process.

How to trade on Arbitrum

Trading on Arbitrum is similar to trading on Ethereum mainnet but with lower fees and faster transaction times. 

1. Enable Arbitrum in your wallet

To start, you will need a wallet that supports Arbitrum. You can use most crypto wallets, though some require you to manually add Arbitrum. 

If you use Metamask or another wallet that doesn’t automatically show Arbitrum in the list of supported networks, here's how to add Arbitrum One to your wallet.

1. Open your wallet extension and click on the Network icon.
2. Select Add Network and enter the following parameters:

‍

2. Bridge to Arbitrum 

To interact with dApps on Arbitrum, you'll need to first bridge assets from the Ethereum mainnet to the Arbitrum network. There are three main ways to do this:

Official Arbitrum Bridge: The official Arbitrum Bridge is an affordable way to transfer assets between Ethereum and Arbitrum. To use the official Arbitrum Bridge, follow these steps:

1. Visit the Arbitrum Bridge website.
2. Connect your Ethereum wallet.
3. Select the asset you want to bridge and the direction (Ethereum to Arbitrum or Arbitrum to Ethereum).
4. Enter the amount you want to bridge and confirm the transaction.

Note that withdrawals from Arbitrum to Ethereum have a 7-day withdrawal period for security reasons, allowing for invalid transactions to be disputed. 

Once you have bridged ETH to Arbitrum, you can then swap for the token you want in a second transaction. For direct swaps from one chain to the specific token you want, you can use a cross chain swap, which we cover below. 

Third-party bridges: If you are willing to pay more for convenience, you can use a third-party bridge which is designed to get you between chains faster and avoid the 7-day withdrawal period. They are able to circumvent the wait period by using their own funds on either side of the bridge, but this means they take on the risk that an invalid transaction may cause issues with the withdrawal and therefore they charge a significantly higher bridging fee. 

While there are popular and relatively safe third-party bridges, it is difficult to assess how secure any bridge chosen at random is and they may not have had their smart contracts audited, meaning there is increased risk that your funds will not make it to the other side. 

Use Cross-Chain Swaps: Offering the best of all options, cross-chain swaps are a powerful way to get directly to the token you want on any of 7 networks, including Arbitrum. A cross-chain swap lets you avoid the long waits for deposits or withdrawals, and you don’t need to bridge then swap in two separate transactions - you swap directly from the token you have to the token you want.

Better still, Matcha compares prices across multiple trusted bridges to get you the best price, and doesn’t add any fees on top!

To perform a cross-chain swap on Matcha:

1. Visit Matcha and connect your wallet.
2. Select the token you want to swap and the amount.
3. Choose a destination network such as Arbitrum and select the token you want to receive.
4. Review the transaction details, including the estimated gas fees, and confirm the swap.

Cross-chain swaps are faster and more convenient than the traditional bridging methods outlined above. Matcha compares all the options for you and lets you complete a trade across chains in one go!

3. Enjoy Matcha-powered trades on Arbitrum

Once you have bridged to Arbitrum, you can continue to swap tokens with Matcha. Enjoy the best prices from all across the ecosystem, in one place, by trading across 12 Arbitrum DEXs at once. Matcha will even route your trade to minimize price impact, and if you end up bridging to a token and don’t have gas to pay transaction fees, Matcha gasless swaps will let you continue trading uninterrupted. Get the best trading experience on Arbitrum and save money with Matcha.

Decentralized governance

ARB token holders can participate in governance of the Arbitrum DAO (Decentralized Autonomous Organization). Anyone with Arbitrum tokens in their wallet can exercise their voting rights on proposed changes to the Arbitrum network. Following a token-weighted DAO model, the amount of ARB tokens held determines the voting power of each participant. 

Arbitrum DAO employs a two-stage voting process. First, non-binding "temperature check" votes measure community interest in proposals. Then, for proposals that pass the temperature check, official binding votes take place onchain. ARB token holders can participate directly in these votes or delegate their voting power to other wallets if desired. 

Arbitrum's DAO is one of the most active in Web3, and proposals are discussed on the Arbitrum governance forum. Less engaged ARB owners can delegate their tokens’ voting power to other users, facilitating decentralized governance of the Arbitrum ecosystem even if they are unable or unwilling to take part directly.

How do you vote using the Arbitrum token?

If you own ARB tokens, you can participate in governance by voting for or against proposals or delegating your vote to another wallet. The DAO governance forum lists current and passed proposals. To signal your stance on a proposal in the temperature check stage, visit Snapshot and connect your wallet, open the proposal and scroll to the bottom, and choose how you would like to vote. If there is enough support, the actual vote will take place onchain.

To vote onchain, connect your wallet to Tally. You must have owned ARB tokens or have been delegated voting power before the vote takes place. Select a proposal and cast your vote using the Vote Onchain button and commit to the vote by signing with your wallet.

Relationship between Arbitrum DAO, the foundation, and the company 

Several separate entities are involved in the development and governance of the Arbitrum ecosystem:

Security Council: The Arbitrum DAO has a 12-member Security Council that acts as a failsafe to address critical risks and make time-sensitive decisions to protect the Arbitrum ecosystem. Council members are elected by ARB token holders through a democratic process held every six months, and each member serves a one-year term. To be eligible, candidates must be DAO members who hold a minimum amount of tokens. These elections allow the community to choose trusted experts who represent its values and interests on the Council.

Arbitrum DAO: The Arbitrum DAO is the core governance body for the Arbitrum ecosystem. It has a built-in treasury system to fund development.

Arbitrum Foundation: The Arbitrum Foundation is a non-profit organization established to support the development of the Arbitrum ecosystem and decentralized technologies. It was founded by the core team behind Offchain Labs. The Foundation's responsibilities include distributing ecosystem funds, supporting community initiatives, funding audits, and more.

Offchain Labs: Offchain Labs is the core development team and company behind Arbitrum. It was founded by Ed Felten, Steven Goldfeder, and Harry Kalodner and employs researchers and developers who build and maintain the Arbitrum technology stack. Offchain Labs originally created Arbitrum as a startup before transitioning to a decentralized model. The company continues R&D and open-source development funded by the DAO's treasury.

Arbitrum ecosystem and projects

The Arbitrum ecosystem is still growing, as evident in its increasing TVL and numerous decentralized applications (dApps), DAOs, and other projects being built on the network. Part of what drives these applications to build on Arbitrum is its Ethereum composability, large userbase, and rollup technology which has been battle-tested more than many other L2 network.

Some Arbitrum native projects include:

• Camelot: Camelot is an ecosystem-focused and community-driven AMM for Arbitrum.
• Treasure: A gaming-focused DAO running on a L2 blockchain powered by Arbitrum Orbit.
• Degen chain: A layer-3 network built on Arbitrum Orbit. 

Various other projects focused on infrastructure, DeFi, real-world assets (RWA), and more are actively being built on Arbitrum, contributing to the growth of the Arbitrum network.

What is next for Arbitrum?

Arbitrum has established itself as a leading Layer 2 scaling solution for Ethereum, attracting significant capital and a rapidly growing ecosystem of dApps, DAOs, and other projects. Its Optimistic Rollups, Ethereum compatible ecosystem, and low transaction fees, has made it an attractive platform for developers and users alike.

Moving forward, Arbitrum's focus is on continuing to enhance scalability, security, and decentralization. Tally’s Arbitrum roadmap reveals work to expand support for the Arbitrum DAO, with improvements planned for the proposal process, upgrading Governor contracts, and publishing research on partial delegation and shielded voting. 

Furthermore, as Arbitrum remains the most popular L2 and has great scalability tooling, the ecosystem is set to continue its growth trajectory, with more innovative projects and use cases emerging across Arbitrum One, Orbit, and Nova. As Arbitrum continues to expand and evolve, search, trade and stay on top of all Arbitrum has to offer with Matcha!