Arbitrum's Journey to 200 Million Transactions: A Look at the Future of DeFi

Arbitrum Achieves New Milestone

As a new milestone, Arbitrum has crossed 200 million transactions on April 21 after its official launch in August 2021.

Upon its launch, Arbitrum has already attracted more than $6.37 billion in DeFi assets.

Arbitrum is an open-source cryptocurrency platform created by Offchain Labs. As part of its Series B funding round, the company raised $120 million in September 2021.

As a Layer 2 solution, Arbitrum brings scalability and affordability to the Ethereum network. Due to Ethereum's increasing congestion, developers and users need a place to deploy and use protocols at affordable rates.

Arbitrum, by definition, is an Optimistic Rollup, a term that needs to be unpacked before it can be fully understood. Optimistic rollups like Arbitrum aim to scale Ethereum using Layer 2 solutions. As a user of Arbitrum, your transactions are constantly recorded on the Ethereum network as call data, meaning you are constantly interacting with the Ethereum network as you transact.

Arbitrum is inexpensive, quick to use, and relays all transaction information back to Ethereum's main blockchain. Arbitrum manages 40,000 transactions per second, compared with Ethereum's 14 TPS. Further, the cost of completing a transaction on Ethereum is several dollars, while it costs about two cents on Arbitrum.

The layer-2 network is fully compatible with Ethereum, so any Dapp based on Ethereum can be run on Arbitrum. Furthermore, due to its base on Ethereum, Arbitrum enjoys all of the security benefits associated with this network. Thus, Arbitrum has the same level of security as Ethereum.

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Recent Events With Arbitrum

Arbitrum airdropped its new $ARB token on March 23, 2023, allowing holders to vote on protocol decisions. By doing so, Arbitrum became a Decentralized Autonomous Organization (DAO).

However, the Arbitrum community recently encountered issues with its governance proposal AIP-1. Arbitrum Foundation reportedly sold $ARB tokens for stablecoins ahead of community ratification, affecting decentralized governance. The foundation noted that 10 million $ARB ($11.8 million) had been converted into fiat to cover operational costs. AIP-1 has been rejected by over 76% of $ARB tokens.

In response, Arbitrum brought out a new proposal, AIP-1.05, which proposed returning 700 million $ARB governance tokens to the DAO Treasury. However, the new proposal was also rejected by the community.

Above that, Arbitrum is still the top layer-2 network, followed by Optimism and dYdX. There are several decentralized finance protocols that have integrated Arbitrum, including $GMX, Radiant, Uniswap and SushiSwap, and Curve. DeFiLlama data shows that out of the $6.37 billion worth of cryptocurrency that locked up within Arbitrum's smart contracts, 29% comes from $GMX, a decentralized spot, and perpetual exchange.

Ethereum-based decentralized finance is slowly migrating to Layer 2 solutions and side chains, and Arbitrum is no different. As the DeFi ecosystem continues to grow and mature, it's clear that Layer 2 solutions and side chains like Arbitrum will play a vital role in enabling more users to access the benefits of decentralized finance.