Introduction to Arbitrum

Ethereum’s expensive gas fees have played a pivotal role in the 2021 crypto market. As adoption of NFTs and DeFi exploded, the network struggled to remain affordable, leading to huge demand for alternatives. As such, alternate layer 1 blockchains (such as Solana), have seen exponential growth in adoption and price during 2021.

Today we are going to explore another solution to scalability; layer 2 solutions. These enable the scaling of a layer 1 blockchain by allowing large numbers of transactions to be stored as one record.

The biggest category of these on Ethereum is optimistic rollups and the biggest of these is Aribtrum. We can use data providers, such as Nansen, to dive into exactly what on-chain activity is happening – helping us find opportunities before the rest of the market.

Total Value Locked of Ethereum Optimistic Rollups

Source: The Block: Value Locked of Ethereum Optimistic Rollups: 29/12/2021

Total value locked (TVL) represents the value of all cryptocurrency staked within an ecosystem. Currently TVL for Arbitrum is $1bn, meaning it has gained over 50% dominance of all optimistic rollups.

Transactions vs Ethereum

The number of transactions can be used as a metric to understand the adoption of a network.

Nansen.ai: 29/12/2021 – Arbitrum Users by Entity

• As shown by the dark blue bars, the adoption of Arbitrium spiked just after September peaking with transaction numbers over 20% of those on Ethereum.
• Since then this has continued to trend downwards and currently only represents around 2% of all transactions on the Ethereum blockchain.

Most Used Platforms On Arbitrum Over 7 Days

We can also use Nansen to explore the biggest protocols on Arbirtrum by number of users. Doing so allows us to dive deeper into the ecosystem and find out how we can start using it ourselves.

Nansen.ai: 29/12/2021 – Arbitrum Users by Entity

• The largest number of users are currently using platforms that have not yet been labeled by Nansen. This shows the amount of opportunity to get ahead of the market.
• Sushiswap is the largest known platform. This is a decentralized platform and allows you to trade and earn yield.
• Arbitrum itself is the second largest platform due to their bridge from Ethereum. Only 4,000 people have used the bridge this week with over 200,000 since launch.

Conclusion

Arbitrum represents a potential solution to Ethereum’s scaling problems, a narrative that made significant profits in 2021 through alternate layer 1s. Whilst data shows us that adoption has yet to lift off, the TVL indicates that it is one of the biggest solutions right now. As such we will be keeping a close eye on Nansen’s dashboards to find projects within the ecosystem that are gaining significant traction, before the rest of the market.

Next week, we still start diving deeper into alternate layer 1 blockchains, reviewing not only their adoption but exactly how much value is flowing into the ecosystem and the hottest projects that anyone exploring that layer 1 should check out.