Arbitrum is a suite of Ethereum scaling solutions powered by the ARB token that enable high-throughput, low-cost smart contracts while remaining fast and secure. The platform is designed to allow developers to easily run unmodified Ethereum Virtual Machine (EVM) contracts and Ethereum transactions on a second layer, while still benefiting from Ethereum's excellent layer 1 security.^[1][2] Arbitrum is governed by the Arbitrum DAO.

In January 2019, Arbitrum raised $3.8 million through seed funding and also $20 million series A. In 2021, they raised $120 million through a Series B, which was led by the Lightspeed Venture Partners fund.^[3]

In May 2021, Off-chain Labs launched the mainnet beta of Arbitrum One, but only to developers, with over 300+ dApps deployed & over $1 billion in TVL.

In June 2022, Arbitrum Odyssey, an 8-week program, was launched to popularize and attract users to the L2-network Arbitrum One. It is divided into eight stages, each of which is dedicated to a different aspect of the Arbitrum ecosystem.^[7]

Overview

Arbitrum is a trustless layer 2 protocol for cheap, fast transactions with full Ethereum smart contract functionality. It utilizes the transaction roll-up technique to record batches of submitted transactions on the Ethereum main chain and execute them on low-cost, scalable layer 2 sidechains while leveraging Ethereum to ensure correct results. This process eradicates much of Ethereum's current computational and storage burden while enabling new classes of powerful layer 2-based DApps.

Arbitrum's goal is to provide developers with an easy-to-use platform for launching highly efficient and scalable Ethereum-compatible smart contracts. In the Arbitrum network, ETH is used to pay transaction fees. Transferring to the Arbitrum network is typically 90–95% less expensive than transferring to Ethereum, and there is significant room for further commission reduction.^[9]

Arbitrum also has its Virtual Machine, the platform's custom virtual machine (AVM). The Arbitrum Virtual Machine (AVM) is the execution area for Arbitrum smart contracts and is built on top of EthBridge, a smart contract collection that interacts with the Arbitrum chain. Smart contracts compatible with Ethereum are automatically translated to run on the AVM.^[8]

How it works

For users to interact with an Arbitrum chain, a set of Nodes will forward their transactions to the Arbitrum Sequencer (a specially designated Arbitrum full node that, under normal conditions, is responsible for submitting users’ transactions onto L2), which will report transaction results just as an Ethereum node would but in a much faster way. The transactions are then recorded on the Ethereum blockchain, ensuring that all underlying data is accessible to users. On Ethereum, once a transaction has reached finality, it is considered final and cannot be replaced or re-reordered. The transaction's outcome is complete at this point.

Following the posting of transaction data to the Ethereum blockchain, transaction execution is moved off-chain and performed by Arbitrum validators. Arbitrum validators recover their off-chain processing results in the form of an assertion (sometimes called a rollup block). The assertion is optimistically posted on the Ethereum chain, proof is only attached if the assertion is challenged. Validators place a bet that they will forfeit if they are caught trying to cheat. This ensures that validators have an incentive not to engage in dishonest behavior.

Whenever an assertion is posted, a challenge window opens in which any validator can challenge it. Other validators verify the assertion and prove fraud if it is incorrect. Validators who successfully prove fraud will be rewarded handsomely. If the challenge window expires without a successful challenge the correct assertion is confirmed and accepted by Ethereum. This makes Arbitrum reliable in preventing fraud as long as anyone validating the chain is honest.^[12][13]

Products

There are two chains live on Arbitrum mainnet:

Arbitrum One

Arbitrum One is an optimistic rollup L2 scaling solution for Ethereum, offering fast & cheap transactions tailored for Defi and NFTs. Users can use Alchemy, Infura, QuickNode, Moralis, ANKR, BlockVision, and GetBlock to interact with the Arbitrum One

Arbitrum Nova

Arbitrum Nova utilizes the Anytrust scaling model offering even lower transactions tailored more for gaming/social applications. Nova is an EVM-compatible chain built on Arbitrum AnyTrust technology that is optimized for ultra-low-cost transactions while providing strong security guarantees. Nova was made available to the public in August 2022. Nova is ideal for gaming projects, social layers, or any application that requires high throughput while maintaining low transaction costs.

Nova is powered by the most trusted organizations across Web2 and Web3, including Offchain Labs, Reddit, Google Cloud, Consensys, and FTX.^[15][16]

Tech

Arbitrum uses the Optimistic Rollups concept, which allows developers to quickly launch smart contracts and decentralized Ethereum applications with lower transfer fees and increased bandwidth while making no changes. An optimistic rollup is a specific technique for rolling up transactions. To speed things up, optimistic rollups assume that the transactions contained within the rollup are valid. They are optimistic in the sense that when they post the updated state to Ethereum they do this without posting any proof at all.^[14]

Arbitrum's optimistic rollups are settled on a private sidechain. Arbitrum gathers transactions in batches, settles them on its sidechain, and then feeds the transaction data back to the Ethereum blockchain ledger.

The team built Arbitrum as an Optimistic Rollup (OR) because they believe that OR is the best way to meet users’ realistic needs for a secure, trustless, EVM-compatible L2.

AnyTrust

AnyTrust is a variant of Arbitrum Nitro technology that lowers costs by accepting a mild trust assumption.

Arbitrum AnyTrust introduces a trust assumption in exchange for lower fees, data availability is managed by a Data Availability Committee (DAC), a fixed, permissioned set of entities which includes :

• Consensys
• FTX
• Google Cloud
• Offchain Labs
• P2P
• Quicknode
• Reddit

Partners

• Chainlink Labs
• Dopex
• GMX
• Hop Protocol
• Lido Finance
• Livepeer
• Quick Node
• Synapse Protocol
• Treasure DAO
• Uniswap Foundation
• Unlock Protocol
• Vesta Finance
• Coinbase Ventures
• Pantera
• Compound
• Blocknation.

Team

Arbitrum is built by Off-chain Labs, a team of researchers, engineers, and Ethereum enthusiasts. The team includes a global community of developers, academics, and operators, with deep experience in cryptography, decentralized systems, and game theory.

• Ed Felten - Co-Founder + Chief Scientist
• Steven Goldfeder - Co-Founder + CEO
• Harry Kalodner - Co-Founder + CTO
• Lee Bousfield - Senior Software Engineer
• Rachel Franks - Senior Software Engineer
• Daniel Goldman - Senior Software Engineer
• Fred Lacs - Senior Software Engineer
• Mahsa Moosavi - Software Engineer
• Daniel Silverberg - Operations Manager
• A.J. Warner - Director of Partnerships and Strategy
• Hunter Brea - Community Manager
• Nina Rong - Community Manager China
• Peter Haymond - Partnerships Manager
• Size Chad - NFTs & Gaming^[6]

$ARB Token & DAO Launch

On March 16, 2023, the Arbitrum Foundation announced that ARB, Arbitrum’s new token, will be airdropped to community members on March 23, 2023. ^[17]

“Today, the Arbitrum Foundation is extremely excited to announce the launch of DAO governance for the Arbitrum One and Arbitrum Nova networks, alongside the launch of ARB” - the team tweeted

According to the Arbitrum Foundation, ARB will mark Arbitrum’s official transition into a decentralized autonomous organization (DAO), therefore, ARB holders will be able to vote on key decisions governing Arbitrum One and Arbitrum Nova – networks that allow users to transact on the Ethereum blockchain with more speed and low fees. ^[18][19]

“Arbitrum DAO will have the power to control key decisions at the core protocol level, from how the chain's technology is upgraded to how the revenue from the chain can be used to support the ecosystem” - the Arbitrum Foundation said in a statement.

$ARB

ARB is the native governance token of Arbitrum. The token is used to pay for transaction fees on the Arbitrum network and also serves as a means of governance for the protocol. Holders of $ARB can participate in decision-making processes, such as proposing and voting on protocol upgrades or changes.

ARB’s total circulation is 10 billion. The Arbitrum community will control 56% of the tokens – the airdrop will grant 11.5% of the total supply to eligible Arbitrum users, and 1.1% to DAOs that operate in the Arbitrum ecosystem. The remaining community tokens will go to a treasury controlled by the new Arbitrum DAO, which will allow ARB holders to vote on how to disburse the funds.

AIP-1 Controversy

On April 1, 2023, a proposal to give the Arbitrum Foundation control of 750 million ARB tokens, worth nearly $1 billion, sparked a debate among token holders in the Arbitrum blockchain's DAO. This proposal was seen by some as overly expansive and raised concerns about the amount of control the foundation would have over the funds. ^[22]

The proposal intended to transfer the ARB to an administrative budget wallet for special grants, reimbursements to service providers, and administrative and operational costs. Over the weekend, Arbitrum community members discovered that the vote was meant to ratify a decision that had already been taken.^[23]

• Nearly 750 million ARB ($885 million) has already been moved to a separate treasury without token holders approving AIP-1.
• 40 million ARB ($47.2 million) was allocated as a loan to a “sophisticated actor in the financial markets” space, per the foundation.
• 10 million ARB ($11.8 million) has been converted to fiat toward operational costs. ^[21][22]

Blockworks Research also voted against the AIP (Arbitrum Improvement Proposal) framework, saying:

“our core concern lies within the 750M ARB tokens…that will seemingly be held under the control of the Arbitrum Foundation, with unknown wallet signers. Too often we have seen funds go into a black box of expenses. It is time to make DAO transparency a priority,”

Arbitrum Foundation Response

On April 2, 2023, the Arbitrum Foundation reacted to the controversy by tweeting that its first governance proposal, AIP-1, “likely will not pass” and added its “committed to addressing the feedback received from the community.”

Arbitrum has decided to follow the DAO’s advice and split the AIP into parts, allowing community members to vote on different subsections.

“AIP-1 is too large and covers too many topics. We will follow the DAO’s advice and split the AIP into parts. This will allow the community to discuss and vote on the different subsections.”^[20]

It also added that the decision to send 750 million ARB will be voted on in a separate AIP and the team is working on options to add more accountability, such as a four-year vesting period. Further, the team said it would rename the Special Grants program to the “Ecosystem Development Fund,” and add more detail on how the funds will be used.

Arbitrum acknowledged that it should have communicated the proposal better, and confirmed it had used some of the tokens to convert to stablecoins. ^[21]

“The Foundation does not exist to sell tokens, only sold enough to fund its current operating expenses and has no near-term plans to sell more tokens,” Arbitrum said

The Arbitrum Foundation further pledged it "has no near-term plans to sell more tokens," a nod to the blowback over millions of dollars in ARB it sold for "operational purposes" without community consent. ^[24]

Arbitrum New Governance Proposals

On April 5, 2023, the Arbitrum Foundation released a draft of new improvement proposals (AIPs) following the controversy that ensued after its first failed attempt at governance.

“The Foundation will not move any of the remaining 700M tokens in the Administrative Budget Wallet until an acceptable budget and smart contract lockup schedule have been approved by the DAO.” ^[26]

The proposals include AIP-1.1, which covers a smart contract lockup schedule, spending, budget, and transparency. The other, AIP-1.2, tackles amendments to current founding documents and lowers the proposal threshold from 5 million Arbitrum (ARB) tokens to 1 million ARB “to make governance more accessible.”

The foundation also issued a transparency report that “describes actions taken to get the DAO up and running.” ^[27]

"We have heard the feedback, and have worked diligently to address it and make sure the Foundation can represent, and serve the DAO's best interests with their support.

The two new AIPs were posted on the Arbitrum community forum and made available for feedback for at least 72 hours before a planned week-long snapshot vote. ^[25][26]