Research

Arbitrum Ecosystem Review

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msfew@Foresight Ventures

0. Quick Take

  • Arbitrum’s infrastructure is well developed thanks to its basis characters, and its wallets and exchange support are among the most prominent Layer2 solutions, laying a solid foundation for the development of the ecosystem.
  • Arbitrum’s DEX and DeFi protocols are so diverse that access to Arbitrum is almost the default choice for such applications. Arbitrum’s TVL is one of the highest among all Layer2 ecosystems, and there are specialty decentralized exchanges such as GMX emerging.
  • In the NFT and Metaverse field, Arbitrum has an excellent project of Treasure DAO, whose complete story line, ambitious narrative and active community give Arbitrum its own unique Metaverse DNA.

1. Arbitrum Introduction

Arbitrum is an Ethereum Layer2 scaling solution created by the Offchain Labs team based on Optimistic Rollup technology. Arbitrum leverages the ability to communicate between L1 and L2, allowing any form of Ethereum asset to be transferred between Layer 1 and Layer 2 without trust. Although Arbitrum transactions are still settled on Ethereum, Arbitrum only submits the raw transaction data to Ethereum, with execution and contract storage occurring off-chain, so the gas fee required on Arbitrum is very small compared to the mainnet, and the contracts are fully compatible with no gas limit.

Six months after the launch of Arbitrum, the top project of Ethereum scaling, the ecosystem of Arbitrum is slowly maturing with the help of developers. Compared to StarkWare and zkSync’s zk-Rollup, which Vitalik recently praised, Optimism, which has a strong investment background, and Polygon, which is growing wildly by developers from India and China, Arbitrum’s ecosystem has been developing more low-key.

A year ago, Arbitrum had nothing; now, a year later, Arbitrum has 2.53B TVLs, 250+ live projects, 330,000+ addresses, and 4M+ txns. Arbitrum has formed the dream team.

Arbitrum’s ecosystem determines the future value of the network

2. Arbitrum Infrastructure

Arbitrum has the inherent advantage of being a fully EVM-compatible solution, and is even more flexible than Ethereum in some development aspects. For each network, developers are the first users, and an EVM-compatible network greatly accelerates the influx of developers and the building of infrastructure. Arbitrum has had full infrastructure support from the beginning.

a. Cross-chain bridges

b. Wallets

c. Tools

  • For developers, the most popular Ethereum development tools and suites (Web3.js, Truffle, Hardhat, Infura, Moralis) all have support for the Arbitrum network. Developers can use these tools normally, and the development process is basically the same as on Ethereum.
  • In order to enrich and complete the decentralized application, The Graph and Chainlink are also essential for development, both of them support the Arbitrum network.
  • With these basic tools, developers who are the first users of Arbitrum can switch to the Arbitrum ecosystem almost seamlessly and have the same development experience as on the Ethereum network, with the ability to develop fully functional decentralized applications.
  • It is worth noting that although all of these tools support the Arbitrum network, they are still slightly different from the Layer1 mainnet due to the high latency, such as the pitfalls of getting block height and block time. Therefore, in some applications that need low latency, we need to do some optimization for Arbitrum or wait for the official solution.
  • User tools
  • In addition to wallets, other user tools are also an important part of the ecosystem. Arbitrum’s user tools include the ArbiScan blockchain explorer, Nansen, Token Multisender (for multiple NFT transfers), and Gnosis Safe (a multi-signature wallet that can be used as a shared wallet for teams or as a 2FA wallet management tool for individual user). These tools not only ensure that the basic user needs to view transaction information, but also provide data analysis and special interaction features for some users, allowing the use of Arbitrum to expand.
  • Tokens
  • Arbitrum is an Ethereum network and naturally supports ETH native tokens. In addition, common tokens such as WBTC, USDT, USDC, etc. are also available on Arbitrum, which can fully satisfy DeFi’s needs.

3. Arbitrum DeFi

a. DEX and trading platforms

Arbitrum has whitelisted over 400 applications before it launched, and dozens are already live before launching, make Arbitrum locked and loaded. A number of DEXs, including Uniswap, 1inch, DODO, Sushiswap, and others, currently support the Arbitrum network. These DEXs, as important infrastructure already established in the ecosystem, have been active in scaling networks like Arbitrum, and are the first applications to land in the ecosystem. Trading exchanges, for example, have very high requirements for clearing efficiency and fee pricing, so many of them choose Layer2, and are attracted to Arbitrum by its well-developed infrastructure and decentralized nature. These DEXs and exchanges are almost indistinguishable in nature, but each has its own characteristics in this niche. For the Arbitrum ecosystem, the number of DEXs and exchanges is more than enough.

Dfyn

Dfyn is the first DEX to introduce gasless transactions. As the name implies, users do not need to pay gas when they swap. gasless is mainly achieved through Biconomy’s relayers. During a transaction, the user only needs to sign the transaction, then Biconomy’s relayers pay the gas, forwards the transaction back to Dfyn’s contract, and finally the contract updates the state on the chain. In practice, Approve and other operations still require gas, and the gasless mode is currently only available on the Polygon chain. But this gasless model is still very new and exciting.

Dfyn’s cross-chain swap is also unique. The cross-chain swap in its vision is implemented through Router Protocol. Router Protocol has the same team behind Dfyn. What Router Protocol does is to implement cross-chain asset swap by using individual router for multiple chains and a master router, the asset will go to the router of the original chain first, then to the master router, and finally the target chain router will release it. Not much detail is disclosed in the specific white paper, but this cross-chain swap is very easy to understand. In addition to Dfyn’s Router Protocol, the cross-chain swap is also implemented by THORchain and Chainflip, which may offer a more decentralized solution than Router Protocol.

Router Protocol will officially go live on the mainnet this week, and we are very excited to see if this innovation will break down the gaps between chains and allow assets to flow.

GMX

Unlike traditional order books or AMM exchanges, GMX does not use a pool in the form of trading pairs, but rather a multi-asset GLP (GMX Liquidity Provider) for executing swap and leveraged trades. The liquidity provider fills the GLP pool with ETH, BTC, etc. tokens. The prices of the traded ETH and other tokens are derived from a combination of the Chainlink oracle and the average prices of several other major DEXs. It is this design that allows GMX to achieve 0 slippage and low fees.

The price of $GLP tokens is derived from the total value of assets in the GLP pool / GLP supply. The liquidity provider minted a certain amount of $GLP tokens when it added assets into the GLP, and burned the corresponding $GLP tokens when it withdrew liquidity. In this process, if the GLP pool has a low number of $ETH tokens, the corresponding fee for adding $ETH is reduced, thus providing an incentive for the provider to provide the most favorable assets to the pool.

At the same time, $GLP holders are incentivized in two ways: one is that they receive $esGMX that can be fully converted to $GMX after one year, and the other is that 70% of the platform’s revenue is distributed to the holders (in the form of native tokens to the blockchain network).

The $GMX token is the platform’s utility and governance token, which can be staked. The reward for staking is: the aforementioned $esGMX, a 30% share of the platform’s revenue, and multiplier points generated at 100% APR per second (can earn the same native token revenue as $GMX).

GMX’s $GLP design and the depth of the pool ensure slippage-free transactions, and $GMX’s staking design ensures long-term holdings. GMX’s total trading volume and total fees have skyrocketed with a well-designed token system. The role of Arbitrum in GMX is to keep the fees low enough to ensure the viability of a decentralized contract exchange.

Dopex

In addition, there are DEXs such as Swapr, HaloDAO, OpenOcean, O3Swap, Saddle, Warden, as well as exchanges such as MCDEX, Antimatter.finance, Balancer, DGate, Tracer, etc. on Arbitrum.

b. DeFi Protocol

The active support of Arbitrum by the DeFi protocol is mainly due to a sense of competition with other DeFi protocols, and the protocol wants to gain as much support as possible from network users to increase its competitiveness.

Of course, Arbitrum’s excellent infrastructure and existing ecosystem make these protocols support the network actively. Recently, Curve had only $77 in TVL within 4 hours of Optimism’s launch, which may be a reflection of the ecosystem and few users. Arbitrum is well established in this regard.

Arbitrum’s DeFi ecosystem includes projects such as Badger, Beefy Finance, Curve, Olympus DAO, and many others.

Dev Protocol

Dev Protocol is one of the more interesting projects in Arbitrum’s DeFi ecosystem. Stakes.social is a decentralized open source project funding platform based on Dev Protocol, similar to GitCoin. Dev Protocol currently has two tokens, $DEV and $Creator.

The $DEV token can be staked to open source projects for revenue, and is a utility token in the platform that can be used to pay for authentication and other interactions. The $Creator tokens are project tokens that can be created by the open source projects themselves, and can be managed and owned on Stakes.social, while the different $Creator tokens can receive a portion of the $Dev tokens staked to the project by backers. For the $Creator tokens, Stakes.social also has a unique built-in oracle called Khaos, which exports proofs of ownership to platforms like GitHub by listening for user signatures (and of course other on-chain events).

Stakes.social is currently deployed on the mainnet, Arbitrum and Polygon, with different open source projects on different networks. There are Web3 projects such as Vyper, but also many Web2 projects, including Mandane (Lisp Hypervisor for Apple’s M-series chips), a series of open source projects by Sindre Sorhus (GitHub 46k followers), Redux-toolkit (GitHub 7k star), etc.

On the platform, we can see not only some familiar Web3 open source projects, but also a variety of NFT art-related projects, in addition to some Web2 open source projects. For Web2 developers in particular, the issue of open source funding has always been a pain point. Although there are now GitHub sponsors and other ways to get direct revenue. The authors of Faker.js, for example, are still paid zero salary to maintain open source libraries for free for the use of large companies. Protocols like Dev Protocol not only make token work in the right way, but they also help developers in need.

c. GameFi

4. Arbitrum DApp

a. NFT

Treasure DAO

The center of the Metaverse of Treasure DAO is Bridge World. Bridge World is a community-centric metaverse game that incentivizes community collaboration through guilds and sub-DAO to achieve a development strategy centered around resource accumulation, resource efficiency optimization, and player attraction. Bridge World includes $Magic (the metaverse’s common currency, governance tokens), Treasure (the metaverse’s game resources and background narrative building blocks, Treasure’s native NFT), and Legions (the metaverse’s characters).

The Treasure DAO has a strong community component, not only through token voting governance to highlight the community function, but also through UGC and feedback to the community. For example, some of the Treasures have spawned independent DAOs, and users can create background stories for Treasure through proposals, and the concept of subDAO is deeply rooted in the community…

Treasure DAO’s Smol Brains has also evolved from a free Mint NFT to “CryptoPunks” on Arbitrum. Treasure DAO is constantly updating its whitepapers, and in the next few weeks will release the Bridge World game, an OpenSea-like NFT marketplace, and many other new projects that are growing rapidly with the help of the community, so it’s worth watching. Treasure DAO’s comprehensive worldview, diverse gameplay and thriving community show us the true direction of the blockchain game.

Arbitrum’s NFT ecosystem is moving forward with Treasure DAO. I believe that each network will build its own unique NFT ecosystem and separate Metaverse, and eventually, with the union of ecosystems, a complete unified Metaverse will be formed. We will keep an eye on Arbitrum’s NFT ecosystem.

b. Payments

Superfluid

The MakerDAO team, Delphi Digital, and even members of Visa use Superfluid for streaming payroll. Superfluid has also sponsored a very large number of hackathons, with over 250 projects based on Superfluid in 2021. Among them are Diagonla (streaming Web3 subscription service), Streamroll (enabling DAO to do lending via streaming payments), TokenVesting (as the name suggests, token vesting with streaming payments)…

Users have deployed over 100 Superfluid tokens on top of it. Superfluid has attracted 120 Million TVLs, which is high for Superfluid’s mechanism, since Ricochet Exchange, for example, needs only 200 TVLs to operate its own 2.3 Million total monthly funds. Superfluid’s TVL is primarily driven by the Treasury, Vesting, and native Superfluid tokens use cases.

With the innovation of streaming payments, Superfluid perfectly leverages the features of blockchain and smart contracts, and continues to drive the developer community, revolutionizing the way payments are made and opening up unlimited possibilities for multiple use cases.

In the field of streaming payments, there are also products such as Zebec. Zebec is more towards the Web2 domain and more focused on improving the impact on common Internet users, which is a very different approach compared to Superfluid’s Crypto Native positioning, and is also worth paying attention to.

c. DAO

5. Conclusion

6. Related Links

Ecosystem:

Dev:

DEX:

NFT:

Payment:

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