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Arbitrum (ARB)

Arbitrum is developed by Offchain Labs, a New York-based development company. Its founders are Ed Felten, Steven Goldfeder and Harry Kalodner, former Princeton University researchers with years of experience in computer science, cryptography and blockchain.

Ed Felten is a computer science professor at Princeton and served as President Obama’s Deputy CTO. He is the co-founder and Chief Scientist of Offchain Labs.

Steven Goldfeder is a computer scientist and entrepreneur who received his Ph.D. from Princeton. He is also the co-founder and CEO of Offchain Labs.

Harry Kalodner is a computer scientist and Ph.D. candidate at Princeton. He is also the co-founder and CTO of Offchain Labs.

In 2021, Offchain Labs announced that it raised $120 million in its latest Series B funding led by Lightspeed Venture Partners, valuing it at $1.2 billion. Other prominent investors include Polychain Capital, Pantera Capital, Mark Cuban, and more.

While the world waits for the Ethereum network to do the necessary, other ideas emerged to help with ETH's issues and offer another way of moving the cryptoverse forward. One of these concepts is Optimistic Rollups. Similar to Bitcoin's Lightning Network, where transactions occur away from the main blockchain, this concept batches transactions and, like rolling a carpet, bundles them together into a block and submits it together with an ETH bond for inclusion into the main chain. Just like the US justice system, which goes by the theory of "innocent until proven guilty", these transactions are deemed honest and legitimate transactions by default until proven fraudulent.

Any node can issue challenges to question the validity of the proposed block within a set period such as seven days. If a node finds the block fraudulent, the proposed node's bond gets slashed. On the other hand, if the challenger is proven wrong, the challenger's bond gets slashed. Finally, if there are no successful challenges at the end of the period, the proposed blocks will get passed to the Ethereum main chain.


One of the blockchain projects using this concept is Arbitrum. Built on top of the Ethereum network (L1), this is a Layer-2 blockchain, or L2 shortened. Adopting optimistic rollups helps Ethereum solve the scalability issue, thus boosting the throughput for transactions, and lowering the transaction fee as more transactions can get added to the block faster. Although transactions are processed on Arbitrum via ArbOS, the operating system that handles the transactions and collects fees, security for the transactions is still processed by the Ethereum network. So it's essentially combining the best of both worlds.

The consensus mechanism used by Arbitrum to process transactions is known as the AnyTrust Guarantee. How this works is that all the validators need to agree for a block to be added. As long as one validator disagrees, the block won't be added to the blockchain.

The project's primary target audience is developers, as it offers an ETH-friendly environment for them to build dApps without costly fees. There are also various vital features of the projects that we will point out in the following sections below.

Arbitrum is a protocol that makes Ethereum transactions faster and cheaper. Developers use Arbitrum to build user-friendly decentralized apps (dApps) that can take advantage of the scalability benefits of the Arbitrum Rollup and AnyTrust protocols.

Arbitrum's flagship chain, Arbitrum One, was launched in 2021. This was quickly followed by the launch of Arbitrum Nova, a separate AnyTrust chain built for ultra-low-cost transactions. In August 2022, Arbitrum One was upgraded to the Arbitrum Nitro stack, bringing a 7-10x upgrade to its scaling capabilities.

The distribution of $ARB governance tokens decentralizes the governance of Arbitrum One and Arbitrum Nova and their underlying protocols. $ARB tokens can be used to vote on Arbitrum DAO governance proposals, allowing $ARB holders to collectively shape the future of Arbitrum protocols and chains. Token holders can also delegate their voting power to delegates.

How does Arbitrum's governance work?

Governance of the Arbitrum Rollup protocol is driven by two governing bodies: the Security Council and the Arbitrum DAO.

  • The Security Council is a 12-member council of entities elected by members of the Arbitrum DAO. This council is responsible for ensuring Arbitrum's security and performance through the selective application of emergency actions if/when necessary.

  • The Arbitrum DAO is the worldwide community of $ARB token holders and the delegates that they select. The DAO is responsible for governing Arbitrum and its Security Council. The DAO can use constitutional proposals to modify the Security Council's powers, or even to eliminate the Security Council entirely. The Security Council's powers are delegated to the Security Council by the DAO, and are to be exercised in the best interests of the DAO.

What sorts of decisions is Arbitrum’s governance system responsible for making?

Arbitrum's governance system is responsible for making many types of decisions. One important responsibility is upgrading Arbitrum chains’ core contracts, which define and enforce the Arbitrum protocols. An upgrade like this could be motivated by any of the following reasons:

  1. An upgrade could improve the system in some way, like increasing its decentralization or optimizing its performance and lower fees.

  2. An upgrade could fix a critical vulnerability.

  3. An upgrade could address a non-critical decision that affects the Arbitrum ecosystem at large.

The Arbitrum DAO is also responsible for authorization of the creation of new L2 chains

The $ARB token is an ERC-20 governance token that allows its holders to participate in the Arbitrum DAO's on-chain governance protocol. The $ARB token is minted by a smart contract that lives on Arbitrum One, a Layer 2 Arbitrum rollup chain.

The Arbitrum DAO is responsible for managing both the governance protocol as defined within the Constitution, and the technologies that the DAO governs. This includes the Arbitrum One and Arbitrum Nova chains, along with their underlying protocols.

If you own $ARB tokens, you can vote on governance proposals that affect the operation and evolution of the Arbitrum One and Arbitrum Nova chains. This includes proposals for upgrades to the chain, as well as proposals for how to use the funds within the DAO Treasury.

When you vote on an on-chain proposal, you're using your $ARB tokens to signal your support or opposition. The more $ARB tokens you have, the more influence your vote will have. This is because the Arbitrum DAO's smart contracts are implemented such that votes are token-weighted, meaning that the power of a vote is determined precisely by the number of tokens the voter's wallet represents.

Note that $ARB tokens can be delegated to other wallets. This means that you can vote using your own $ARB tokens (those in your own wallet), but you can also vote using someone else's $ARB tokens as long as the owner of those tokens has delegated their voting power to you. Delegation is useful for DAO members who don't have time to commit to reviewing and discussing DAO proposals on a regular basis1.

$ARB was created with an initial supply of 10 billion. New $ARB can be minted at a rate of 2% of its supply per year at most, with the first of these mints becoming eligible on March 15, 2024. $ARB minting events are performed by the DAO via a constitutional proposal.

What Makes Arbitrum Unique and Better?

Arbitrum is not the only solution that overcomes Ethereum's limitations: more than a dozen other Layer 2 protocols offer the same solution. Here's what makes it unique and better:

  • Low transaction fees. Arbitrum is designed to be efficient, which significantly reduces its transaction fees. This is a sufficient incentive for validators and users to adopt the platform. A transaction costing tens of dollars on Ethereum costs a few dollars on Arbitrum.

  • Full EVM compatibility: Arbitrum is compatible with the Ethereum Virtual Machine to the byte code level, which enables developers who understand existing Ethereum programming languages to hop on and start building dApps on the platform quickly.

  • Extensive documentation: On top of high Ethereum Virtual Machine compatibility, Arbitrum has extensive developer documentation, which empowers developers to start developing on the platform using existing tools quickly.

Overall, Arbitrum's unique combination of affordability and ease of adoption makes it a promising solution for scaling Ethereum and empowering developers to create the next generation of decentralized applications.

In summary, the $ARB token is a special-purpose digital asset that gives its holders the ability to vote on on-chain proposals that affect the operation and evolution of the Arbitrum DAO and the technologies it governs. Holding $ARB tokens allows you democratically shape the future of the Arbitrum ecosystem alongside other values-aligned and incentives-aligned token holders.

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