What is Arbitrum: A Simple Explanation

The effective layer-2 scaling solution for Ethereum

Welcome to DappRadar’s ultimate guide about Arbitrum, an L2 scaling solution for Ethereum, which offers a unique combination of benefits. Scalability, trustless security, and minimum costs are among its main features. We’ll lay out the knots and bolts for you here. Stay tuned!

Table of Contents

What is Arbitrum? 

Arbitrum is a layer-2 blockchain for Ethereum that uses optimistic rollups for scalability. Rollups are a type of technology that reduces the computation load of the main Ethereum blockchain (layer-1), allowing the running of smart contracts at scale while still preserving its security. 

The rollup technology of Arbitrum results in decreased gas fees and a significantly less congested Ethereum network. This is why many developers are choosing to build on Arbitrum. 

Arbitrum Token 

Currently, Arbitrum does not have its own native token. However, following Arbitrum´s success, there is now speculation that this might change. However, those who wish to gain exposure to the Layer 2 blockchain can look into one of its few native popular projects: GMX. 

GMX is a decentralized perpetual exchange with its own tokens. One serves as a governance token (GMX) and the other one serves as a liquidity provider token (GLP). 

Who created Arbitrum? 

The layer-2 solution is built by the New York-based company Offchain Labs. Offchain Labs is a venture-backed and Princeton-founded company. The company was valued at approximately  $1.2 billion after a $100 million Series B led by Lightspeed Venture Partners. 

Other known investors include Polychain Capital, Ribbit Capital, Redpoint Ventures, Pantera Capital, Alameda Research, and Mark Cuban.

What is special about Arbitrum? 

Arbitrum operates as a separate layer of the network to prevent the Ethereum mainnet from clogging by facilitating the validation of smart contracts via optimistic Arbitrum rollups. 

Arbitrum’s Ethereum Virtual Machine (EVM) compatibility makes it unique, allowing developers to build their dapps within the Arbitrum mainnet without learning a new coding language. It is one of the best layer-2 solutions in both security and reliability thanks to its advanced fraud-proof mechanism and its proprietary VM. 

Top dapps on Arbitrum

GMX

GMX is an on-chain perpetual futures and composable spot trading protocol, allowing traders to execute trades at up to execute trades up to 30X directly from their own wallets.

SushiSwap 

SushiSwap is a similar DEX to Uniswap with added community-oriented features improving the overall protocol´s design. With SushiSwap, one can provide some liquidity into a pool and earn rewards in the form of SUSHI tokens. 

Uniswap

Uniswap is a DEX eliminating trusted intermediaries and unnecessary forms of rent extraction, allowing for fast, efficient trading. It uses smart contracts to facilitate automated transactions between crypto tokens on the Ethereum blockchain. 

What is Arbitrum´s transaction speed?

Many DeFi developers use the layer-2 solution due to its efficacy and low costs. Arbitrum processes 40,000 TPS (transactions per second) compared to Ethereum´s 14 TPS at significantly lower costs. Although after the merge, it is estimated that Ethereum will reach 100,000 TPS. 

What is Nova?

Arbitrum Nova is a new chain that is mainly intended for gaming and social applications. It uses AnyTrust technology and is optimized for social and gaming applications that require ultra-low fees and high security.

What is the Nitro upgrade?

This ambitious rollup stack is built by the Arbitrum team to bring faster transactions, lower fees, and an improved user experience for building dapps. Also, it enhances throughput and interoperability.

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