#Arbitrum is a layer2 scaling solution for Ethereum that uses optimistic rollups to reduce gas fees and increase transaction throughput. Arbitrum has seen a rapid adoption by various projects and users since its launch in August 2021. Some of the factors that contributed to its success are:
Its compatibility with Ethereum, which allows developers to easily deploy their smart contracts on Arbitrum without rewriting code or learning new tools.
Its support from major infrastructure providers, such as wallets, explorers, bridges, and oracles, which enable users to access Arbitrum seamlessly and securely.
Its attractive incentives for liquidity providers, such as low-cost transactions, high yields, and arbitrage opportunities, which attract capital and users to Arbitrum’s ecosystem.
Its innovation and experimentation, which foster a vibrant community of developers and users who create new products and services on Arbitrum. $ARB
Some Very Strong Reasons to Hold The Arbitrum :
The Arbitrum developers issued a governance token in March to decentralize the network. By issuing a token, the network is transferring the decision-making process from the group who built the network to the token holders.
Token holders can impact a variety of areas. The main focus is electing officials who keep the network secure and push the technology forward. But the area we’re interested in is control over the network’s treasury. In the future, we believe #ARB token holders will vote to distribute profits from the network to themselves. This is similar to how a company pays a dividend to its shareholders. The Arbitrum network charges users a transaction fee that’s paid in ETH. The network uses a portion of this fee to pay the Ethereum network to record transactions. Over the past three months, Arbitrum has generated 13,633 ETH in revenue from transaction fees. It cost 10,339 ETH to ink these transactions onto the Ethereum network.
That gives Arbitrum a profit of 3,294 #ETH over the past three months. Or $5.4 million based ETH’s current price of $1,650. So Arbitrum is currently generating $21.7 million per year. To project what Arbitrum could be generating in five years, we’ll take into account its user growth rate, EIP-4844’s cost savings, and a rising ETH price. As mentioned above, daily transactions on the Arbitrum network have grown 10x over the past year. And while we don’t think it will sustain this high growth rate, we believe it could average 2x growth each year over the next five years. If this translates to the same growth in revenue, that means we could see 1.75 million ETH in revenue in five years. But we’ll cut this number in half since EIP-4844 will reduce Layer 2 fees and Arbitrum will need to remain competitive to other networks. After subtracting costs – which we project to be at 132,350 ETH – we arrive at 740,168 ETH in profit for the network. $ARB
At today’s prices, that’d translate into $1.22 billion in income. To get a sense of what this means for the value of Arbitrum, we can apply an earnings multiple similar to that of the broad market. Today, the S&P 500 trades at an average earnings multiple of 20. If we applied this to our projected earnings on Arbitrum, that means it’d be valued at $24.4 billion. Or $2.44 per token when accounting for maximum token supply. That translates to a 163% increase in price from today’s levels.
But this doesn’t take into account the rise in ETH price. As you know, we believe Ethereum could reach as high as $25,000 per token during the next bull run. Under this blue-sky scenario, that means our projected profits for Arbitrum would be roughly $18.5 billion. If we applied the same earnings multiple of 20 to these earnings, that means Arbitrum would be valued at $370 billion. Or $37.01 per token when accounting for maximum token supply. That translates to a 3,879% increase in price from today’s levels. Enough to turn every $500 investment into $19,897. And every $1,000 investment into $39,794. $ARB
Arbitrum’s adoption has also brought some challenges and risks, such as:
Its dependence on Ethereum’s security and scalability, which may limit its performance and reliability in times of network congestion or attacks.
Its trade-off between security and finality, which exposes users to potential fraud proofs or rollbacks if the #Arbitrum sequencer or validators behave maliciously or fail.
Its competition with other layer 2 solutions, such as #zk-rollups and sidechains which may offer different advantages and disadvantages for different use cases and preferences.
