By: Franklin Bi, Jonathan Gieg, Nihal Maunder

Compiled by: TechFlow

The “dial-up” era of blockchain has arrived.

The early Internet was slow, clunky, and often glitched out. When broadband replaced dial-up connections, new activities and products emerged on the Internet. Massive upgrades in bandwidth unlocked the full potential of the global information network. Today, the same upgrade is happening on blockchain networks.

Over the past two years, the Ethereum ecosystem has achieved about 10 times more scalability through L2 blockchains, which achieve higher speeds and lower costs by batching transactions and settling them on a separate blockchain, a method of scaling known as “rollup chains.”

Total transaction throughput on Ethereum-based Layer 2 currently exceeds 140 TPS (transactions per second), compared to 14 TPS on Layer 1 (see chart).

The leading L2 today is Arbitrum. Since launching in 2021, Arbitrum has led the L2 space in all important metrics, from transaction volume and developer activity to on-chain fee revenue. The L2 protocol is designed with compatibility with Ethereum as a top priority. The experience for users and developers using Arbitrum is almost the same as on Ethereum, but cheaper and faster.

The result is a major step forward for Ethereum’s scalability. In the past 30 days, the Arbitrum network has processed four times as many transactions as Ethereum. L2’s seven-day transaction volume has increased by more than 850%, from 18.6 million to 163 million. The blockchain network’s “broadband moment” has arrived.

Arbitrum, launch day

At the second Pantera Blockchain Summit in 2015, we invited a small group of industry friends to a lakeside cabin in Lake Tahoe. One of them was Princeton University Professor Ed Felten. Dr. Felten is an accomplished computer scientist and technology policy advisor known for his pioneering work in cybersecurity and digital content protection. But it was his growing interest in Bitcoin that drew him west.

At the time, Ed was actively researching Bitcoin, often in collaboration with other academic colleagues, including two postdoctoral researchers, Steven Goldfeder and Harry Kalodner. The three of them had been working on the security of Bitcoin wallets until they turned their attention to the industry’s most pressing problem: how to scale blockchains for mass adoption. The key insight was an idea that Ed conceived a decade ago and now defines an entire class of scaling solutions: “interactive fraud proofs.”

In 2018, Steven, Harry, and Ed publicly shared a research paper titled: "Arbitrum: Scalable Private Smart Contracts". The proposal was concise and clear. But implementing this important work would require a much larger effort, so we reunited with Ed, Steven, and Harry, who are now co-founders of Offchain Labs.

When meeting the founding team of Offchain Labs, we discovered that their strengths go far beyond technical talent. They bring:

  • Passion for blockchain to build a better world

  • Strong commitment to open source development and community

  • Focused on creating the best developer experience for Web3 creativity to flourish

From there, it became an easy decision to write their first check and ultimately lead their seed round in late 2018, kicking off the day one journey to scaling Ethereum.

The Arbitrum Ecosystem

Since its launch in 2021, Arbitrum appears to have become the leading Web3 project and the L2 of choice for developers. Much of its early growth has come from DeFi activity. Arbitrum ranks third in transaction volume among all blockchains, behind only Ethereum and Solana.

Today, the rapidly growing Arbitrum ecosystem includes:

  • 500+ projects (more than any other L2)

  • 1800+ monthly active developers (more than Solana)

  • $16 billion in assets bridged from other chains (first among all L2s)

  • DeFi deposits on Arbitrum reach $3 billion (3x the closest L2)

Many established teams have expanded from Ethereum and other L2s to Arbitrum, more successfully than any chain before. For example: Uniswap, the market-leading decentralized exchange, now processes the majority of its layer 2 volume on Arbitrum, despite originally being built on Optimism. Uniswap’s Arbitrum instance recently became the first instance on layer 2 to reach $1 billion in daily volume.

One of Arbitrum’s most remarkable qualities is its homegrown talent. From DeFi to gaming, Arbitrum-first teams have made impressive progress across multiple verticals. Here are some of the leading projects in the Arbitrum ecosystem:

Decentralized Finance:

  • Robinhood: Investment platform announces integration of Arbitrum DEX for Robinhood Wallet users

  • GMX: Decentralized perpetual exchange with a cumulative trading volume of US$190 billion

  • Camelot: Decentralized spot exchange with cumulative trading volume of $12 billion and 900k users

  • Radiant: A cross-chain lending protocol with a cumulative loan amount of more than $120 million

game:

  • InfiniGods: A mobile-first Web3 game studio that developed King of Destiny, with over 25k downloads worldwide

  • Treasure: Decentralized game distribution platform; total market transaction volume of $280 million; 150,000 players in 15+ games

  • Hytopia: Open-source world inspired by Minecraft; over 1.1 million players pre-registered

  • XAI: Web3 gaming infrastructure; daily transaction volume is about 100,000+, connected wallets exceed 600,000+

Tokenization of real-world assets:

  • Kinto: A financial services focused chain with KYC for users in 80+ countries

  • Plume Network: A real-world asset tokenization protocol that has introduced over 100 projects.

Arts & Entertainment:

  • AnimeChain: A decentralized IP ecosystem for anime; Partners with Azuki, one of the top three NFT projects

  • ApeChain: A dedicated network built to support two of the top three NFT projects, Bored Apes and CryptoPunks

  • RARI Chain: A creator-centric chain that implements NFT royalty enforcement

  • Reddit: Previously selected Arbitrum for the Community Points Program in the “Scaling Bake-off”

As Arbitrum continues to attract top teams and projects, we believe its ecosystem growth will accelerate further. The roadmap includes key developments to expand its developer base and attract new builders, including:

  • Arbitrum Stylus: A custom programming environment for writing smart contracts in Rust, C, and C++, minimizing the need for Web3 developers to learn new languages ​​such as Solidity

  • Arbitrum Bold: An improved, permissionless fraud proof technology that speeds up transaction processing

Arbitrum’s journey from a cornerstone of DeFi to a thriving blockchain ecosystem reflects the rapid growth of its technological prowess and the high-quality community behind it.

Data Display

Active community engagement, top developer experience, and technological breakthroughs make Arbitrum a leading contender in the L2 space. The numbers back it up.

Let’s look at the fundamental metrics driving L2 adoption:

Total Value Locked ("TVL") measures the value of assets deposited on a blockchain to support liquidity or lending activity. Among L2 Rollups, 39% of TVL is in Arbitrum. Arbitrum holds $4 billion in its DeFi protocol, while its closest competitor, Blast, has $1.4 billion locked. This metric is significant because TVL serves as an indicator of trading activity, liquidity, and the overall health of a project. A high TVL indicates high user engagement and confidence in the platform.

Arbitrum has consistently been the largest revenue generator compared to other L2 scaling solutions. While other chains’ fee generation capabilities fluctuate, especially in anticipation of token airdrops (like the current zkSync), the organic activity of the Arbitrum community ensures predictable revenue regardless of external dynamics. Arbitrum has done this by carving out niches like DeFi, where they’ve fostered protocols like GMX and Uniswap, and as a result they’ve been able to cultivate becoming the go-to chain for DEX swaps and perpetual trading.

Looking beyond its current dominance, we believe the reason Arbitrum can continue to be the preferred scaling solution for Ethereum is its focus on developer activity. As shown in the table above, Arbitrum has built the most attractive platform for developers seeking to deploy decentralized applications. Users will ultimately gravitate toward the ecosystem where the best applications reside, and by doubling down on its developer community, we believe Arbitrum is ensuring its long-term sustainability.

We hosted a webinar on blockchain scalability with two experts in the field whose projects are paving the way for blockchain mass adoption.

Here are some highlights from the discussion:

Steven Goldfeder, co-founder and CEO of Offchain Labs, believes: “The Arbitrum ecosystem is very focused on sustainability, and this will be what distinguishes it from other projects in the long run. The system has to run, it has to work, and it has to be self-sustaining. It can’t just prioritize short-term growth through unsustainable mechanisms.”

Eli Ben-Sasson, co-founder and CEO of StarkWare, said: “I prefer to call the technology we are building the ‘integrity network’ rather than the ‘blockchain’ because it really emphasizes that it is a ‘network’, like the World Wide Web. But the technology also provides integrity, and integrity means doing the right thing even when no one is there.”