Arbitrum Explained! The Ultimate Guide to Arbitrum

Ethereum is an incredibly popular platform For developing decentralized applications
or DApps. But in recent years, A dramatic surge in adoption has seen
the network pushed to its absolute limits, Sending transaction fees through the roof
and leading to rampant congestion. While some circles believe
that the best way to scale Ethereum is through onchain tweaks
and upgrades, others are instead pursuing Different routes known as second layer
solutions through these very significantly In their form and function. One such solution, known as arbitrage,
has begun picking up Considerable momentum
due to its novel solution to the problem. So what is Arbitrum? Arbitrum is a layer two solution designed
to improve the capabilities of Ethereum's For contracts,
boosting their speed and scalability While adding in additional privacy
features. The platform is designed
to allow developers To easily run unmodified
Ethereum virtual machine or EVM contract And Ethereum transactions
on a second layer While still benefiting from Ethereum's
Excellent Layer one Security. It's built to address Some of the shortcomings of current
Ethereum based more contracts Such as poor efficiency and high execution
costs, which have damaged the Ethereum User experience and frequently make
transacting inexpensive task. Arbitrum uses
a technique known as transaction rollups To record batches
of submitted transactions on the Ethereum Main chain and execute them on a cheap,
scalable layer. 2 Sidechains while leveraging Ethereum
to ensure correct results. This process helps to offload
most of the computational And storage burdens
Ethereum currently suffers From, while enabling
new classes of powerful layer two DApps. New York based development firm
OffChain Labs is currently building The arbitrage product, as well
as an entire suite of scaling solutions. The initiative is spearheaded by Off
Chain Labs co-founder Ed Felten, Steven Goldfeder and Harry

Ed is a professor. Steven received his Ph.D. And Harry is a Ph.D. Candidate at Princeton University. All three are blockchain experts
with a passion of making cryptocurrencies More capable. So how does Arbitrum work? While Arbitrum is a type of technology
known as an optimistic rollup, It allows Ethereum smart contracts
to scale by passing messages Between smart contracts
on the Ethereum main chain And to those on the arbitrage
second layer chain. Much of the transaction processing
is completed on the second layer, And the results of this are recorded
on the main chain, drastically improving Speed and efficiency. It's optimistic in the sense
that any validator is able to post A roll up block
and confirm the validity of other blocks. While the term rollup is used to describe
how public information can be used To reconstruct a complete history
of the chain from an optimized log Of events, the Arbitrum protocol ensures
that the code will run correctly, i.e. As intended,
as long as any validator is honest. Helping the network resist collusion
and other forms of attack. Future versions of Arbitrum Will also have two other modes channels
and any trust sidechains. As with many blockchains,
individual nodes can choose to participate In the arbitrary chain. Validator nodes are involved
in observing the state of the chain And full nodes
help to aggregate layer one transactions. Aggregators that submit transaction
to the layer one chain earn rewards Paid in ether while the rest of the user
transaction fees are distributed To other network participants
such as validators. Arbitrage introduces
a challenging step for rollup blocks, Which sees other validators Check the correctness of a block and issue
a challenge if they believe it is wrong. If the block is proven to be wrong or
a challenge is proven to be unjustified.

The line validators will have their stake Confiscated, ensuring validators
always play fair or risk the consequences. The platform also has its own custom
virtual machine, Aptly named the Arbitrum Virtual Machine,
or AVM. This is the execution environment
for arbitrage smart contracts and exists Above the ETH Bridge, Which is the set of smart contracts
that interfaces with the arbitrage Chain. Ethereum compatible
smart contracts are automatically Translated to run on the AVM. So what makes Arbitrum unique? The project is Designed to provide an easy to use
platform developers can use To launch highly efficient and scalable
Ethereum compatible smart contracts. But it's not the first platform looking
to overcome Ethereum's limitations. And there are at least a dozen
other solutions looking to offer Similar functionality. So what separates Arbitrum from the rest? Well,
it has several distinguishing features, Including high EVM compatibility. So Arbitrum is considered to be
one of the most EVM compatible rollups. It's compatible with the EVM
at the bytecode level and any language That can compile to EVM works out
of the box, such as Solidity and Viper, And this makes it easy to develop ARM
since developers do not need To get to grips with a new language
before building on Arbitrum. Also, it has robust developer tooling,
so the team behind Arbitrum are doing What they can
to minimize barriers to entry When it comes to building on their layer
two solution. As such, they produce comprehensive
developer documentation for Arbitrum, And the developers can get started
using existing tooling for Ethereum. There's
no need to download anything specific To Arbitrum, such as plug ins or compilers
like hard hat or truffle. Then there's also low fees. So as a layer two
scaling solution for Ethereum Arbitrum

Isn't just designed to boost Ethereum's
transactional throughput. It is also designed
to minimize transaction fees. At the same time, thanks to its
extremely efficient rollup technology, Arbitrum is able to cut fees down
to just a tiny fraction of what They are on Ethereum while still providing
sufficient incentives for validators. So next up, Let's talk about the top protocols
on Arbitrum ranked by total value locked. First of all, we have GMX. Known for its unique dual token model
using GLP, a basket of stablecoins And blue chip assets
and of course the GMX token. GMX is a spot in perpetual decentralized
exchange or DEX originating from Binance Smart chain as gambit gimmicks expanded
to avalanche as GMX and eventually To Arbitrum in August of 2022 due
to its high yields on LP during the bear market, GMX
gained popularity alongside the real yield Narrative, quickly taking the top position
in Arbitrum and dominating the position Since in fact GMX is the fourth highest revenue
generating project across all blockchains In decentralized applications
in DApps in the last 180 days. And for the second spot we have Uniswap V3 as one of the first AMMs
to gain significant traction in DeFi. Uniswap is a household name of the space
with more than $4 billion in TVL Across five chains. Uniswap also popularized the concentrated
liquidity model with Uniswap V3, Which greatly increased
the capital efficiency of the protocol And has since been duplicated
on several other DEXes. Today, Uniswap holds
more than $150 million on Arbitrum alone And then coming in for the third spot
we have Radian Capital. Reading Capital is currently the top money
market protocol of Arbitrum, And Radiant facilitates lending
and borrowing on chain, but with a twist. It aims to be an omni chain money
market platform. This means that their goal is for users
to be able to deposit assets On one chain and borrow
against their collateral on another chain. Radiant Capital partner with Stargate
to facilitate their omni chain vision Coming in for the fourth spot,
we have sushi hot on its heels.

A fellow Multichain
AMM and Uniswap fork, Sushi is fourth In the arbitrage ecosystem. Sushi has a long Pursued a more aggressive expansion
across chains compared to Uniswap And has operations on almost 20 chains
with more than $600 million in TVL. Although Sushi launched on arbitrage three
months before Uniswap in May of 2021, They eventually lost their first mover
edge to their close rival And then coming in for the fifth position,
we have Zyberswap. Zyberswap is a traditional
automated market maker or AMM With liquidity pools for users
to deposit into and earn yield on Cyber swap currently supports Extremely high yields on native
token pairs using native token emissions, And the high yields on
these pools have successfully bootstrapped A significant pool of liquidity
for Zyberswap, Quickly sending them into the top
ten highest TVL protocols on arbitrage And just a short span of three weeks
against strong competitors Such as Uniswap and Sushi. And coming in for the sixth position,
we have Synapse protocol originally Launched as a stable swap protocol
nerve on the Binance Smart chain. They later
rebranded to Synapse as a bridging Protocol, bridging stablecoins
across a very supportive chains. Today, Synapse services
17 different chains with arbitrage Holding the largest portion of its TVL
at $88 million. Synapse has also increased their list
of supported assets to include ether And tokens of established projects
such as GMX, Olympus Dao Investor Finance among many others. Synapse has also hinted at plans
for their very own chain synapse chain In the future, with single sided staking
for the SYN token to become possible With such an implementation
and then coming in For the seventh position
we have Camelot Dex. Camelot Dex is Arbitrum
native Dex with an AMM as its main product And multiple complementary offerings
to support the protocol. Some of the innovative features
that Camelot has implemented currently Include dual liquidity types,
which support volatile swaps and stable

Swaps and dynamic trading fees,
which allow each pool to have their own Trading fee in variable trading fees
based on the direction of the trade. On top of that, Camelot
also represents staked a liquidity Pool positions
using NFTs also known as spNFTs. SpNFT continue to earn yield in fees. As with traditional liquidity provision,
however, they can also Be locked to boost yield
on their positions, and certain pools Also require locked positions
to be utilized for additional yield. And then for the eighth spot,
we have curve finance. So curve finance is an AMM designed To provide a low slippage swaps
between assets with identical pegs Such as Stablecoins or ETH
liquid staking derivatives or LSDs. Since its launch curve has become
a de-facto DEX for stablecoin swaps across More than ten chains
and solidified its position as a defi Titan curve is also known for its vote
escrowed CRV tokens, where CRV Token holders can lock their tokens
for up to four years in exchange For voting power. Rewards and bribes
from external Protocol's. This Tokenomics model continues
to be copied across new projects, Highlighting its continued success
many years after their launch. Curve continues to innovate
and is expected to ship out their native Stablecoin at crvUSD
sometime in early 2023. And then for the ninth position
we have AAVE. Anyone who is engaged in lending
or borrowing activities on chain before Would have definitely have heard
of the name AAVE. Beginning As ETH learned in 2017 of a rose
to prominence as defies dominant money Market protocol quickly Climbing to become the fourth largest DApp
by TVL coming in for the final position. We have Solidlizard modeled After the famous
solidly project on the phantom blockchain. Solidlizard brings the V3 three model
to Arbitrum V3 three model combines The voter screwed v token model
from core finance Any three three rebasing Model from Olympus DAO and the result
a unique system of governance And liquidity incentivization.

So that's a little bit about arbitrage. Let us know your thoughts
on the project down below.


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