Nansen's Arbitrum Quarterly Report - Q2 2022

This report provides an overview of Arbitrum's ecosystem and performance of the chain via on-chain metrics.

Table of Contents

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Overview

Optimistic Rollups

Arbitrum is an Optimistic rollup and is one of the many scaling solutions for the Ethereum blockchain. Optimistic rollups assume that validators are not malicious and transactions are posted correctly. To ensure that assertions are valid, anybody would be allowed to challenge the validity of a claim for approximately a week. The dispute is then narrowed down to a single line of instruction and executed on the L1 chain to verify correctness. The fraudulent node would have its stake slashed, with its portion going to the winner of the challenge. The process of presenting evidence of an incorrect state transition is called fraud proof. This is the basis of how an Optimistic rollup like Arbitrum works, reducing the workload on the main L1 chain as not all the transactions need to be re-executed and incentivizing nodes to be well-behaved. 

Check out Nansen Alpha’s previous report on Arbitrum and other scaling solutions for Ethereum here.

Ecosystem

Source: Cryptorank

Arbitrum hosts a dynamic ecosystem of dApps and tools, which can be viewed on the Arbitrum One Portal directory. As of Aug 12, 2022, Tracer DAO was rebranded to Mycelium.

With Arbitrum Nitro slated for an upcoming launch, developers can look forward to a more seamless experience by utilizing Geth instead of the custom-designed language Arbitrum Virtual Machine (AVM). The team expects that throughput on the chain would increase, together with a reduction in fees, allowing more teams to build out the current ecosystem further.

Key Development: Q2 2022

Arbitrum Nitro

  • On July 16, 2022, Offchain Labs published a report about upgrading Arbitrum One onto the Nitro tech stack after successfully migrating the Rinkeby testnet in the upcoming month.
  • Arbitrum Nitro features several changes to the current AVM architecture and ArbOS. 
  • The popular WebAssembly (WASM) architecture would replace the older, custom-designed AVM architecture. 
  • Custom-built EVM emulators would also be replaced by Geth, one of the most popular software clients for running an Ethereum node. 
  • Lastly, ArbOS would be reduced in size and rewritten in Go, resulting in a more optimized batch and compression system for transactions.
  • With these upgrades in Nitro, the Arbitrum team expects a 7x improvement in throughput, along with significantly lower fees.

Arbitrum Odyssey

  • Arbitrum Odyssey was announced as a collaboration with Project Galaxy, a web3 credential data network, and illustrators, Ratwell and Sugoi.
  • It is an interactive exploration through the Arbitrum ecosystem, where users would perform several on-chain tasks and navigate through various dApps on the Arbitrum chain to earn some exclusive NFTs. 
  • The initiative was planned to run for nine weeks, culminating in a final Arbi NFT; however, Arbitrum Odyssey has been paused and awaiting the Nitro upgrade to go live on the mainnet. According to this tweet, users who have completed tasks thus far would still keep their progress through the journey.

Arbitrum Nova - AnyTrust Chains

  • AnyTrust technology is based on a minimal trust assumption that is assured via a Data Availability Committee. This committee would be responsible for managing the transaction data off-chain and for providing this data backing a batch. 
  • Signing Data Availability Certificates (DACerts) for batches of transactions and posting this DACert instead of all the transactions leads to a smaller storage requirement on the L1 chain and cheaper transaction fees. 
  • The DACert would also be a declaration that the committee is responsible for providing the batch data upon request.
  • If the committee cannot reach a consensus, the chain would revert back into the Arbitrum rollup protocol. 
  • The data execution would be performed on the L2 chain, and after a challenging period, the new rollup states would be confirmed on Ethereum.
  • Similar to how Arbitrum One is built atop Arbitrum Rollup technology, Arbitrum Nova is a new chain built on the foundation of AnyTrust technology and would be rolled out with Nitro. It is fully EVM compatible, and development on either chain would be as seamless as possible.
  • It is more tailored towards cost-sensitive gaming and social applications that experience higher volume and frequencies of transactions.

Nansen On-chain Data

Daily Transactions

Source: Nansen

Transactions on Arbitrum had stayed within the range of 40k - 100k transactions daily, with a steep uptrend that occurred from Jun 26 to Jun 28. Gas on Arbitrum had followed a similar pattern as well. During the UST de-pegging event on May 12, gas increased sharply while transaction volume dipped. In contrast, the second gas spike on Jun 28 had a corresponding increase in the number of transactions, possibly due to Arbitrum Odyssey, which was paused at the end of Q2 2022 for the Nitro upgrade to be integrated from their recent tweet

Daily Transactions (vs Ethereum)

Source: Nansen

Comparing the number of transactions to that of Ethereum, the transaction volume of Ethereum was higher but trending sideways for both chains, hovering between 100k - 200k and 1m - 1.2m for Arbitrum and Ethereum respectively. Interestingly, during the period of 19 June to 28 June, transactions on Ethereum dropped against an increase in transactions on Arbitrum, the same period of Arbitrum Odyssey. This could be an opportunity to look out for when Arbitrum Odyssey resumes after the Nitro upgrade.

Smart Money Segments on Arbitrum

Source: Nansen

Following up with addresses that have been labeled as Smart Money on Ethereum, this chart shows the proportion of such addresses on Arbitrum as well. The label, Airdrop Pro, had the largest percentage of overlapping addresses by far, indicating that many wallets could be waiting on Arbitrum to follow in Optimism’s footsteps which released their native token earlier this year. 

Check out this page for how these categories are defined and how you can use these labels on Nansen!

Top Entities by Users and Transactions

Source: Nansen

Besides Smart Money, we can also use Nansen labels to analyze the top entities being interacted with based on the number of users and transactions on Arbitrum. Many of the entities shown here were part of the Arbitrum Odyssey and could be indicative of the campaign’s efficacy in onboarding users to interact with the dApps offered on the Arbitrum ecosystem. Besides swaps and bridges, GMX and Treasure stood out as interesting projects that contributed to the transaction volume on Arbitrum. Lastly, the ‘Unknown’ listed at the top refers to the sum of all untagged entities and not one single unknown entity/project.

Notable Projects in Q2 2022

GMX

  • GMX is a decentralized spot and perpetual exchange that offers low swap fees and zero price impact trades. Trading is supported by a multi-asset pool that earns fees from market making, leverage trading, and swap fees. Its pricing is supported by Chainlink oracles as well as an aggregated price from major exchanges.
  • With its inclusion in Arbitrum Odyssey and its strong incentives for both stakers and liquidity providers, GMX experienced an increase in both volume and attention. 
  • Additionally, having been deployed on both chains, Avalanche and Arbitrum, GMX is able to tap into separate communities and take advantage of low fees on both chains.

Treasure

  • Treasure is a decentralized NFT ecosystem on Arbitrum that is centered around metaverse projects. Every project that is listed utilizes MAGIC, which is the native token of Treasure, in their respective ecosystem, brimming with lore and community. 
  • Trove, an NFT marketplace built around the Treasure ecosystem, expands upon Treasure’s established brand and has officially launched its alpha version, which embodies a wider range of NFTs ranging from art, photography, and music.
  • Trove also aims to gamify the marketplace experience by creating a “game world” giving both collectors and builders the freedom of expression through their assets, community, and shared experiences.

Conclusion

Despite the bearish sentiment in the market, the Arbitrum team had been able to engage with users through Arbitrum Odyssey to explore its vibrant ecosystem, rewarding them in the process. Coupled with the upcoming infrastructure upgrades of Nitro and Nova, Arbitrum solidified its position as a developer playground and demonstrated its potential to be a scaling solution for the Ethereum chain with its higher throughput and reduction in fees.

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Disclaimer: The author(s) of this content and members of Nansen may be participating or invested in some of the protocols or tokens mentioned herein. The foregoing statement acts as a disclosure of potential conflicts of interest and is not a recommendation to purchase or invest in any token or participate in any protocol. Nansen does not recommend any particular course of action in relation to any token or protocol. The content herein is meant purely for educational and informational purposes only and should not be relied upon as financial, investment, legal, tax or any other professional or other advice. None of the content and information herein is presented to induce or to attempt to induce any reader or other person to buy, sell or hold any token or participate in any protocol or enter into, or offer to enter into, any agreement for or with a view to buying or selling any token or participating in any protocol. Statements made herein (including statements of opinion, if any) are wholly generic and not tailored to take into account the personal needs and unique circumstances of any reader or any other person. Readers are strongly urged to exercise caution and have regard to their own personal needs and circumstances before making any decision to buy or sell any token or participate in any protocol. Observations and views expressed herein may be changed by Nansen at any time without notice. Nansen accepts no liability whatsoever for any losses or liabilities arising from the use of or reliance on any of this content.

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