Foresight Ventures: A Brief Discussion on the Arbitrum Ecosystem

Author: msfew, Foresight Research

0. Summary

• In just six months, the Arbitrum ecosystem has grown rapidly, boasting mature and standout projects across various sectors. The potential of Arbitrum has begun to be realized, and in the future, Arbitrum will continue to develop rapidly and dominate the forefront of L2.
• Thanks to the characteristics of Arbitrum, its infrastructure is incredibly complete, with wallet and exchange support shining brightly among Layer2 solutions, laying a solid foundation for the ecosystem's development.
• Arbitrum's DEX and DeFi protocols are highly diversified, making integration with Arbitrum almost the default choice for such applications. Arbitrum's TVL ranks among the top in all Layer2 ecosystems, while unique decentralized exchanges like GMX have emerged within the ecosystem.
• In the NFT and metaverse sectors, Arbitrum features the exceptionally prominent project Treasure DAO, whose complete storyline, grand narrative, and active community give Arbitrum its unique metaverse gene.

1. Introduction to Arbitrum

Arbitrum is an Ethereum Layer2 scaling solution created by the Offchain Labs team based on Optimistic Rollup technology. Arbitrum utilizes the communication capabilities between L1 and L2 to allow any form of Ethereum asset to be transferred between the two layers without trust. Although Arbitrum's transactions are still settled on Ethereum, it only submits the original transaction data to Ethereum, while execution and contract storage occur off-chain. Therefore, the gas fees required on Arbitrum are significantly lower compared to the Ethereum mainnet, and contracts are fully compatible with no gas limit.

Half a year after the launch of Arbitrum, a star project in Ethereum scaling, the ecosystem has gradually matured under the efforts of developers. Compared to StarkWare and zkSync's zk-Rollup, which were recently praised by Vitalik, the powerful Optimism, and the Polygon that grew wildly by surrounding the city with the countryside, Arbitrum's ecosystem has been developing more quietly and steadily.

A year ago, Arbitrum had nothing; a year later, Arbitrum boasts a TVL of 2.53B, over 250 launched projects, more than 330,000 addresses, and over 4 million transactions. Arbitrum has built a dream team for its ecosystem.

The Ecosystem of Arbitrum Determines the Future Value of the Network

When assessing the value of a network, the most intuitive data is TVL, as the number of users directly determines the amount of TVL. Aside from ensuring the safety of funds, the specific technical details of a blockchain network or Layer2 scaling solution are often not particularly important to users. What attracts users the most is the completeness and convenience of the experience, which is directly brought about by the maturity and prosperity of the ecosystem. Therefore, for an emerging potential network, it is essential to pay attention to its ecosystem development to gauge its growth potential.

2. Arbitrum Infrastructure

The construction of infrastructure determines whether the foundation of the ecosystem is solid and is an indispensable part of the initial stage of ecosystem development. For a Layer2 or any network ecosystem, infrastructure that includes wallet compatibility, cross-chain bridges, and developer tools is necessary. These facilities determine the basic usability of the network.

As a fully EVM-compatible solution, Arbitrum has inherent advantages and is even more flexible in certain development aspects compared to Ethereum. For every network, developers are the first batch of users, and an EVM-compatible network greatly accelerates the influx of developers and the construction of infrastructure. Arbitrum has had complete infrastructure support from the very beginning.

a. Cross-Chain Bridges

In addition to the official cross-chain bridge, Anyswap, Hop, Celer, and other cross-chain bridges have added support for the Arbitrum network. Furthermore, major mainstream exchanges also support deposits and withdrawals on the Arbitrum mainnet, meaning they can serve as cross-chain bridges connecting Arbitrum with the Ethereum mainnet and other networks, as well as providing direct fiat on-ramps for Arbitrum. The support from exchanges is crucial, which is why Arbitrum's TVL can far surpass similar competitors like Optimism.

b. Wallets

According to Arbitrum's ecosystem portal, we can see that almost all mainstream wallets or asset management tools have integrated the Arbitrum network, allowing users to use their commonly used wallets to directly interact with various applications on Arbitrum.

c. Tools

• Development Tools

  For developers, commonly used Ethereum development tools and suites (Web3.js, Truffle, Hardhat, Infura, Moralis) all support the Arbitrum network. Developers can use these tools normally, and the development process is essentially no different from development on Ethereum.

  To enrich and complete the functionality of decentralized applications, The Graph and Chainlink are also indispensable in development, both supporting the Arbitrum network.

  With these basic tools, developers, as the first batch of users of Arbitrum, can almost seamlessly switch to the ecosystem construction of Arbitrum and obtain a development experience similar to that on the Ethereum network, enabling them to develop fully functional decentralized applications.

  It is worth noting that although all these tools support the Arbitrum network, there may still be slight differences due to high latency issues compared to the Layer1 mainnet, such as potential pitfalls in obtaining block height and block time. Therefore, some applications that require low latency may need to optimize for Arbitrum or wait for official solutions to address these issues.

• User Tools

  In addition to wallets, other user tools are also an important part of the ecosystem. Arbitrum's user tools include the Arbiscan blockchain explorer, Nansen, Token Multisender (which can batch transfer NFTs), and Gnosis Safe (a multi-signature wallet that can be used as a shared wallet for teams or a personal multi-device wallet management tool). These tools not only meet the basic needs of users to view transaction information but also provide data analysis and special interaction functions for some users, expanding the usability of Arbitrum.

• Base Tokens

  As an Ethereum network, Arbitrum naturally supports the native ETH token. Additionally, commonly used tokens such as WBTC, USDT, and USDC have also launched on Arbitrum, fully meeting DeFi needs.

3. Arbitrum DeFi

a. DEX and Trading Platforms

When performing swaps or claiming airdrops on Layer1 chains, high transaction fees are often a cost that users need to consider. The emergence of the Arbitrum network effectively addresses this pain point, allowing DEX and contract transactions to truly achieve "no fee wear."

Before its launch, Arbitrum had already whitelisted over 400 applications, with dozens already online, well-prepared and ready. Currently, multiple DEXs, including Uniswap, 1inch, DODO, and Sushiswap, support the Arbitrum network. These DEXs, as important infrastructure that has already established a foothold in the ecosystem, have always maintained a positive attitude toward Arbitrum and similar scaling networks, being among the first applications to land in the ecosystem. As contract exchanges have high requirements for liquidation efficiency and fee prices, many exchanges choose Layer2, and Arbitrum's complete infrastructure and decentralized characteristics further attract them to land on Arbitrum. Although these DEXs and exchanges are almost indistinguishable in essence, they each have their unique features in this niche sector. For the Arbitrum ecosystem, the more DEXs and exchanges, the better.

Dfyn

Dfyn is an AMM DEX. Its main features include gasless trading, future cross-chain swap capabilities, multi-chain support (Arbitrum, Polygon…), and a customizable toolkit. Let's focus on the characteristics of gasless trading and cross-chain swaps.

Dfyn is the first DEX to launch gasless trading. As the name suggests, users do not need to pay gas when swapping. Gasless trading is primarily achieved through Biconomy's relayer. During a transaction, users only need to sign the transaction, after which Biconomy's relayer pays the gas and forwards the transaction back to Dfyn's contract, which then updates the on-chain state. In practical use, operations like Approve still require gas, and currently, gasless mode is only available on the Polygon chain. However, this gasless mode is still very novel and eye-catching.

Dfyn's cross-chain swap is also distinctive. Its envisioned cross-chain asset swap is implemented through the Router Protocol. The Router Protocol and Dfyn are backed by the same team. The Router Protocol primarily facilitates cross-chain swaps through individual routers on multiple chains and a master router. Assets first enter the original chain's router, then to the master router, and finally released by the target chain's router. The specific white paper does not disclose too many details, but this cross-chain swap is indeed a straightforward and easy-to-understand solution. In addition to Dfyn's Router Protocol, there are also solutions like THORchain and Chainflip in the cross-chain swap sector, which may offer more decentralized solutions compared to Router Protocol.

The Router Protocol will officially launch on the mainnet this week, and we eagerly anticipate whether this innovation can break the barriers between chains and enable asset flow.

GMX

GMX is a decentralized spot and perpetual contract exchange, characterized by low swap fees and zero slippage trading, currently deployed on the Arbitrum and Avalanche networks.

Unlike traditional order book or AMM exchanges, GMX does not use trading pair pools but instead utilizes a multi-asset GLP (GMX Liquidity Provider) for executing swaps and leveraged trading. Liquidity providers deposit tokens like ETH and BTC into the GLP pool. The prices of traded tokens like ETH are derived from Chainlink oracles and the average prices of several mainstream DEXs. This design allows GMX to achieve zero slippage and low-rate trading.

The price of the GLP token is derived from the total value of assets in the GLP pool divided by the GLP supply. When liquidity providers inject assets into GLP, a certain amount of GLP tokens are minted, and when withdrawing liquidity, the corresponding GLP tokens are burned. In this process, if the number of ETH tokens in the GLP pool is low, the corresponding fees for adding ETH will decrease, incentivizing providers to supply the most favorable assets to the pool.

At the same time, GLP holders receive two types of incentives: one is that they will receive esGMX, which can be fully converted into GMX after one year, and the other is that 70% of platform profits will be shared with holders (distributed in the native tokens of the blockchain network).

The GMX token serves as the platform's utility and governance token and can be staked. The rewards for staking include the previously mentioned esGMX, 30% of platform profit sharing, and points generated at a rate of 100% APR per second (Multiplier Points, which can earn the same native token fee revenue as GMX).

The design of GMX's GLP and the depth of the pool ensure zero slippage trading, while GMX's staking design guarantees long-term holding for token holders. GMX's total trading volume and total fees are rapidly increasing under a well-designed token system. Arbitrum's role in GMX is primarily to ensure low fees, making decentralized contract trading feasible.

Dopex

Dopex is also a recently popular decentralized options trading platform, launched on Arbitrum and BSC. Dopex's basic design is very similar to Opyn. Its features include: the concept of options pools, pricing models (BS equation), and a dual-token model (options sellers can receive rDPX rebates in case of losses, and rDPX can also be used as collateral to mint other derivatives). Dopex has been widely discussed in recent articles about the Curve War series due to its gOHM options pool.

In addition, there are other DEXs on Arbitrum such as Swapr, HaloDAO, OpenOcean, O3Swap, Saddle, Warden, and exchanges like MCDEX, Antimatter.finance, Balancer, DGate, and Tracer.

b. DeFi Protocols

Mainstream DeFi protocols are also choosing to align with Arbitrum, expanding their territory and potential user base. Recently, Aave passed a proposal to deploy on Arbitrum with a 99.99% approval rate.

The active support of DeFi protocols for Arbitrum mainly stems from the competitive awareness of other DeFi protocols. Protocols hope to gain more network users' support through as much backing as possible, enhancing their competitiveness.

Of course, one must also be strong themselves. Arbitrum's excellent infrastructure and existing ecosystem make it hard for these protocols not to support it. Recently, Curve's locked amount was only $77 within 4 hours of launching on Optimism, which may reflect an incomplete ecosystem and a lack of users. In this regard, Arbitrum is already quite mature.

Arbitrum's DeFi ecosystem includes projects like Badger, Beefy Finance, Curve, and Olympus DAO.

Dev Protocol

Dev Protocol is a relatively interesting project within Arbitrum's DeFi ecosystem. Stakes.social is a decentralized open-source project funding platform based on Dev Protocol, similar to GitCoin. Dev Protocol currently has two tokens: DEV and Creator.

The DEV token can be staked to open-source projects to earn rewards and serves as a utility token on the platform, used to pay for interactions such as certifications. The Creator token can be created by open-source projects themselves, allowing for token distribution management and proof of ownership on Stakes.social. Additionally, these different Creator tokens can earn a portion of the rewards from the Dev tokens staked by supporters in the project. Regarding Creator tokens, Stakes.social also has a unique oracle called Khaos, which exports proof of ownership to platforms like GitHub by listening to user signatures (and can also be used for other on-chain events).

Stakes.social is currently deployed on the Ethereum mainnet, Arbitrum, and Polygon, with different open-source projects on different networks. These include Web3 projects like Vyper, as well as many Web2 projects, including Mandane (Apple's M-series chip Lisp Hypervisor), a series of open-source projects by Sindre Sorhus (GitHub 46k followers), and Redux-toolkit (GitHub 7k stars).

On the platform, we can see not only some familiar Web3 open-source projects but also various NFT art-related projects, as well as Web2 open-source projects. Especially for Web2 developers, the issue of open-source funding has always been a pain point. Although there are now ways like GitHub Sponsor to directly obtain funding, authors like the creator of Faker.js still work for a meager salary to maintain their open-source libraries for free for large companies. Protocols like Dev Protocol not only validate tokens but also genuinely help developers in need.

c. GameFi

In the GameFi sector, there are also many distinctive projects on Arbitrum, including Cudl Pet, Farmland, Kaki, Cometh, and OpenBlox.

4. Arbitrum DApp

a. NFT

Although most NFT projects are built directly on the Ethereum mainnet, as the types and interactive functions of NFTs become increasingly complex, many NFT-related applications have also emerged on low gas L2 networks like Arbitrum. NFT marketplaces on Arbitrum include: Out Of Orbit, Arbazaar, xNFT, Agora; as well as other types of NFT-related projects: NFT Alliance (an NFT alliance composed of a series of Arbitrum NFT projects), Random Walk NFT, and the recently prominent Treasure DAO.

Treasure DAO

Treasure DAO is a decentralized NFT ecosystem on Arbitrum, built for the metaverse. The project serves as a foundational platform for the metaverse, supporting other metaverse projects in building ecosystems while also establishing an NFT marketplace for projects within the ecosystem.

The center of Treasure DAO's metaverse is Bridge World. Bridge World is a community-centered metaverse game that incentivizes community collaboration through guilds and sub-DAOs, implementing development strategies centered around resource accumulation, resource efficiency optimization, and attracting players. Bridge World includes Magic (the universal currency of the metaverse, governance token), Treasure (the game resource and narrative cornerstone of the metaverse, the native NFT of Treasure), and Legions (the legions of the metaverse).

Treasure DAO has a strong community attribute, not only highlighting community functions through token voting governance but also featuring extensive community-driven creations and feedback, such as certain Treasures evolving into independent DAOs, where users can propose background stories for Treasure, and the concept of subDAOs is deeply integrated into the community…

The Smol Brains on Treasure DAO's marketplace has evolved from a free mint NFT into Arbitrum's "CryptoPunks." Treasure DAO is continuously updating its white paper and will release the Bridge World game, a marketplace similar to OpenSea, and many other new projects in the coming weeks. It can be said that with the collective help of the community, it is rapidly developing and deserves attention. Treasure DAO's comprehensive worldview, diverse gameplay, and thriving community show us the true direction of development for blockchain games.

Arbitrum's NFT ecosystem is continuously advancing under the leadership of Treasure DAO. I believe that every network will construct its unique NFT ecosystem and independent metaverse, ultimately forming a complete and unified metaverse through the collaboration of ecosystems. We will continue to monitor Arbitrum's NFT ecosystem.

b. Payments

In the payments sector, Arbitrum's low fees and EVM compatibility also provide excellent solutions for payment-related smart contract applications. The main projects on Arbitrum include Zippie (a payment solution for the African market) and Superfluid (soon to launch on Arbitrum).

Superfluid

Superfluid is a payment protocol and new token standard that enables true cash "flow" payments, applicable to salaries, subscriptions, or rewards that are typically paid monthly. Superfluid achieves real-time settlement through blockchain timestamps, increasing capital efficiency. Users' balances change in real-time, meaning they can flexibly access a portion of their normally monthly distributed salary at any time. For example, if there is a significant drop on January 20, 2022, we can immediately use the funds received this month through streaming payments to buy the dip. The security of streaming payments is guaranteed by the blockchain, and Superfluid is currently live on the Polygon and xDAI networks, with plans to launch on Arbitrum.

Members of the MakerDAO team, Delphi Digital, and even Visa have used Superfluid for streaming salary payments. Superfluid has also sponsored numerous hackathons, with over 250 projects developed based on Superfluid in 2021. These include Diagonla (streaming Web3 subscription service), Streamroll (allowing DAOs to lend through streaming payments), and TokenVesting (using streaming payments for token vesting)…

Users have deployed over 100 Superfluid tokens based on its infrastructure. Superfluid has attracted $120 million in TVL, which is already quite high for its mechanism, as for example, Ricochet Exchange only needs $200 in TVL to operate its total monthly funds of $2.3 million. Superfluid's TVL is primarily driven by use cases such as Treasury, Vesting, and the native Superfluid token.

In the innovation of streaming payments, Superfluid perfectly leverages the characteristics of blockchain and smart contracts, continuously promoting the development of the developer community, and significantly revolutionizing payment methods, opening up infinite possibilities for multiple use cases.

In the field of streaming payments, there are also products like Zebec, which further expand into the Web2 domain, focusing more on enhancing the impact on ordinary users, contrasting with Superfluid's crypto-native positioning, which is a very different approach and also worth paying attention to.

c. DAO

In addition to the previously mentioned Dev Protocol, which serves as a management platform for a DAO organization, there is also DAOHaus, a DAO application on Arbitrum. DAOHaus allows users to create (referred to as summoning by DAOHaus) DAOs, manage member voting rights, deploy bots for contracts or Discord, essentially meeting all the needs of a DAO organization.

5. Conclusion

The Arbitrum ecosystem continues to grow with a complete infrastructure. With the advantages of EVM compatibility and low fees, Arbitrum not only has various already popular DeFi protocols deployed on the network but also sees innovative applications emerging on the Arbitrum network. In the future of blockchain, more applications will choose to deploy on Ethereum's Layer2 networks. The current competition among public chains may increasingly become a competition among Layer2 solutions, and Arbitrum will always be a strong contender in this competition.