What challenges does Arbitrum face? Why migrate Arbitrum One to Nitro?

Written by: Chole, Chain Tea House

Since its launch last year, the L2 network Arbitrum has quickly gained immense popularity due to its cheap and fast user experience, with a TVL (Total Value Locked) already exceeding several billion dollars. Numerous dApps, including Uniswap, SushiSwap, Balancer, Curve, 1inch, MakerDAO, Chainlink, and Cream Finance, have already been deployed.

Recently, Arbitrum announced the launch of the Nitro development network Devnet based on the Ethereum testnet. Nitro can significantly increase network throughput and reduce costs. In the future, the team will optimize it through several resets based on the construction of Devnet, then migrate to the Arbitrum Rinkeby testnet, and finally migrate the current Arbitrum One to Nitro.

We can see that Arbitrum is still on the fast track of development. So what challenges does Arbitrum face in the future? What projects in the ecosystem are worth paying attention to?

Everything starts with Optimistic Rollup.

Optimistic Rollup vs ZK Rollup

Optimistic Rollup (OR) is a scaling solution designed to enhance the throughput of general-purpose smart contracts on Ethereum.

If developed relatively quickly, it can provide a simple solution for migrating existing dApps and services, with minimal sacrifices in security and scalability. It can help Eth1.0 adapt to the growing demand.

In contrast, ZK Rollup is a more complex technology that can be used for token transfers and customized applications, but to truly implement general-purpose smart contracts with it, more time and research are needed to efficiently encapsulate the EVM in zero-knowledge proofs.

However, once ZK Rollup is developed, all existing Ethereum dApps and services can smoothly migrate to ZK Rollup without much effort.

So why did Arbitrum choose Optimistic Rollup instead of ZK Rollups? Because Optimistic Rollup has an advantage in operational costs—everyone hopes that the transaction costs on this blockchain will be lower and compatible with existing tools.

The off-chain costs of constructing ZK Rollup proofs are very high, potentially requiring specialized hardware or large-scale parallelism, which makes the network more centralized.

Trustlessness and Instant Finality

When evaluating Rollup, Arbitrum needs to determine whether Rollup needs to provide trustless, instant finality. Simply put, this means that after a user submits a transaction, everyone should instantly and definitively know the result of the transaction, and no one can modify or revoke this transaction.

From Arbitrum's perspective, the best way to achieve instant finality is to separate the order of transactions from their execution.

If the execution of transactions is deterministic, then determining the order of transactions is sufficient to determine the result, as the result is a deterministic function of the transaction order.

In other words, if everyone knows the order of transactions, then everyone can easily determine the result. Completing a sequence requires publishing the sequence to the Layer 1 chain and including enough information to allow anyone to execute the transaction themselves, enabling trustless knowledge of the result.

In an Optimistic Rollup system, the cost of publishing to the Layer 1 chain is minimal. In fact, Arbitrum typically publishes sorted transaction data to the Layer 1 chain approximately every minute, providing users with quick certainty and ensuring that no one can revoke their transactions.

Additionally, Arbitrum generates a new Optimistic Rollup result assertion approximately every hour. However, since the sequence has already been finalized and execution is deterministic, this does not slow down the finality speed at all.

Key Challenges Facing Arbitrum

Arbitrum's security guarantees are executed by validators, and the premise of Optimistic Rollup assumes that all transaction data is correct. However, if validators suspect fraudulent activity, they can dispute the transaction through a dispute resolution mechanism.

Thus, Optimistic Rollup faces a significant challenge—if validators discover suspicious transactions, the challenged transaction will be restored during the dispute. Because of this, transferring funds from the Ethereum mainnet to Arbitrum takes about 10 minutes, but transferring funds back from Arbitrum to the Ethereum mainnet requires users to spend about a week.

From a user experience perspective, users care more about the speed of transactions and the cost of each gas fee. From this perspective, Arbitrum's competitors are not only Layer 2 projects but also high-performance Layer 1 main chains like Solana, AVAX, and BSC. They all feature high TPS and low fees, with cross-chain assets moving quickly and exits not requiring long wait times.

In 2021, as Layer 1 and Layer 2 projects emerged like mushrooms after rain, Ethereum assets gradually flourished, making it difficult for Arbitrum to maintain its competitive edge.

What Major Changes Does the Upcoming Nitro Bring?

The core of Arbitrum Nitro technology is a new prover that can perform interactive fraud proofs of Arbitrum on WASM code. This means that the L2 Arbitrum engine will be able to run on WASM, allowing the entire system to be built and compiled using standard languages and tools, replacing specially designed languages and compilers.

Nitro will significantly increase network capacity and reduce transaction costs. Arbitrum can reduce these controls and significantly improve throughput. Although today's Arbitrum is already 90-95% cheaper than Ethereum on average, Nitro further reduces costs.

Arbitrum Nitro is built on standard technologies such as WASM and Geth, making it more compatible with EVM and faster than the original technology by an order of magnitude. When it is ready, we will deploy it as a seamless upgrade to Arbitrum One.

The WebAssembly (WASM) architecture-driven version of Arbitrum will be a faster and more EVM-compatible version of Arbitrum, as the existing EVM engine can run on WASM. Over time, this project has evolved from an individual research project to production-level development work.

Ultimately, when Arbitrum One migrates to Nitro, it will be a seamless transition, and the only thing users will notice is reduced fees, increased capacity, and an overall faster experience.

So how much faster will the experience be with reduced fees and increased capacity? The team expects the execution speed of L2 to increase by 20 to 50 times, and costs will also decrease significantly.

But Nitro is just the beginning. In the future, Arbitrum may not only lead Ethereum Layer 2 but could also extend Rollup to other Layer 1 projects, paving the way for a larger pattern of public chain integration and development.

While the Ethereum-native dApps deployed on Arbitrum may represent a significant portion of this L2 network's TVL value, many exciting new protocols and dApps are also launching on Arbitrum.

Emerging Projects in the Arbitrum Ecosystem

So far, the three most successful projects are Dopex, TreasureDAO, and GMX.

Dopex

Dopex is the first major protocol launched on Arbitrum, and the two have even become synonymous with each other. Created by the anonymous TzTok-Chad, this protocol has entered the portfolios of every DeFi user. It is a decentralized options platform that allows users to trade options while maximizing liquidity and minimizing risk.

Currently, the main product of the protocol is its structured options vaults, Single Staking Option Vaults (SSOVs): users can deposit assets such as ETH, DPX, rDPX CRV, BTC, and BNB into call or put vaults and earn premiums and farming rewards. Additionally, users can purchase these options.

TreasureDAO

TreasureDAO is the first metaverse project built on Arbitrum, which has developed a plan around its upcoming game, Bridgeworld. However, Bridgeworld is not an ordinary game; its goal is to become a "bridge" between all different metaverse and NFT projects.

GMX

GMX is a decentralized perpetual contract exchange that has launched on both Arbitrum and Avalanche. It allows users to trade ETH, BTC, LINK, and UNI perpetual contracts with up to 30x leverage on a decentralized platform, rather than using leverage to short or long through centralized exchanges like Binance or FTX.

Although GMX has few products, the protocol has certainly become a major player in the decentralized perpetual contract exchange market. To date, GMX's trading volume has exceeded $16 billion, generating over $22 million in fees.