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Foresight Ventures: Arbitrum Ecosystem Review

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0. Quick Take

  • In just six months, the Arbitrum ecosystem has grown exponentially and already has mature and innovative projects in all fields. Part of the potential of Arbitrum has been realized, and in the coming time, Arbitrum will continue to grow at a rapid pace to dominate the L2 solutions.
  • Arbitrum’s infrastructure is well developed thanks to its basis characters, and its wallets and exchange support are among the most prominent Layer2 solutions, laying a solid foundation for the development of the ecosystem.
  • Arbitrum’s DEX and DeFi protocols are so diverse that access to Arbitrum is almost the default choice for such applications. Arbitrum’s TVL is one of the highest among all Layer2 ecosystems, and there are specialty decentralized exchanges such as GMX emerging.
  • In the NFT and Metaverse field, Arbitrum has an excellent project of Treasure DAO, whose complete story line, ambitious narrative and active community give Arbitrum its own unique Metaverse DNA

1. Arbitrum Introduction

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Arbitrum is an Ethereum Layer2 scaling solution created by the Offchain Labs team based on Optimistic Rollup technology. Arbitrum leverages the ability to communicate between L1 and L2, allowing any form of Ethereum asset to be transferred between Layer 1 and Layer 2 without trust. Although Arbitrum transactions are still settled on Ethereum, Arbitrum only submits the raw transaction data to Ethereum, with execution and contract storage occurring off-chain, so the gas fee required on Arbitrum is very small compared to the mainnet, and the contracts are fully compatible with no gas limit.

Six months after the launch of Arbitrum, the top project of Ethereum scaling, the ecosystem of Arbitrum is slowly maturing with the help of developers. Compared to StarkWare and zkSync’s zk-Rollup, which Vitalik recently praised, Optimism, which has a strong investment background, and Polygon, which is growing wildly by developers from India and China, Arbitrum’s ecosystem has been developing more low-key.

A year ago, Arbitrum had nothing; now, a year later, Arbitrum has 2.53B TVLs, 250+ live projects, 330,000+ addresses, and 4M+ txns. Arbitrum has formed the dream team.

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Arbitrum’s ecosystem determines the future value of the network

When we judge the value of a network, the most intuitive data is TVL, and the number of users basically directly determines the volume of TVL. Apart from the assurance of asset security, often the technical details of a blockchain network or Layer2 scaling solution are not particularly important to users, but rather the 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 necessary to pay attention to the construction of its ecosystem to judge its development potential.

2. Arbitrum Infrastructure

The infrastructure is an essential part of the ecosystem in its initial stages, as it determines whether the foundation of the ecosystem is strong. For a Layer2 or any network ecosystem, an infrastructure with wallet adaptation support, cross-chain bridges, and developer tools is necessary. These facilities determine the basic availability of the network.

Arbitrum has the inherent advantage of being a fully EVM-compatible solution, and is even more flexible than Ethereum in some development aspects. For each network, developers are the first users, and an EVM-compatible network greatly accelerates the influx of developers and the building of infrastructure. Arbitrum has had full infrastructure support from the 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. In addition, the major exchanges also support top-ups and withdrawals from the Arbitrum network, which means they can not only act as cross-chain bridges to connect Arbitrum to the main Ethereum network and other networks, but can also perform direct fiat on-ramps for Arbitrum. Exchange support is very important. This is why Arbitrum’s TVL is so far ahead of similar competitors such as Optimism.

b. Wallets

According to the Arbitrum portal, we can see that basically all the major wallets are integrated with the Arbitrum network, allowing users to use their usual wallets to interact directly with different applications on Arbitrum.

c. Tools

  • Developer tools
  • For developers, the most popular Ethereum development tools and suites (Web3.js, Truffle, Hardhat, Infura, Moralis) all have support for the Arbitrum network. Developers can use these tools normally, and the development process is basically the same as on Ethereum.
  • In order to enrich and complete the decentralized application, The Graph and Chainlink are also essential for development, both of them support the Arbitrum network.
  • With these basic tools, developers who are the first users of Arbitrum can switch to the Arbitrum ecosystem almost seamlessly and have the same development experience as on the Ethereum network, with the ability to develop fully functional decentralized applications.
  • It is worth noting that although all of these tools support the Arbitrum network, they are still slightly different from the Layer1 mainnet due to the high latency, such as the pitfalls of getting block height and block time. Therefore, in some applications that need low latency, we need to do some optimization for Arbitrum or wait for the official solution.
  • 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 (for multiple NFT transfers), and Gnosis Safe (a multi-signature wallet that can be used as a shared wallet for teams or as a 2FA wallet management tool for individual user). These tools not only ensure that the basic user needs to view transaction information, but also provide data analysis and special interaction features for some users, allowing the use of Arbitrum to expand.
  • Tokens
  • Arbitrum is an Ethereum network and naturally supports ETH native tokens. In addition, common tokens such as WBTC, USDT, USDC, etc. are also available on Arbitrum, which can fully satisfy DeFi’s needs.

3. Arbitrum DeFi

a. DEX and trading platforms

High fees are often a costly consideration for users when swap or receiving airdrops on the Layer1. The Arbitrum network is a great solution to this pain point, allowing transactions on DEX and contracts to be done without “fee cost”.

Arbitrum has whitelisted over 400 applications before it launched, and dozens are already live before launching, make Arbitrum locked and loaded. A number of DEXs, including Uniswap, 1inch, DODO, Sushiswap, and others, currently support the Arbitrum network. These DEXs, as important infrastructure already established in the ecosystem, have been active in scaling networks like Arbitrum, and are the first applications to land in the ecosystem. Trading exchanges, for example, have very high requirements for clearing efficiency and fee pricing, so many of them choose Layer2, and are attracted to Arbitrum by its well-developed infrastructure and decentralized nature. These DEXs and exchanges are almost indistinguishable in nature, but each has its own characteristics in this niche. For the Arbitrum ecosystem, the number of DEXs and exchanges is more than enough.

Dfyn

Dfyn is an AMM DEX. The main features of Dfyn are no gas fee transactions, cross-chain swap functionality, multi-chain support (Arbitrum, Polygon…), and customizable toolkit. Let’s focus on the gasless trading and cross-chain swap features.

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Dfyn is the first DEX to introduce gasless transactions. As the name implies, users do not need to pay gas when they swap. gasless is mainly achieved through Biconomy’s relayers. During a transaction, the user only needs to sign the transaction, then Biconomy’s relayers pay the gas, forwards the transaction back to Dfyn’s contract, and finally the contract updates the state on the chain. In practice, Approve and other operations still require gas, and the gasless mode is currently only available on the Polygon chain. But this gasless model is still very new and exciting.

Dfyn’s cross-chain swap is also unique. The cross-chain swap in its vision is implemented through Router Protocol. Router Protocol has the same team behind Dfyn. What Router Protocol does is to implement cross-chain asset swap by using individual router for multiple chains and a master router, the asset will go to the router of the original chain first, then to the master router, and finally the target chain router will release it. Not much detail is disclosed in the specific white paper, but this cross-chain swap is very easy to understand. In addition to Dfyn’s Router Protocol, the cross-chain swap is also implemented by THORchain and Chainflip, which may offer a more decentralized solution than Router Protocol.

Router Protocol will officially go live on the mainnet this week, and we are very excited to see if this innovation will break down the gaps between chains and allow assets to flow.

GMX

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

Unlike traditional order books or AMM exchanges, GMX does not use a pool in the form of trading pairs, but rather a multi-asset GLP (GMX Liquidity Provider) for executing swap and leveraged trades. The liquidity provider fills the GLP pool with ETH, BTC, etc. tokens. The prices of the traded ETH and other tokens are derived from a combination of the Chainlink oracle and the average prices of several other major DEXs. It is this design that allows GMX to achieve 0 slippage and low fees.

The price of $GLP tokens is derived from the total value of assets in the GLP pool / GLP supply. The liquidity provider minted a certain amount of $GLP tokens when it added assets into the GLP, and burned the corresponding $GLP tokens when it withdrew liquidity. In this process, if the GLP pool has a low number of $ETH tokens, the corresponding fee for adding $ETH is reduced, thus providing an incentive for the provider to provide the most favorable assets to the pool.

At the same time, $GLP holders are incentivized in two ways: one is that they receive $esGMX that can be fully converted to $GMX after one year, and the other is that 70% of the platform’s revenue is distributed to the holders (in the form of native tokens to the blockchain network).

The $GMX token is the platform’s utility and governance token, which can be staked. The reward for staking is: the aforementioned $esGMX, a 30% share of the platform’s revenue, and multiplier points generated at 100% APR per second (can earn the same native token revenue as $GMX).

GMX’s $GLP design and the depth of the pool ensure slippage-free transactions, and $GMX’s staking design ensures long-term holdings. GMX’s total trading volume and total fees have skyrocketed with a well-designed token system. The role of Arbitrum in GMX is to keep the fees low enough to ensure the viability of a decentralized contract exchange.

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Dopex

Dopex is also one of the most popular decentralized options trading platforms, launched on Arbitrum and BSC. The basic design of Dopex is very similar to Opyn. Dopex features an option pool concept, a pricing model with BS formula, and a dual token model (option sellers receive a $rDPX rebate in case of loss, and $rDPX can also be used as collateral to mint other derivatives). Dopex has also been discussed extensively in the recent popular Curve War series of articles for having the gOHM option pool.

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

b. DeFi Protocol

The mainstream DeFi protocols have also chosen to align themselves with Arbitrum to expand their footprint and potential user base. Aave recently passed a proposal to deploy on Arbitrum with 99.99% support.

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The active support of Arbitrum by the DeFi protocol is mainly due to a sense of competition with other DeFi protocols, and the protocol wants to gain as much support as possible from network users to increase its competitiveness.

Of course, Arbitrum’s excellent infrastructure and existing ecosystem make these protocols support the network actively. Recently, Curve had only $77 in TVL within 4 hours of Optimism’s launch, which may be a reflection of the ecosystem and few users. Arbitrum is well established in this regard.

Arbitrum’s DeFi ecosystem includes projects such as Badger, Beefy Finance, Curve, Olympus DAO, and many others.

Dev Protocol

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Dev Protocol is one of the more interesting projects in 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 for revenue, and is a utility token in the platform that can be used to pay for authentication and other interactions. The $Creator tokens are project tokens that can be created by the open source projects themselves, and can be managed and owned on Stakes.social, while the different $Creator tokens can receive a portion of the $Dev tokens staked to the project by backers. For the $Creator tokens, Stakes.social also has a unique built-in oracle called Khaos, which exports proofs of ownership to platforms like GitHub by listening for user signatures (and of course other on-chain events).

Stakes.social is currently deployed on the mainnet, Arbitrum and Polygon, with different open source projects on different networks. There are Web3 projects such as Vyper, but also many Web2 projects, including Mandane (Lisp Hypervisor for Apple’s M-series chips), a series of open source projects by Sindre Sorhus (GitHub 46k followers), Redux-toolkit (GitHub 7k star), etc.

On the platform, we can see not only some familiar Web3 open source projects, but also a variety of NFT art-related projects, in addition to some Web2 open source projects. For Web2 developers in particular, the issue of open source funding has always been a pain point. Although there are now GitHub sponsors and other ways to get direct revenue. The authors of Faker.js, for example, are still paid zero salary to maintain open source libraries for free for the use of large companies. Protocols like Dev Protocol not only make token work in the right way, but they also help developers in need.

c. GameFi

There are also many unique projects on Arbitrum in the GameFi space, including Cudl Pet, Farmland, Kaki, Cometh, OpenBlox, and many others.

4. Arbitrum DApp

a. NFT

While most NFT projects will be built directly on the Ethereum mainnet, as NFTs become more diverse and complex in their interactions, many NFT-related applications have emerged on low-gas L2 networks such as Arbitrum. NFT Marketplaces on Arbitrum include: Out Of Orbit, Arbazaar, xNFT, Agora; and other types of NFT-related projects: NFT Alliance (a series of Arbitrum NFT projects forming an NFT community), Random Walk NFT, and more recently, Treasure DAO.

Treasure DAO

Treasure DAO is a decentralized NFT ecosystem on Arbitrum, built for the metaverse. The project is a Metaverse base layer platform to support Metaverse projects to build the ecosystem, and also to build the NFT marketplace for projects within the ecosystem.

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The center of the Metaverse of Treasure DAO is Bridge World. Bridge World is a community-centric metaverse game that incentivizes community collaboration through guilds and sub-DAO to achieve a development strategy centered around resource accumulation, resource efficiency optimization, and player attraction. Bridge World includes $Magic (the metaverse’s common currency, governance tokens), Treasure (the metaverse’s game resources and background narrative building blocks, Treasure’s native NFT), and Legions (the metaverse’s characters).

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The Treasure DAO has a strong community component, not only through token voting governance to highlight the community function, but also through UGC and feedback to the community. For example, some of the Treasures have spawned independent DAOs, and users can create background stories for Treasure through proposals, and the concept of subDAO is deeply rooted in the community…

Treasure DAO’s Smol Brains has also evolved from a free Mint NFT to “CryptoPunks” on Arbitrum. Treasure DAO is constantly updating its whitepapers, and in the next few weeks will release the Bridge World game, an OpenSea-like NFT marketplace, and many other new projects that are growing rapidly with the help of the community, so it’s worth watching. Treasure DAO’s comprehensive worldview, diverse gameplay and thriving community show us the true direction of the blockchain game.

Arbitrum’s NFT ecosystem is moving forward with Treasure DAO. I believe that each network will build its own unique NFT ecosystem and separate Metaverse, and eventually, with the union of ecosystems, a complete unified Metaverse will be formed. We will keep an eye on Arbitrum’s NFT ecosystem.

b. Payments

In the payments field, Arbitrum’s low fees and EVM compatibility also make it a great solution for payment-related smart contract applications. The two main players on Arbitrum are Zippie (a payment solution focus on the African market) and Superfluid (coming soon to Arbitrum).

Superfluid

Superfluid is a payment protocol and a new token standard that enables true cash “flow” payments that can be applied to payroll, subscriptions, or rewards that are typically paid monthly. Superfluid enables real-time settlement via blockchain timestamps, increasing capital efficiency. The user’s balance changes in real time, which means that the user can access a portion of his or her usual monthly payroll at any time, which is very flexible. For example, if we have a big dip on January 20, 2022, then we can always use the funds we received in the month’s stream to buy the dip. The security of the streaming funds is guaranteed by the blockchain. Superfluid is currently live on the Polygon and xDAI networks, and will soon be available on the Arbitrum network.

The MakerDAO team, Delphi Digital, and even members of Visa use Superfluid for streaming payroll. Superfluid has also sponsored a very large number of hackathons, with over 250 projects based on Superfluid in 2021. Among them are Diagonla (streaming Web3 subscription service), Streamroll (enabling DAO to do lending via streaming payments), TokenVesting (as the name suggests, token vesting with streaming payments)…

Users have deployed over 100 Superfluid tokens on top of it. Superfluid has attracted 120 Million TVLs, which is high for Superfluid’s mechanism, since Ricochet Exchange, for example, needs only 200 TVLs to operate its own 2.3 Million total monthly funds. Superfluid’s TVL is primarily driven by the Treasury, Vesting, and native Superfluid tokens use cases.

With the innovation of streaming payments, Superfluid perfectly leverages the features of blockchain and smart contracts, and continues to drive the developer community, revolutionizing the way payments are made and opening up unlimited possibilities for multiple use cases.

In the field of streaming payments, there are also products such as Zebec. Zebec is more towards the Web2 domain and more focused on improving the impact on common Internet users, which is a very different approach compared to Superfluid’s Crypto Native positioning, and is also worth paying attention to.

c. DAO

In addition to the aforementioned Dev Protocol, which is a sort of management platform for DAO organizations, there is also DAOHaus, a DAO application on Arbitrum. DAOHaus can create (DAOHaus calls it summoning) DAOs, manage whether members have voting rights, and deploy Bot to contracts or Discord, which basically meets all the needs of a DAO organization.

5. Conclusion

The Arbitrum ecosystem continues to grow with a well-developed infrastructure. With the benefits of EVM compatibility and low fees, Arbitrum is seeing not only the deployment of the already popular DeFi protocols, but also the explosion of innovative applications on it. In the future of the blockchain, more applications will choose to be deployed on the Layer 2 network of Ethereum, and the public chain battle that we are focusing on now will probably become more and more a Layer 2 battle, and Arbitrum will always be a very strong player in this competition.

Source: Forsight Venture

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