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What is Arbitrum? | Everything You Need to Know About ARBI

Arbitrum logo on a blue background
Arbitrum is a layer-2 solution for the Ethereum blockchain – Photo: Shutterstock

After launching its mainnet last year, Arbitrum has seen success as an Ethereum (ETH) layer-2 solution.

Arbitrum has focused on providing investors with a cheap, fast and scalable network, elements that Ethereum is still struggling with despite its Merge upgrade in September 2022.

As a result, developers have flocked to Arbitrum to build decentralised applications (dApps), and it is now ranked the seventh biggest blockchain by total value locked (TVL), according to DeFi Llama.

There is now speculation that Arbitrum will release its own ARBI cryptocurrency, but users are awaiting confirmation from the network.

Before exploring its potential cryptocurrency, let’s first look at an Arbitrum definition.

The Arbitrum network is a layer-2 functionality, developed by the New York-based company Offchain Labs, which seeks to solve the congestion that the Ethereum network has been experiencing by improving how smart contracts are validated.

The platform leverages the security provided by the Ethereum mainnet but allows smart contracts to run on a separate layer to reduce congestion within the network.

This technique is called ‘transaction rollups’ (explained in some detail by the developers here) and consists of batches of transactions and records that are validated on the lower layer to then be moved to layer-1’s mainnet – in this case, the Ethereum mainnet.

Arbitrum compensates nodes that actively validate the smart contracts powered by the Arbitrum chain (known as aggregators) with ETH and they are responsible for adding the blocks to the first layer – the Ethereum mainnet.

How does Arbitrum work?

The Arbitrum One ecosystem is a layer-2 mainnet which powers smart contracts that will later be validated by the Ethereum network (layer-1).

Fees charged by Arbitrum will be paid in ETH and the development team expects a reduction of around 50 times the usual fees paid per transaction on layer-1. This means that it should be cheaper to run Arbitrum smart contracts than to run them on the ETH mainnet directly.

On 29 May 2021, Arbitrum launched its Beta version and quickly attracted the interest of DeFi app developers, who are constantly seeking to reduce the fees that users incur for using the Ethereum network at peak times.

There is now a bustling ecosystem of dApps on Arbitrum, whether it’s the decentralised exchange (DEX) GMX or liquidity management platform DeFiEdge.

Arbitrum has also seen a range of upgrades to its protocol. Its Arbitrum Nitro update went live in August 2022, which improved throughput and interoperability.

What makes Arbitrum unique?

The Ethereum mainnet has been criticised for various reasons, including its lacking scalability, high gas fees and slow transaction speeds.

Many networks have been introduced with the promise of solving Ethereum’s issues. Some of these networks include Polkadot (DOT), Cardano (ADA) and EOS (EOS), which are separate blockchains powered by proof-of-stake (PoS) protocols that promise to solve the scalability issues of the Ethereum network.

Different from these solutions, Arbitrum operates as a separate layer of the network, to relieve the ETH mainnet from excessive transactions by facilitating the validation of smart contracts through the introduction of optimistic Arbitrum rollups.

Although other protocols also aim to achieve similar improvements, the Arbitrum network currently stands out for its Ethereum Virtual Machine (EVM) compatibility, meaning that developers don’t have to learn a new coding language to be able to build their dApps within the Arbitrum mainnet.

However, Arbitrum and other Ethereum solutions lost some of their unique selling points in September 2022 when Ethereum switched to a POS consensus mechanism. This was expected to dramatically increase the transaction speeds and scalability of the network, but has not addressed the high Ether gas fees.

Meanwhile, Arbitrum One has reduced fees by allowing smart contracts to be validated in batches, while at the same time providing compensation to validators for their effort.

Is there an Arbitrum coin?

At the time of writing, there is not an Arbitrum crypto token. Ed Felton, co-founder of Offchain Labs, stated in 2019 that they don’t plan to launch a separate Arbitrum token.

For those looking at how to invest in Arbitrum, there is no direct method, let alone any ARBI price predictions. However, there is now some speculation regarding the potential launch of an ARBI cryptocurrency.

After the layer-2 solution Optimism announced its OP token in April, Offchain Labs co-founder Steven Goldfeder posted a tweet, which suggested an ARBI token was in the works. He said: “The appetiser is always served before the main course.”

Investors are now speculating on whether there will be an Arbitrum airdrop, a promotional event that gives out free tokens to protocol users. Experts, including Airdrop.io, have suggested that criteria could include bridging funds to Arbitrum and utilising its dApps.

But now is not an ideal time to launch a token, with the crypto bear market causing turmoil. Optimism found this out the hard way. Its OP token is down 81% from its launch price of $4.57 on 31 May, according to CoinMarketCap.

There does seem to be demand for layer-2 tokens, however. OP has a market capitalisation of $200m, as of 3 October, ranking it 132nd out of all cryptocurrencies.

That said, Arbitrum users are still awaiting confirmation that there will ever be an Arbitrum crypto.


Is Arbitrum a good investment?

There currently is no method for investors to gain direct exposure to the Arbitrum network, as it has not released its own token. It is recommended for investors to understand what Arbitrum is all about, before considering any investment opportunities.

In volatile cryptocurrency markets, it is important to do your own research on a coin or token to determine if it is a good fit for your investment portfolio. Whether the ARBI token – should one ever be launched – is a suitable investment for you depends on your risk tolerance and how much you intend to invest, among other factors.

Keep in mind that past performance is no guarantee of future returns, and never invest money that you cannot afford to lose.

Does Arbitrum have a token?

Arbitrum does not have its own token. However, there has been some speculation lately regarding the potential launch of an ARBI cryptocurrency.

Should I invest in Arbitrum?

Whether you should invest in the Arbitrum network is a question that you will have to answer for yourself. Before you do so, however, you will need to conduct your own research. Remember, never invest more money than you can afford to lose because prices can go down as well as up


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