The majority of blockchain projects are supported by everyone in the community for their vision and ambition. While scalability, decentralization, and security are still at the forefront of this technology, keeping all of the core functions mentioned above together is quite a challenge.

Over time, the crypto space has been able to develop a number of Layer 1 and Layer 2 solutions to overcome this hurdle.

Ethereum remains an attractive blockchain network for creating and executing smart contracts. As adoption has increased dramatically over the years, Ethereum suffers from severe network congestion and exorbitantly high fees. Accordingly, speed and scalability are pressing issues that need to be addressed. As a result, the network created an internal remedy.

Ethereum’s 2.0 upgrade aims to improve the speed, efficiency and scalability of the network. There is no doubt that ETH 2.0 is a step in the right direction for Ethereum, but it needs more time to be implemented on the mainnet. In the meantime, other solution providers such as Arbitrum Ethereum are helping with this.

What is arbitrum?

As Bitcoin Magazine reported, Arbitrum is essentially a Layer 2 solution designed to improve the capabilities of Ethereum Smart Contracts by adding additional security features while increasing speed and scalability. The platform allows developers to run unmodified Ethereum Virtual Machine (EVM) contracts and trade ETH on Layer 2 while taking advantage of the great security of Ethereum on Layer 1.

Arbitrum was launched less than 3 weeks ago on the mainnet and has already set many records. With every day that goes by, the Total Value Locked (TVL) on the platform keeps getting higher. For example, TVL grew exponentially by more than 2000% in just one week.

In addition, arbitrum occupied 73.75% of a total of $ 3 billion that was locked on Ethereum’s Layer 2 network at press time. The decentralized exchange of Layer 2 dYdX ranks directly behind Arbitrum and only occupies 10.89%.

Total locked | The source: l2beat.com

Rain of liquidity great

In the first few days, quite a lot of the capital flowing into this Layer 2 platform seems to come from “Ethereum Terminator”. 12, James Spediacci of Blockchain Investor pointed out that as Arbitrum’s TVL increased, the value of the Solana, Fantom and Harmony bridges fell by 58%, 36% and 62%, respectively.

In fact, Spediacci was frank explain:

“Arbitrum (Ethereum Layer 2) is the destroyer of Solana”.

However, by September 17th, everything seems to have changed. The value locked on the 3 platforms above will recover after the drop. In fact, according to data from Dune Analytics, everyone has also climbed one step higher in the leaderboard.

It should be noted that most of the popular bridges have only been in the ecosystem for a very short time. Solana’s Wormhole, for example, only started in August, but has already made it into the top 5.

This clearly underscores the competitive Layer 2 environment that Arbitrum is entering.

TVL from Ethereum Bridges | The source: Dune analysis

For profit seekers who drove into the network’s initial decentralized applications (dApps) also contributed significantly to Arbitrum’s exponential TVL growth. Take the case of ArbiNYAN, for example.

The aforementioned yield farming platform has attracted investors by offering exceptionally high returns on staking their native token. However, the exhilarating activity is only temporary. NYAN lost more than 90% of its value in the early hours of September 12th.

According to data from Are defined, the token peaked at $ 7.8 that morning around 6:30 a.m., but plunged to $ 0.8 exactly 24 hours later.

Besides, the collapse didn’t stop there. NYAN price is only $ 0.4 at the time of writing. Due to the free fall, TVL on ArbiNYAN fell from $ 1.6 billion to $ 38.6 million in a matter of days.

The source: DeFiLama

Wavey, an anonymous DeFi farmer, has shown The sudden withdrawal of over $ 640 million in ETH from one of Curve’s pools created an arbitrage opportunity. The above pool had 525.4k ETH when the NYAN farm started. However, shortly after the crash, the pool only had 331.2,000 tokens left, suggesting an immediate liquidity migration to Arbitrum.

In addition, the rumors of a possible token airdrop also caused a stir and attracted more liquidity to the platform. But that’s worth mentioning Arbitrum does not have its own native token.

Aside from the above factors, most TVL growth is all natural and many newbies have tried Arbitrum so far.

S2C: Speed, kuseful size, C.costs

Overall, Arbitrum’s transaction fees are still quite low compared to Ethereum. If the speed limit is raised, the tariffs are likely to fall even further.

However, it should be noted that Arbitrum is not yet fully utilized. Transaction speed only comes into play when demand outweighs capacity.

As Arbitrum’s adoption rates continue to rise, congestion will increase in parallel. The platform’s gas price will inevitably skyrocket using the EIP-1559 gas auction mechanism. Only at such a stage, when the speed increases, does the fee decrease.

In fact, one of the authors of Smart Content made a similar point in a recent series of tweets. Brothers confirm:

“Arbitrum’s rate cap is currently set to match Ethereum’s throughput and will increase over time as the chain is more tested … Super bullish on arbitrum and rollups.”

Anyone who uses the platform at this point in time has hardly anything to complain about, either in terms of fees or speed.

The source: l2fees.info

Achilles heel

Without a doubt, Arbitrum has been warmly welcomed by the crypto space. Despite the hype and widespread praise, it should not be forgotten that this solution is a stub and very error-prone. For example, the platform recently experienced an outage, and in essence, block validation has been hampered somewhat.

No blockages in the last ~ 30 minutes. Since the sequencer is an absolutely crucial part, it might as well have failed pic.twitter.com/q8QXYriYGY

– Larry Cermak (@lawmaster) September 14, 2021

“No blockages in the last 30 minutes. Since the process is a very important part, it can also be influenced. ”

In addition, Arbitrum is still missing a few important platforms from stable swap to launchpad to stablecoin support. Over time, these gaps will eventually be closed. Until then, the platform will be subject to unprecedented competition from future solution providers.

Next, while full decentralization has always been part of Arbitrum’s plan, it should be noted that it hasn’t happened yet. Team Offchain Labs currently has quite a bit of control over the network and takes a relatively similar approach to other scaling solutions like Polygon and Optimism.

However, Arbitrum has the ability to maintain the ability to update and that is a benefit. In addition, the solution’s seamless compatibility with a dApp designed to run on Ethereum has the potential to act as an asset.

Fixed cake bug

People with no knowledge of crypto often assume that the level 2 playing field is a solid cake, and the more people adopt a particular solution, the less that is left. Logical errors are largely based on the false assumption that the success of one particular platform will be the loss of others.

Are not! There are no firm cakes here!

The launch of Arbitrum is proof that new rollups can take the market by storm. In the coming months, the space will change even more as more solutions come into play. Therefore, the market must be prepared accordingly. The users will gradually be faced with many choices.

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Minh Anh

According to AMBCrypto

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