Health, Wealth, and Happiness |
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“Time in the market beats timing the market.” — Ken Fisher |
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In today's issue: Ethereum is great, but it's slow and expensive.
In the race to create "Layer-2" solutions that speed up Ethereum, Arbitrum (ARB) is in the lead.
If you believe L2s are the future, you'll want to check out today's list of the top 10 projects building on Arbitrum.
Our guide allows you to see which Arbitrum projects are growing, identify those with increasing revenue (or total value locked), and spot potential investment opportunities. Read on. |
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| | Must Read Today's most important story for crypto investors. |
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Stablecoins have become an essential part of the crypto ecosystem, providing investors with easy on- and off-rails while creating crucial liquidity to keep markets functioning efficiently. In this piece, Token Terminal takes a look into some of the most interesting trends in several stablecoin projects (visualizations included). |
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One of the clear trends is the increased connection between on-chain stablecoins and traditional financial markets. This is being seen not only in centralized stablecoins like USDC, but also in some of the decentralized stablecoins like DAI.
A further trend is incentivization schemes to drive adoption. These are being seen with the Gemini Dollar (GUSD) and with USDC on L2s Arbitrum and Optimism. This incentivization has been helpful for the centralized stablecoin issuers that have been hurt by bank failures and regulatory risks.
Investor takeaway: Keeping abreast of the rapid evolution in the stablecoin space is important given the important roles these tokens play in the crypto ecosystem (and increasingly with real-world assetsas well).
The centralized stablecoin issuers operate at the intersection of fiat and crypto, providing access to vast liquidity in the traditional financial system. In turn, this provides them with potentially massive growth, and where there's financial growth, there are opportunities for investors. |
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Premium Power-Ups Level up your crypto investing game. |
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New NFT Investor Scorecard: Decentraland
Mark Twain famously said, "Buy land, they're not making it anymore."
Mr. Twain would be shocked to find out that they are making more of it, just in a digital format. Today's NFT Investor Scorecard "digs into" LAND, the virtual real estate of the Decentraland platform.
Considering Decentraland is one of the most popular metaverse platforms, it could make sense to grab a parcel of LAND before it's all gone, but does it make financial sense too? That's what you'll learn from our Investor Scorecard.
Not yet a Premium member? Sign up now for just $10 a month and get instant access to our complete, on-demand library of investor scorecards. Compare Decentraland against all the other top NFTs. |
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The Top 10 Protocols Building on Arbitrum by Daniel Joel |
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Executive Summary: Within roughly a year, Arbitrum has gone from a startup to the most popular Ethereum scaling solution by total value locked (TVL).
Many of the most popular decentralized applications (dapps) have been built on the platform to benefit from its fast speed, low cost, and security.
It's currently the biggest Ethereum L2 solution, with over 300 protocols and $2 billion in TVL. It also has a popular token in ARB.
However, the L2 space is rapidly evolving, with innovative solutions like zero-knowledge, EVM-compatible rollups entering the space. If you think L2s are the future, ARB is the one to watch, and you might consider investing in the tokens of these top projects as well.
What is Arbitrum?
Ethereum is an incredible invention. It's also slow and expensive. This has created an opportunity for developers to build "Layer-2" (L2) projects like Arbitrum that sit atop Ethereum (the "Layer-1") and make it more efficient.
This "layering" allows the L2 to inherit the security of the L1, thus ensuring security isn't compromised to achieve faster speeds. L2 solutions like Arbitrum and Optimism don't have their own consensus mechanisms as they inherit Ethereum's proof of stake. This is the main difference between L2s and sidechain solutions like Polygon POS. |
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Note the comparison is referring to Polygon’s sidechain solution and not its new scaling solution based on zero knowledge (Polygon zkEVM)
Arbitrum is the most popular L2 solution today, having seen tremendous growth since its launch and even more growth after the launch of its token (ARB).
Arbitrum’s mainnet went live in late 2021 and instantly hit the ground running. Within a year, Arbitrum dethroned Polygon to become the leading Ethereum scaling solution by TVL. As of this writing, the L2 has over $2.15 billion in TVL (4th overall)... Double that of Polygon.
How Does Arbitrum Work?
Arbitrum uses rollup technology to reduce congestion on Ethereum. As the name suggests, it involves rolling up transactions into batches, validating them on Arbitrum, and sending them back to Ethereum as one transaction. So, Ethereum processes the batch as a single transaction instead of validating each transaction within the batch.
Arbitrum uses "optimistic rollups," so named because they optimistically assume the transactions executed off-chain are valid. Hence, there's no need to submit their proofs on-chain.
Instead, optimistic rollups employ dispute security systems that give time windows to allow verifiers to challenge the results of rollup transactions. If someone challenges the results (by submitting fraud proofs) during a dispute time window (at least seven days), and a fault is found, the party responsible for the results is penalized and transactions are re-executed.
Arbitrum's optimistic rollups differ from the other type of rollup technology known as zero knowledge or "zk-rollups." Here, zero knowledge cryptographic techniques guarantee transactions in a batch are valid. Optimistic rollups are preferred to zk-rollups due to their EVM compatibility. |
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Top 10 Protocols on Arbitrum by Total Value Locked |
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Uniswap v3 Type of dapp: DEX BMJ Score: 5.0
Uniswap launched in late 2018 as a DEX to facilitate the trading of ERC-20 tokens. It became one of the first dapps to gain significant traction in DeFi. It also ushered in the era of automated market maker (AMM) DEXs, which incentivize users to become liquidity providers. Two years later, Uniswap launched v2, the improved version, then launched v3 in August 2022 on Arbitrum. It has since been among the most popular dapps on the L2 solution. This version of Uniswap introduced the concept of concentrated liquidity, whereby users can set certain price ranges where they provide liquidity. |
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Aave v3 Type of dapp: Lending and Borrowing BMJ Score: 4.0
Launched in 2017, Aave is a major player in the world of DeFi. It was created to allow users to lend and borrow cryptos without any intermediary. Aave v3 launched on Arbitrum in March 2022 as the third version of the protocol, with the new updates focused on security, more yield for users, and cross-chain support. The platform’s native token $AAVE is a governance token that allows users to vote on key decisions and get discounts on fees. |
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GMX Type of dapp: Decentralized Perpetual Exchange BMJ Score: 4.0
GMX is a decentralized spot and perpetual exchange, first launched on Arbitrum in 2021 before expanding to Avalanche a few months later. On top of allowing users to trade ETH, BTC, and other popular cryptos, GMX supports perpetual futures trading with up to 50X leverage. It's powered by a dual token system featuring GMX (the platform’s utility and governance token) and GLP (the liquidity token given to liquidity providers). Holders of the latter have a right to 70% of the platform fees, while the rest goes to GMX stakers. GMX is the most popular protocol on Arbitrum, contributing over 25% of the chain’s TVL. |
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Radiant Capital Type of dapp: Cross-Chain Lending and Borrowing BMJ Score: 3.5
Radiant Capital is a lending platform like Aave, but with a focus on cross-chain lending and borrowing. The project is powered by LayerZero technology to facilitate the transfer of assets across different chains. Radiant’s native token RDNT allows holders to vote on platform proposals. They also get portions of the interest paid by borrowers. RDNT can be staked to earn staking rewards and protocol fees. The protocol recently expanded from Arbitrum to BNB Chain in its quest to actualize its omnichain money market vision. |
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Stargate Finance Type of dapp: Cross-Chain Bridge BMJ Score: 3.0
Stargate Finance is a bridge designed by LayerZero Labs (the company behind LayerZero protocol) to tackle bridging issues in DeFi. It removes the need for wrapped tokens to allow users to send native assets to non-native chains. STG (Stargate's native token) can be staked, used for governance, and for liquidity provision. The protocol is just over a year old and has been thriving with over $430 million in overall TVL and $124 million locked in Arbitrum. |
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Curve Finance Type of dapp: DEX BMJ Score: 2.5
Launched in 2020, Curve has become one of the most important and popular DEXs in DeFi. It takes a different approach from your typical AMM in that it's mainly designed for swapping between tokens with identical pegs like stablecoins or wrapped assets like wBTC. This means it has lower fees, slippage, and impermanent loss. Curve’s swap fees are set at 0.04%. Every time someone makes a trade, fees are split between liquidity providers. The protocol launched on Arbitrum in late 2021, and is currently responsible for over $95 million in TVL on the L2 and over $4.4 billion in DeFi. |
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Sushi Type of dapp: DEX BMJ Score: 2.5
Sushi’s most popular product, SushiSwap, launched as a fork of Uniswap, executing one of the most successful "vampire attacks" (when protocols incentivize users to migrate liquidity from one protocol to theirs) in the industry. It tried to one-up Uniswap by creating a token, SUSHI, atop the AMM to reward holders for depositing tokens and providing liquidity, as this was before Uniswap created UNI. Sushi has since evolved and has become one of the top DEXs, deployed on 25 chains including Arbitrum. |
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Balancer V2 Type of dapp: DEX BMJ Score: 2.0
Balancer is an AMM DEX that adds a twist to its model by introducing the concept of multi-token pools. On top of the standard dual token pools, Balancer’s pools can be composed of up to eight different tokens in any ratio. For instance, a four-token Balancer pool might be created to maintain the assets at certain ratios as follows: 25% BAL, 20% DAI, 15% WBTC, and 40% ETH. This model allows liquidity providers to choose their levels of exposure to certain assets. The DEX launched in 2020 on Ethereum before being deployed on Arbitrum a year later. |
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Beefy Type of dApp: Yield Aggregator BMJ Score: 2.0
Beefy is a multichain yield optimizer, which simply put, is a protocol that allows investors to automate the process of investing and reinvesting funds into different DeFi products. This process is facilitated by “vaults,” Beefy's main product that can automatically execute yield farming strategies, compound rewards into your initial deposits, and reinvest your profits. They allow investors to deposit pairs of tokens to be invested into liquidity pools or single tokens to be invested into lending platforms. The protocol was first launched on Binance Smart Chain in 2020 before expanding to 18 other chains (including Arbitrum). |
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Camelot DEX Type of dapp: DEX BMJ Score: 2.0
Camelot is one of the most popular DEXs on Arbitrum. The AMM, its main product, uses a dual liquidity system tailored to suit high-volatility (think Uniswap v2-style AMM) and low-volatility (Curve-style AMM) swaps. Moreover, it has a dual token system that features the native token (GRAIL) and the governance token (xGrail). Camelot was one of the protocols that benefited when users were gearing up for the Arbitrum airdrop towards the end of March 2023. Its TVL rose by more than 50% and even crossed the $100 million mark. |
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Investor Takeaway
Arbitrum has seen great success as one of the innovative projects attempting to scale Ethereum without compromising its key features like security.
Plus, its design favors many developers, so it's no surprise to see more protocols getting deployed on the L2 solution. This will translate to even more growth.
However, some (including Ethereum founder Vitalik Buterin) think zk-rollups are the better scaling solutions. Thus, the landscape might change in the near future as more zk-rollup solutions go to market.
We think it's unlikely multiple L2s will survive. The market will likely consolidate into one or two big winners. Another possibility is Ethereum finds new ways to scale and Layer-2 solutions won't be needed.
For now, Arbitrum has positioned itself as a key player in the Ethereum ecosystem. Thanks to developer uptake, it's growing rapidly, and that growth should be something investors watch closely.
An investment in Arbitrum and its top protocols could be considered an investment in the overall growth of Ethereum, smart contract technology, and the dapp landscape.
If you believe in L1 smart contract platforms, ETH is the leader. If you believe in L2 solutions, ARB is the leader. If you believe in any of the projects listed above, remember some of them are building on both Ethereum and Arbitrum. That's a good strategy for reaching the most users. |
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| | ICYMI In Case You Missed It |
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How this groundbreaking regulation will change crypto forever.
The investor's narrative (and investor opportunities) in Hong Kong's crypto scene.
Everything we've learned in the last five years, step by step.
These tools give you X-ray vision into crypto performances.
With the proposed Stablecoin Act, here's why they matter more than ever. |
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Bitcoin Market Journal is a daily newsletter that makes you a better crypto investor. It's created by John Hargrave, Nick Marinoff, Steve Walters, Anatol Antonovici, Matthew Du, Daniel Joel, and Preetam Kaushik.
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