As Ethereum continues to grow in popularity and congestion, the demand for effective scaling solutions has surged. Arbitrum (ARB) has emerged as one of the most prominent Layer 2 projects today – designed to accelerate transaction speeds, reduce gas fees, and enhance user experience without compromising Ethereum’s core security. Coin60s takes a deep dive into what Arbitrum is and why it matters.
What is Arbitrum?
Arbitrum is a Layer 2 scaling solution built on top of Ethereum, designed to reduce transaction fees and improve processing speed without compromising the core security and decentralization of the Ethereum network. At its core, Arbitrum leverages Optimistic Rollup technology—a technique that allows batches of off-chain transactions to be processed and then recorded on Ethereum at a fraction of the usual cost.
Unlike Layer 1 upgrades that require modifying Ethereum’s core architecture, Arbitrum operates as a second layer outside the main chain. It handles most transaction logic off-chain and sends only summarized data back to Ethereum for validation. This offloading reduces network congestion while still ensuring that transactions inherit Ethereum’s security and censorship resistance.
Arbitrum enables developers to deploy Solidity smart contracts without rewriting code, making it highly compatible with existing Ethereum tools and saving both time and development effort. With processing speeds of up to 40,000 transactions per second (TPS) and gas fees significantly lower than Ethereum mainnet, Arbitrum has become the go-to choice for many DeFi, GameFi, and NFT projects.
As of 2025, Arbitrum is not only the Layer 2 solution with the highest total value locked (TVL), but also a pioneer in delivering scalable, efficient, and developer-friendly infrastructure for Ethereum’s long-term growth.
Why does Ethereum need layer 2 solutions like Arbitrum?
Ethereum is one of the world’s leading blockchain platforms, particularly known for its smart contracts and decentralized applications (DApps). However, with its growing popularity, Ethereum has been facing serious scalability challenges, including:
- High gas fees: When the network is congested, users must pay significantly higher fees to get their transactions prioritized. At times, even simple transactions have cost dozens of dollars.
- Limited throughput: Ethereum currently handles only about 15–30 transactions per second (TPS), which is far too low for high-demand sectors like DeFi, GameFi, and NFTs.
- Poor user experience: Long wait times and high costs discourage everyday users and reduce engagement with Ethereum-based applications.
To address these issues, the Ethereum community has pursued two main approaches:
- Upgrading Layer 1 (e.g., Ethereum 2.0 and the shift to Proof of Stake)
- Developing Layer 2 solutions, such as Arbitrum, Optimism, and zkSync
Among them, Layer 2 is seen as a more immediate and practical solution, as it doesn’t require changing Ethereum’s core infrastructure while still enabling faster, cheaper, and more scalable transactions through technologies like Rollups.
With its use of Optimistic Rollup, Arbitrum has already proven effective in real-world scenarios—supporting large-scale DeFi applications, significantly improving transaction speeds, and helping users save on gas fees. That makes Arbitrum a strategic step in Ethereum’s ongoing effort to maintain its dominance in the global blockchain ecosystem.
How does Arbitrum work?
Arbitrum uses a mechanism called Optimistic Rollup, a modern Layer 2 scaling technology that processes large volumes of off-chain transactions and only records the summarized results on Ethereum’s mainnet. This setup lightens the load on Layer 1 while maintaining security through open challenge and verification processes.
How optimistic rollups work?
“Optimistic” implies that transactions are assumed valid unless challenged. This approach conserves resources by avoiding the need to verify every transaction upfront.
Here’s how it works:
- Transactions are processed on Layer 2 (Arbitrum chain) and bundled into a rollup batch.
- The batch data is posted to Ethereum as proof.
- During a specific challenge window, any validator can contest a block if they believe it’s fraudulent.
- If the challenge is valid, the block is invalidated and the dishonest validator loses their staked funds.
- This system ensures security without requiring Ethereum to process every transaction individually.
Arbitrum Virtual Machine (AVM)
Arbitrum also features a custom virtual machine known as the Arbitrum Virtual Machine (AVM). This environment executes smart contracts and provides:
- Automatic translation of Solidity contracts from Ethereum into Arbitrum-compatible format
- Full compatibility with the Ethereum Virtual Machine (EVM)
- Optimized computation for high performance on Layer 2
Security & Dispute resolution mechanism:
Validators and sequencers play a central role in Arbitrum’s operation. If a validator submits incorrect data, others can challenge it during a designated timeframe. If proven wrong, the dishonest validator is penalized by losing their stake – encouraging honest behavior and network stability.
Thanks to this architecture, Arbitrum can process tens of thousands of transactions per second, drastically cut gas fees, and still offer security nearly on par with Ethereum’s Layer 1.
What makes Arbitrum stand out?
Arbitrum stands out in the Layer 2 space not only due to its early launch but also because of its strong technical advantages and well-structured development strategy. These strengths have attracted a large number of developers, users, and have helped Arbitrum achieve the highest Total Value Locked (TVL) among Layer 2 networks as of 2025.
One of Arbitrum’s biggest advantages is its near-complete compatibility with the Ethereum Virtual Machine (EVM). It supports the direct deployment of smart contracts written in Solidity or Vyper without needing to rewrite or recompile code. This allows Ethereum-based projects to migrate to Layer 2 without overhauling their tech stack, saving both time and resources.
Another standout feature is Arbitrum’s ultra-low transaction fees. Thanks to the Optimistic Rollup model, most transaction processing occurs off-chain, with only summarized data posted back to Ethereum. This means users pay only a few cents per transaction—compared to several dollars on Ethereum Layer 1—which is especially critical for DeFi, where every transaction impacts financial strategy performance.
Arbitrum also excels in transaction speed. While Ethereum handles only about 15 to 30 transactions per second (TPS), Arbitrum can reach up to 40,000 TPS under optimal conditions. This makes it ideal for applications like blockchain games, continuous trading protocols, and decentralized social networks that require high throughput.
On the developer front, Arbitrum offers a well-documented ecosystem with full support for popular tools like Hardhat, Truffle, and MetaMask. This enables Ethereum developers to transition to Layer 2 quickly without having to learn a new framework.
A key differentiator of Arbitrum is its token distribution approach. The project didn’t hold an ICO or pre-allocate tokens to the team or early investors before the public launch. Instead, ARB tokens were launched through an airdrop in 2023, showing a clear commitment to empowering loyal users and developers—rather than focusing on short-term financial gains.
Key products in the Arbitrum ecosystem
Arbitrum’s ecosystem has evolved far beyond a single Layer 2 network. It now includes a range of products tailored for different use cases – from DeFi to GameFi and customizable Layer 3 chains – each contributing technical depth to the overall platform.
- Arbitrum One is the flagship Layer 2 network, focused on decentralized finance (DeFi). It hosts major protocols like Uniswap, Aave, SushiSwap, and GMX. With high throughput and low fees, Arbitrum One ranks #1 in TVL among Layer 2s.
- Arbitrum Nova targets applications with high transaction volumes but lower security requirements than DeFi. Powered by the AnyTrust mechanism and a Data Availability Committee, Nova drastically reduces costs and latency. It is ideal for SocialFi, GameFi, and highly interactive Web3 apps.
- Arbitrum Orbit is a framework for projects wanting to build customizable Layer 3 blockchains on top of Arbitrum. Orbit supports both Rollup and AnyTrust architectures – perfect for startups or enterprises that need private chains while still benefiting from Ethereum’s security.
- Stylus is a new technology that allows smart contracts to be written in Rust, C, or C++. These contracts can run in parallel with EVM on the same chain, dramatically expanding the developer base by welcoming programmers from outside the Ethereum ecosystem.
Through this layered strategy, Arbitrum is positioning itself not just as an Ethereum scaling solution, but as a full-stack open infrastructure platform – capable of flexibly meeting technical needs from basic to advanced.
Core development team and strategic partners
Arbitrum is developed by Offchain Labs, a New York-based technology company founded in 2018. The founding team of Offchain Labs comprises seasoned computer scientists with deep expertise in blockchain, distributed systems, and academic research.
- Ed Felten, Co-founder and Chief Scientist, formerly served as Deputy CTO at the White House under President Barack Obama and was a Professor of Computer Science at Princeton University. He is a pioneer in rollup technology, which underpins Arbitrum.
- Steven Goldfeder, CEO of Offchain Labs, holds a Ph.D. from Princeton and specializes in cryptography, distributed systems, and secure computing. He has published numerous academic papers on blockchain security.
- Harry Kalodner, CTO of Offchain Labs, was a Ph.D. candidate at Princeton and is now responsible for overseeing Arbitrum’s technical infrastructure and system architecture.
In terms of strategic partnerships and backers, Arbitrum secured $120 million in Series B funding in 2021, boosting Offchain Labs’ valuation to over $1.2 billion.
- Key investors include Lightspeed Venture Partners (lead investor), Pantera Capital, Polychain Capital, Compound Labs, Coinbase Ventures, Mark Cuban, and several other top-tier tech funds.
- Major protocol integrations on Arbitrum include Uniswap, Aave, Balancer, Curve, SushiSwap, GMX, and Radiant Capital—all of which are leading DeFi platforms that have deployed on Arbitrum One, significantly enhancing ecosystem liquidity and on-chain activity.
The presence of such high-profile names in both investment and application development reinforces Arbitrum’s reputation and long-term viability.
What is the Arbitrum Token (ARB)?
ARB is the native governance and utility token of the Arbitrum ecosystem, officially launched via an airdrop in March 2023. Its release marked Arbitrum’s transition from a purely technical platform to a community-driven protocol governed through the Arbitrum DAO.
ARB plays a pivotal role in protocol governance and network development. Token holders can vote on proposals such as system upgrades, DAO budget allocations, project funding, and ecosystem incentives.
Aside from governance, ARB also incentivizes network participation through staking, liquidity provision, and validator operations. However, transaction fees on Arbitrum are still paid in ETH, not ARB – unlike Layer 1s like BNB Chain or Avalanche.
Technical specifications of ARB:
- Token standard: ERC-20
- Deployed on: Ethereum, Arbitrum One, Arbitrum Nova
- Total supply: 10,000,000,000 ARB
- Launch date: March 23, 2023
- Utilities: Governance, Incentives
Token distribution breakdown:
- 42.78% to Arbitrum DAO Treasury
- 26.94% to the development team and advisors
- 17.53% to early investors
- 11.62% distributed via airdrop to the community
- 1.13% allocated to active DAOs within the Arbitrum ecosystem
The large allocation to the DAO Treasury highlights the project’s focus on decentralized governance and minimizes risks of centralization or investor manipulation.
ARB is currently traded on all major exchanges like Binance, OKX, Bybit, and KuCoin, making it one of the most liquid Layer 2 tokens in the market. While it isn’t used for gas fees, ARB’s market value reflects the community’s confidence in Arbitrum’s future as a premier Ethereum scaling solution.
Should you invest in ARB?
ARB is the governance token of Arbitrum – the leading Layer 2 network by TVL and number of deployed dApps. However, investing in ARB should be approached with caution, considering both its potential and inherent risks.
Pros of ARB investment:
- Top Layer 2 by TVL, indicating strong liquidity and real-world usage
- Diverse ecosystem with leading DeFi platforms like Uniswap, Aave, GMX, and SushiSwap
- Innovative roadmap with products like Arbitrum Orbit (Layer 3) and Stylus (multi-language smart contracts)
- Fair token distribution, with the majority allocated to the DAO, enhancing governance transparency
- High liquidity across major exchanges, ensuring easy market access
Cons and risks:
- ETH, not ARB, is used for transaction fees, limiting ARB’s direct utility
- High competition from other Layer 2s like Optimism (OP Stack), zkSync Era, and Coinbase’s Base
- Token unlock schedules for early stakeholders and airdrop recipients may trigger sell pressure
- Heavily reliant on Ethereum’s momentum, making it susceptible to broader market trends
If you’re a long-term believer in Ethereum and the Layer 2 scaling narrative, ARB presents a solid opportunity for portfolio diversification. However, as with all crypto assets, it’s crucial to assess your risk appetite and avoid overexposure.
Conclusion
Arbitrum (ARB) is more than just a governance token, it’s the backbone of one of the most promising Layer 2 ecosystems in the Ethereum landscape. With its Optimistic Rollup architecture, EVM compatibility, lightning-fast processing, and ultra-low fees, Arbitrum is becoming the go-to platform for DeFi, GameFi, and high-performance Web3 applications. We hope this article has helped you clearly understand what Arbitrum is and whether ARB belongs in your crypto portfolio.