This Ethereum Layer-2 is on Fire! Here’s what that means for the ETH price
Arbitrum is an Ethereum layer-2 scaling solution that can significantly increase the number of transactions per second by batching transactions off-chain into so called roll-ups. It is experiencing explosive growth. The protocol’s daily fees reached nearly $300,000.00 on Thursday, their highest point since June 2022. According to Cryptofees.info, Arbitrum is the seventh-highest cashflow-generating crypto protocol.
A surge in daily transactions on the protocol, now at more than 1,000,000 per day, has accompanied the increase in fees. The surge in transactions was highlighted recently when Arbitrum transactions exceeded Ethereum network transactions one day earlier this year. Daily Arbitrum transactions stood at around 200,000 at the beginning of the year.
Daily Active Addresses, which are used as a proxy for daily active users of the protocol, have reached new records at over 130,000. This is an increase from the below 50,000 recorded at the beginning of the year.
The number of unique addresses registered on this protocol is growing at an impressive rate and will soon exceed 3 million.
“Arbitrum is seeing aggressive growth in users/active users/transactions/revenue, led by wider adoption and the scale-up of DeFi and gaming applications on the chain,” commented analysts at Bernstein in a note earlier this week. Bernstein observed impressive growth in a variety of Arbitrum-based, decentralized exchanges including GMX.
According to GMX, the all-time trading volume of GMX has surpassed $100 billion. DeFi LlamaMost of this has occurred on Arbitrum. On Wednesday, daily GMX Swap volumes on Arbitrum surpassed $23 million.
Arbitrum’s total trade value locked in Decentralized Finance protocols (DeFi) protocols is around $3.0 Billion. This makes it the fourth-highest TVL according to DeFi Llama data. Arbitrum and its Ethereum layer-2 scaling protocol, Optimism have seen impressive growth in TVL over last month.
Arbitrum’s market share in all TVL in DeFi protocols has increased to 3.6% due to recent growth. This is an increase of less than 2.5% last month and just 1.0% last year.
Here are the benefits of Arbitrum’s growth to ETH
All of the recent growth and success of Layer-2 scaling protocols such as Polygon, Optimism, and Arbitrum should be considered bullish for Ethereum and ETH. They fix two of the most significant drawbacks of Ethereum’s network: its low transaction throughput, high fees, and low transaction throughput.
Arbitrum is capable of processing around 40,000 transactions per second. The Ethereum network can only process 14 transactions per second. Similar loads can be handled by other layer-2 scaling solutions. According to the protocol’s roadmap, Ethereum will go through a series of upgrades over the next few years. This includes the implementation of “sharding”, which should greatly increase the network’s TPS.
As crypto’s adoption grows, there is a demand for scalable blockchains. Layer-2 Ethereum scaling solutions are able to compete with Ethereum’s more centralized, but scalable, layer-1 competitors (like Solana), to host Decentralized Applications and projects. This keeps these projects within Ethereum’s so-called Zone of Sovereignty, even if the projects aren’t directly built on the Ethereum blockchain.
Transactions on layer-2 solutions such as Arbitrum cost only a few cents each. This solves another Ethereum network problem and might have motivated users to explore other blockchains. At the time this article was written, the average transaction cost for Ethereum networks is $2.0 per transaction.
Because they use Ethereum’s underlying consensus layers to settle transactions, protocols such as Arbitrum also experience growth which directly contributes to the Ethereum network’s growth. If Ethereum layer-2s are on fire it can only be a long-term benefit for Ethereum.