Arbitrum ecosystem and potential investment opportunities
The article provides an overview of the Arbitrum ecosystem with each piece and potential investment opportunities with Arbitrum!
Recently, DeFi exploded strongly when the platforms simultaneously witnessed the rapid growth of TVL volume.
One of those platforms is Arbitrum – a very remarkable Layer 2 solution, which has just received a $120 million investment from many large funds and already has nearly $1.8 billion in TVL – a 60x increase in just 4 short days. .
To help you catch up with the “sad” development speed of the Arbitrum ecosystem, I will go with you in turn through the arrays in this ecosystem, to get the most overview of the system, from there looking for investment opportunities.
Does DeFi on Arbitrum really have potential? And what stage is DeFi on Arbitrum at? Let’s find out with idolmeta.net!
Learn more: What is Arbitrum? Leading Layer 2 Scaling Solution
DeFi puzzle pieces on Arbitrum
Let’s take a look at the Arbitrum ecosystem with us.
Overview of the Arbitrum ecosystem
Although there are few projects in the Arbitrum ecosystem, it is not as numerous as Layer 2 or other ecosystems, but it has quite a few pieces in the main areas.
You can also see, most of the projects are projects located on Ethereum, moved to Arbitrum such as Uniswap, Sushiswap, Dodo, Balancer, Perpetual, Aave, …
Next, let’s take a look at each piece of the Arbitrum ecosystem to get an overview, and then look for important keywords to identify investment opportunities.
Stablecoins are an indispensable piece in every ecosystem.
In addition to tracking the amount of stablecoins in the system that will capture the cash flow in the system, DeFi stablecoin protocols like MakerDAO also offer good capital optimization for the assets in the system.
So to start looking at the Arbitrum system, I will go with you guys through the first stablecoin array.
Currently, there are 3 main stablecoins on Arbtrium: USDT, USDC and DAI (haven’t started to launch yet because MakerDAO on Arbitrum has not come into operation yet).
Basically, the basic stablecoin condition has been met by the Arbitrum ecosystem with the two stablecoins USDT and USDC already being bridged from Ethereum, through Celer Bridge and Arbitrum bridge.
However, you should note, this is only a necessary condition, not a sufficient condition, and what the sufficient condition is, I will clarify in the lower part of the article.
Currently, there are 10 AMM DEXs on Arbitrum, of which 7 AMM DEXs have started operating and 3 DEXs have not yet operated, including:
- Active: Uniswap, Sushiswap, Dododex, Curve Finance, Balancer, Swapr, Unidex.
- Not working yet: DeGate, Dfyn, HaloDAO.
Looking at this large amount of AMM DEX, you can see that the AMM DEX puzzle piece on this ecosystem is full and qualified to start growing strongly.
However, the majority of those AMMs are migration protocols from Ethereum such as Uniswap, Sushiswap, Dodo, Curve, Balancer. Therefore, finding investment opportunities in this ecosystem of the AMM DEX array is not easy.
We should consider this as a solid foundation for the ecosystem to develop other areas, and look for opportunities in those areas.
Comment: Most of the TVLs in this AMM DEX array are belonging to 5 players from Ethereum (Curve, Uniswap, Sushiswap, Dodo and Balancer).
But the total of these 5 TVL protocols on Arbitrum has only reached $240M – a figure insignificant compared to their massive amount of TVL on Ethereum.
TVL some protocols in the Arbitrum system – Source: Defillama
Going forward, if you want to stimulate liquidity on Arbitrum in the AMM DEX segment, an indispensable element will be incentives for providing liquidity.
It is likely that in the near future, major protocols such as Uniswap, Sushiswap will open the Liquidity Mining program on Arbitrum, thereby attracting the liquidity of LPs to this platform.
The big protocols will also want them to have a lot of users on Arbitrum, because with low transaction fees, the protocol will have more users and more revenue.
Lending & Borrowing
Lending & Borrowing is an extremely important component in any ecosystem, because these protocols allow the cash flow in the system to be used in the most efficient way.
This means that the amount of money in the system may not be too much, but if the capital efficiency is high, the ecosystem will still have impressive growth.
Furthermore, holders of crypto assets will want to generate passive income from that asset, not just hold.
Currently, the loan and lending segment has 5 main protocols, but most of them are not yet active on Arbitrum:
- Active: Cream Finance, WePiggy.
- Not working yet: Aave, MakerDAO, Amy Finance.
As you can see, there are currently only two Lending protocols on Arbitrum – Cream Finance and WePiggy.
TVL of these two protocols on Arbitrum currently only stops at $27M (Cream Finance just mainnet on Arbitrum about a day ago).
However, in the near future, when two major Lending protocols on Ethereum launch officially on Arbitrum – Aave and MakerDAO – users on Arbitrum will have reputable lending protocols to use.
At that time, the lending array on Arbitrum will meet one more condition for growth.
Comment: Coming up to major mainnet lending protocols on Arbitrum, this has 3 meanings as follows:
- The new and native lending protocols on Arbitrum will not have the opportunity to develop or compete with the old protocols, so it is difficult to get new investment opportunities.
- The Lending platform on Arbitrum will have a very high level of certainty and security, from which applications built on lending and borrowing applications (such as asset management applications, loan aggregation interfaces) will easier to develop, you can look for investment opportunities from new projects in this field.
- After the Lending array develops and gradually completes, the opportunity to find projects for investment will again appear on Yield Farming aggregation projects and other applications built on Lending protocols. You should pay attention to look for opportunities as soon as possible!
The Derivatives array is probably the most fragmented array on Arbitrum. Currently, there are 12 puzzle pieces located in different branches, from Options, Perpetual to Margin Trading.
Projects in the Options array include:
- Active: Auctus ($300,000 TVL), Unidex (TVL unknown).
- Not working yet: Dopex, Kaki.
Projects in the Perpetual array include:
- Active: GMX ($18M TVL), Cap (TVL unknown), MCDEX ($8.5M TVL).
- Not working yet: Futureswap, Perpetual Protocol, Tracer.
In addition, the Arbitrum platform also has a project in the Margin Trading segment, Amy Finance (the project has not run on Arbitrum).
As you can see, in addition to two unknown TVL projects on the Arbitrum platform, Cap and Unidex, the total amount of TVL of projects with TVL parameters is only about $27M – a relatively modest number.
- Only one of the 5 mainnet projects (MCDEX) is a native project on Arbitrum.
- The rest are projects that scale from other EVM-compatible chains onto Arbitrum.
When looking closely at the protocols, I immediately noticed that the demand for Derivatives products on Arbitrum is still not great, as evidenced by the low capital utilization of assets on the protocols (except for GMX’s BTC pool).
As you can see, the overview of the derivatives array on Arbitrum is still quite rudimentary, the amount of TVL and demand for the products is still not high.
Perhaps in order for the Derivatives array on Arbitrum to have a large user base, protocols that already have a large community of users like Perpetual Protocol will need to mainnet, or smaller projects like GMX, MCDEX have to come up with attractive incentives to attract users to the platform.
Bridge applications play a very important part for new ecosystems, because this is the tool that helps the flow of money into the ecosystem.
Well-built bridge applications are a prerequisite for the ecosystem to welcome cash flow into the system.
Currently, there are 6 applications that have been and will develop bridges between Arbitrum with Ethereum and other ecosystems:
- Active: Bridge Arbitrum, Celer cBridge, Hop Protocol, Ren Bridge.
- Not working yet: Anyswap, Connext.
Read more: 03 Tips to use Cross-chain Bridge effectively
1. Bridge Arbitrum
Bridge Arbitrum is the main solution for investors to use to bring cash flow to Arbitrum, and is also the product of the Arbitrum development team built.
Therefore, this is a fairly safe and reliable solution, but the weakness of this bridge is that it only supports the flow of money from Layer 1 Ethereum to Layer 2, while other bridge solutions are gradually supporting Support bringing cash flow from other ecosystems (other than Ethereum) to Arbitrum.
Currently, the main cash flow into the Arbitrum ecosystem is through the Arbitrum – Ethereum bridge. You can put any ERC-20 token on Arbitrum through the bridge.
The current fee to make a bridge transaction is at $13-15.
2. Celer cBridge
The volume through cBridge has reached $100M, and more and more chains are integrated into the bridge (the latest 4 chains were updated in just 2 short weeks).
Chains are integrated into Celer cBridge
I am also using cBridge a lot, not only to switch to Arbitrum but also to switch between other chains.
The new user support team is very enthusiastic, there is someone on duty 24/7 and the UI/UX in my opinion is relatively good.
You can try using this bridge product to transfer your money between systems.
However, this product still has some limitations, such as not supporting many tokens, mainly supporting stablecoin transfers between systems.
3. Ren Bridge
Currently, the largest and most significant Ren asset on Arbitrum is renBTC, with over 550 renBTC on Arbitrum – totaling around $26M.
Mainly this amount of renBTC (528 renBTC) is put into Curve to provide liquidity for the wBTC-renBTC pair.
Since Ren Protocol also supports a lot of other assets, it could be a big cash-flow bridge for the Arbitrum ecosystem.
4. The remaining bridges in the ecosystem
Since the rest of the bridges have not been released on Arbitrum, I will evaluate those bridges by their products on other ecosystems.
- Hop Protocol: Currently Hop Protocol is supporting 5 networks: Ethereum, Polygon, xDai, Optimism and Arbitrum. The 3 assets they are supporting are USDT, USDC, and MATIC.
- Connext: Currently the project has not released a product on any chain. They say they will support bridges between EVM-compatible chains, which is basically the same as Celer cBridge, but in terms of speed of development they are a long way behind Celer cBridge.
- Anyswap: The project is supporting a lot of chains, and has been running for a long time. However, the project has yet to launch on Arbitrum, and if the project does not integrate quickly, Celer cBridge will quickly take up the entire volume bridge of the ecosystem.
In summary, in this bridge segment, Arbitrum bridge and Celer cBridge are currently the most optimal choices for retail investors.
The infrastructure is complete and money can flow in and out of the ecosystem extremely easily.
So, with the current “hot” of the Arbitrum ecosystem when money flows quickly into the system, I will not be surprised if this ecosystem has x10, x20 or x100 tokens in the near future.
Using bridges can also give users the opportunity to receive airdrops, just like Good Bridge airdropped to Ethereum bridge users – Avalanche 900 $GB – which peaked at around 50 AVAX.
Currently, this is the first wave of money pouring into the ecosystem, since Arbitrum was mainnet on August 31.
In my opinion, in the coming time, there will be many projects in the following areas, and may receive special attention and attract high user traffic.
The AMM DEX array on Arbitrum still has no ruler. The TVL war is a battle between the powerful protocols on Layer 1 such as Curve, Uniswap, Sushiswap,…
But cannot rule out the case that there will be a newly developed AMM DEX native project on Arbitrum, as in the case of Quickswap done on Polygon.
So it is necessary to closely monitor the ecosystem in this early stage to find new and potential projects.
However, it is also possible that the large protocols on Layer 1 will completely dominate the TVL of the AMM DEX array in the system.
In this case, the investment opportunity again lies in the area of applications built on those AMM DEXs.
For example, on Uniswap V3 there are many projects built such as Visor Finance, Charm Finance, … or new aggregator applications for DEX on Arbitrum.
You can look for investment opportunities in this direction.
Lending & Borrowing
Currently, the Lending array on Arbitrum is still very new and there are not many projects, with a negligible amount of TVL.
In the near future, when Aave, MakerDAO mainnet on Arbitrum, perhaps the number of TVL Lending arrays will be much larger, enabling applications built on these protocols on Arbitrum to develop.
However, similar to the AMM DEX array, it is not possible to rule out the small possibility that there will be potential new faces appearing and “flip” the big boys.
You can also see that the number of Derivatives projects on Arbitrum is very large.
Many projects moved up from Layer 1 Ethereum because of the low fees and high transaction speed – something that traders desperately need.
Therefore, it is likely that in the near future, Derivatives on Arbitrum will be the first explosive piece, when the number of users with long – short demand can have Derivatives applications with lots of liquidity, good UI/UX.
In the time since the mainnet until now, there is not a day that Arbitrum does not have new NFT projects.
Most of the projects are forks from successful NFT projects on Ethereum such as Opensea, famous NFT collections, Loot project,… NFT on Arbitrum still has no specific development direction but only projects. The fork from Ethereum has passed, so we need to observe more in the near future.
Hopefully, through the above article, you have had a better overview of the Arbitrum ecosystem, understand the situation of the arrays on Arbitrum and know which areas to invest time in looking for opportunities.
The rapid flow of TVL into the ecosystem, causing the system to shock TVL and TVL into many trash projects has also happened many times with emerging ecosystems such as Binance Smart Chain.
This is the period when there are many low-quality projects that can bring huge profits. Therefore, you should manage your capital carefully, to avoid heavy losses in the investment process.
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