Weekend at Arby's - The Daily Gwei #333

And what a weekend it was.

I think it’s safe to say that the speed of growth of Arbitrum’s layer 2 network has blown everyone away. The network has attracted over $2 billion of capital, is doing $100’s of thousands of dollars of daily fee revenue, has already hit their soft transaction limits and has seen unique addresses on the network balloon to over 70,000 - all of this in just 13 days of being live on mainnet.

What’s interesting to note about this growth is that it has happened even though many of the DeFi heavy hitters (Maker, Aave, Curve etc) aren’t live on the network yet. On that note, you may be wondering what actually triggered this growth. Well, since Arbitrum is permissionless to deploy to, a few “yield farms” were deployed that offered users a really high yield (at a high risk, naturally). Of course, this attracted the attention of the “degen apes” who ended up putting in over $1 billion into these farms (and then some of them ended up collapsing). Due to this, some people are quick to try and discredit Arbitrum’s growth by saying that these yield farms aren’t “real” use-cases which I think is the wrong way to think about this.

I don’t think that anyone has the right to moralize about what use-case is “real” or “good” and which one is “bad” and you could easily make the argument that big DeFi projects running liquidity mining programs is essentially the same thing as these random yield farms. In saying that, there are massive on-flow effects to these sorts of things because these farms basically act as a way to onboard users into new ecosystems (and use the other apps on there). For example, Uniswap on Arbitrum did $30 million+ of volume over the weekend due to this new influx of users. Of course, Arbitrum isn’t the only platform to benefit from token incentive led growth - plenty of other ecosystems have employed the same strategy (such as layer 1’s announcing 9 figure incentive programs).

Speaking of token incentives, another Ethereum scaling ecosystem that benefited massively from them earlier on is Polygon’s PoS chain. If you’ll remember, a few months ago Polygon ran some large incentive campaigns (using the MATIC token) for popular apps such as Aave in order to drive growth. This led to an explosion in total valued locked (from $300 million in April to $10 billion in June) and also gave the platform much more legitimacy which meant more of the top DeFi apps went live on the network. Now the network has settled at around $4.6 billion TVL (with 175,000 daily active addresses) and doesn’t have huge incentive programs running anymore which means that they now have a sustainable ecosystem. So as you can see, these incentive programs can work wonders to bootstrap an entirely new ecosystem (when done right, of course).

One thing that I’ve come to realise over the last few months is that users really just want more Ethereum blockspace. Obviously layer 1 has priced a lot of these users out (probably permanently at this point) so they are simply migrating to the networks that give them more blockspace, but for less. This has come in the form of Ethereum-based layer 2’s, sidechains, and other layer 1 networks. Each of these solutions comes with their own trade-offs around decentralization and security, but for the marginal user they’re just happy to be able to do their transactions without having to pay $100’s of dollars - which is totally fine.

Anyway, as I always say, we’re really just at the very beginning of scaling Ethereum but it’s amazing that there’s already such an insane demand for solutions like Arbitrum. And demand for this blockspace really is practically infinite - so let’s keep scaling Ethereum so that everyone can use it - no matter how much money they have.

Have a great day everyone,
Anthony Sassano

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