The ARB token is finally live. The duel for the king of Ethereum scaling solutions enters a new phase.
CoinMarketCap Academy covered Arbitrum in detail in the past:
- Everything you need to know about the Arbitrum airdrop.
- The Ultimate Guide to Protocols on Arbitrum.
- The Ultimate Guide to the Arbitrum Ecosystem.
So is Arbitrum destined to assume the scaling throne?
Not so fast! This article compares Arbitrum and Optimism to analyze if one L2 really can decisively win the scaling battle. We will analyze:
- The blockchains' architecture.
- An ecosystem comparison.
- Future catalysts.
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Arbitrum vs Optimism: Architecture
Ethereum is scaling natively with a detailed roadmap following its switch to proof-of-stake after the Merge:
But layer-2 chains like Arbitrum and Optimism are helping Ethereum to share the workload. They use optimistic rollups to roll up hundreds of transactions into one and offload traffic from the Ethereum mainnet to the second layer. This reduces the network load for the first layer and allows for faster transaction processing and cheaper fees by doing the bulk of the computation on the L2 chain.
Optimistic rollups derive their name from the optimistic assumption that all transaction data is valid when aggregated into batches for verification on the L1 chain. Both chains use fraud proofs, which you can imagine as tests for the validity of the data. Because these rollups are trustless, transaction finality is instant and the blockchains produce a much higher throughput than Ethereum. The tradeoff is that there is a seven-day challenge window for verifiers to challenge the validity of submitted transactions. There is also a so-called "sequencer," which orders the transactions before they are submitted to the L1.
The main technical difference between the two chains is that Optimism uses single-round fraud proofs while Arbitrum uses multi-round fraud proofs. In normal English, this means Optimism's method is faster but potentially more expensive due to higher gas fees because it's executed on the L1. Arbitrum's way takes more time but is more cost-effective.
Moreover, Optimism uses the Ethereum Virtual Machine (EVM), while Arbitrum has its own Arbitrum Virtual Machine (AVM). That means Optimism's programming language is limited to Solidity. Arbitrum supports all EVM programming languages.
In conclusion, the technical differences are minimal and barely noticeable for everyday users of both chains.
Arbitrum vs Optimism: Ecosystem Analysis
Since Arbitrum and Optimism use a similar technical approach to scaling transaction throughput, comparing growth metrics across both chains is particularly interesting.
In terms of TVL, Arbitrum is clearly ahead in the score. According to DefiLlama, the chain boasts more than double the total value locked of Optimism.
Arbitrum:
Optimism:
In their analysis of the two ecosystems, Blockcrunch found that Arbitrum's TVL is less dependent on one sector. Almost 30% of TVL comes from derivatives and 22% from Dexes. Meanwhile, Dexes account for almost 42% of the TVL on Optimism, with only about 17% coming from derivatives.
Another interesting detail is the comparison of native vs non-native protocols for TVL. 54% of Arbitrum's TVL came from native protocols but only 29% of Optimism's. The reason for that is the dominance of GMX on Arbitrum. GMX alone accounts for almost 25% of all TVL on Arbitrum.
When it comes to protocol activity, the picture is no different. Arbitrum leads Optimism in protocols by 256 to 119. Arbitrum also leads in terms of daily active addresses and daily transactions. Its airdrop only accentuated this lead, although you can probably expect the transaction and address count to revert back to more "normal" numbers soon. At the time of writing, Arbitrum is processing more daily transactions than Ethereum while having more daily active addresses as well. This will likely not stay the case for long.
Both protocols are on a long-term upward trajectory for chain activity and show no signs of slowing down.
Regarding key growth drivers, Arbitrum benefited mainly from its Odyssey NFT series and the Nitro upgrade before the airdrop. Activity spiked during Odyssey, as users were collecting NFTs, which may have been useful for a potential later airdrop (they weren't, as it turned out). Still, after Odyssey and the Nitro upgrade, daily active users were permanently higher than before:
For Optimism, the big one was its initial airdrop. Its OP quests led to a temporary increase in daily active users, but the network could not sustain the level of activity in the long term. Optimism's second airdrop received a fairly lukewarm reception, probably because most users were not eligible for this round.
All of these events were, unsurprisingly, dwarfed by the activity following the ARB airdrop:
However, it remains to be seen if activity on Arbitrum will tail off after the cat is out of the bag.
Arbitrum vs Optimism: Future Catalysts
So far, the picture is clear: Arbitrum is the clear leader among optimistic rollup L2s.
But what does the future hold for these two chains?
Interestingly, the two chains are pursuing slightly different approaches to grow their market share. Optimism explained its game plan in a blog post about the OP Stack.
The OP Stack is Optimism's next phase of scalability. It is a series of modules that work as a blueprint for modular, scalable, and interoperable blockchains. Optimism designed this framework in a flexible way to make it applicable to various types of blockchains, not just optimistic rollups.
The first official release of the OP Stack will be Optimism Bedrock. It will introduce modularity to Optimism and allow the separation of consensus, execution and data availability layers to help future-proof the chain. The promised performance improvements are reduced transaction fees, optimized deposits and withdrawals, and faster node syncing.
Most importantly, Optimism is collaborating with Coinbase to develop its new Base layer-two blockchain. The end goal is a "Superchain" comprised of a network of rollups built using the OP Stack. This ecosystem of interoperable chains will share sequencing, proving, and bridging infrastructure, fostering seamless communication between networks.
Arbitrum just finished playing its biggest trump card, the ARB token drop. This is an important milestone en route to more decentralization. But, of course, it is also an important business decision that, as Arbitrum hopes, will pay off by drawing more users to the ecosystem in the long run. Besides ARB, Arbitrum is planning to innovate with Arbitrum Nova, Arbitrum Orbit, and its Stylus Upgrade.
Arbitrum Nova is a sidechain with up to 90% lower gas fees compared to the regular Arbitrum chain. Although it offers lower security, Arbitrum Nova is ideal for gaming, social, and other high-bandwidth applications. Opensea and TreasureDAO recently launched marketplaces on Nova, providing critical infrastructure for future projects.
Arbitrum Orbit enables developers to permissionlessly launch L3s and leverage Arbitrum's technology to build in the ecosystem. With its upcoming Stylus upgrade, Arbitrum furthermore aims to introduce "EVM+", allowing contracts written in Rust, C, and C++ to interact synchronously with existing Solidity-based contracts. This expansion opens the door to a vast pool of developers, improving network performance and reducing fees.
In conclusion, Optimism focuses on modularity, scalability, and interoperability and cooperates with Coinbase to gain a foothold among builders in the space. Meanwhile, Arbitrum seeks to expand its reach to more developers and improve network performance through its Stylus upgrade and the development of its Arbitrum Nova sidechain.
Conclusion
So who is the winner in this optimistic rollup battle?
For now, Arbitrum has the lead. It boasts a significantly higher TVL, has more daily active users and processes more transactions and its airdrop quite literally broke its own system (for a few minutes). Small wonder that ARB has twice the market capitalization of OP.
However, Optimism is by no means down and out. Its cooperation with Coinbase could put its solutions in front of millions of new users. Moreover, it remains to be seen whether Arbitrum will keep going strong now that the long-awaited airdrop is finally concluded.
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