Overview

Reflecting on 2023, Arbitrum One experienced a substantial surge in its Total Value Locked (TVL), surging from an initial $1b at the start of this year to an impressive close of approximately $2.5b. Beyond the general uptick in the crypto markets throughout the year, this surge in TVL showcased the expanding adoption and active involvement of both users and projects within the vibrant Arbitrum ecosystem. Moreover, the quarter saw the implementation of strategic initiatives such as the Arbitrum Short-Term Incentive Program (STIP) and the integration of Celestia. These measures played a pivotal role in strengthening the platform's scalability and fostering an environment for innovation and community.

Key Developments: Q4 2023

Arbitrum Short-Term Incentive Program

• The Arbitrum Short-Term Incentive Program (STIP) is a proposal aimed at distributing 50m ARB tokens for incentive grants to active protocols on Arbitrum.
• The program intends to fulfill short-term community needs by allocating DAO-owned ARB tokens.
• Selected projects would not have the option to convert ARB into other assets. Instead, they should clearly outline their spending plan, and grant objectives as well as provide essential protocol data such as daily TVL and allocations.

Arbitrum Odyssey: Reignited

• On Nov 28, The Arbitrum Odyssey: Reignited concluded and showcased the collaborative efforts within the community over the past two years.
• Many dApps were featured during the campaign, including GMX, Uniswap, and many more found on the Missions portal.

• Users would have to get 12 out of 15 Odyssey NFTs by Nov 30, when Galxe takes the snapshot. Claims for the final NFT started on December 1.

Arbitrum Orbit

• Arbitrum Orbit is a permissionless path that facilitates the creation of customized chains, addressing Ethereum's scalability concerns.
• This approach ensures dedicated throughput and EVM compatibility.
• The impending integration with Blobstream further improves scalability, facilitating the relay of commitments to Celestia's data root on Ethereum via a lightweight client.
• The integration of CelestiaDA with Arbitrum Orbit and the full Nitro stack, marks a pivotal step in the Arbitrum ecosystem tapping into the modular stack. This will allow builders to opt for other DA layers. This partnership introduces Celestia as an additional data availability layer, offering developers the choice to utilize it alongside Arbitrum AnyTrust for deploying Arbitrum Orbit chains settling on Ethereum.
• Moreover, Arbitrum Orbit also integrates with NEAR DA. NEAR DA helps developers reduce costs and enhance their rollup’s reliability while maintaining the security guarantees provided by Ethereum.

• Overall, this collaboration contributes to Ethereum's diverse ecosystem, emphasizing adaptability, connectivity, and a commitment to seamless user interactions within the Arbitrum framework.

Ecosystem

ApeChain

• On Dec 23, Horizen Labs, Offchain Labs, and the Arbitrum Foundation submitted a proposal to build out ApeChain as an Arbitrum Orbit chain developed with AnyTrust technology.
• Deploying ApeChain offers significant advantages through its seamless integration with the Ape community's goals and the broader Ethereum ecosystem.
• By adopting APE as its primary gas token, ApeChain would act as an extension of the Ape community and strengthen its brand.
• ApeChain’s emphasis on minimal fees and rapid transactions aligns well with Yuga Labs' focus on gaming.
• This targeted approach is intended to make ApeChain an ideal hub for Yuga Labs and other partners within the ecosystem.
• Additionally, its continued alignment with Ethereum ensures a cohesive connection with influential entities like BAYC, MAYC, and the broader APE community, ensuring ApeChain's significance in the Ethereum NFT ecosystem.

Rarible Protocol Integration

• The Rarible integration on Arbitrum One was finally announced on Nov 24. RARI Chain was also announced on Nov 30 2023. RARI Chain is a L3 Orbit Chain.
• Proposed in early October, this initiative aimed to address the challenges that developers faced when creating NFT-based applications on Arbitrum, due to the lack of user-friendly tools.
• Rarible’s open-source software development kit (SDK) that is EVM-based and tailored for NFT use cases would also motivate developers to deploy on Arbitrum and potentially lead to an increase in new users and sequencer revenue.

Nansen On-chain Data

Daily Transactions

In the last quarter of 2024, the transaction volume on Arbitrum One remained relatively stable, hovering around 500k, but experienced notable surges on two occasions. The first surge on Nov 25, coincided with Bitcoin’s attempt to break through the resistance level of $38,000. This event sparked heightened activity on various platforms, including Arbitrum One, as traders reacted to the potential implications of Bitcoin's movement.

The second notable surge occurred on Dec 15 when Arbitrum One experienced an increase in on-chain activity, primarily fueled by EVM Inscriptions. These Inscriptions, akin to Bitcoin Ordinals, attracted users due to their cost-efficiency but led to a temporary network disruption on Arbitrum One due to the elevated volume of transactions.

Active Addresses

Over the same period, Arbitrum One followed a similar trend to daily transactions and maintained an average of 160k daily active addresses, highlighting consistency when compared to the preceding quarter, which also recorded 140k active addresses.

Top Entities by Users and Transactions

(excluding entities with “Unknown” labels)

Utilizing Nansen labels for identifying entities based on transaction volume and user activity reveals a noteworthy presence of decentralized exchanges (DEXs) that can be found on zkSync as well. It is plausible that users are strategically rotating their funds through these decentralized applications (dApps), potentially migrating assets from other blockchain networks to actively participate and engage with the zkSync chain.

When utilizing Nansen labels to identify the leading entities based on transaction volume and user activity, it's noteworthy that stablecoins such as USDC and Tether prominently feature among them. Galxe also stands out as one of the top entities with user interactions and transactions over the last quarter of 2023, hinting at the popularity garnered from the Arbitrum Odyssey.

Smart Money Segments on Arbitrum

Nansen's primary feature involves its identification of "Smart Money" labels, pinpointing wallets with significant on-chain activity and profitability. The highest overlap of "Smart Money" on Ethereum and Arbitrum One can be found in the Airdrop Pro and First Mover Staking labels. These categories have consistently exhibited the most overlaps since the Arbitrum airdrop, indicating the ongoing presence of influential participants within the ecosystem.

Check out this page for how these categories are defined and how to use these labels on Nansen!

Closing Thoughts

The developments observed in Q4 2023 signal a significant juncture in Arbitrum's evolution. The Arbitrum STIP emerged as a noteworthy initiative, providing vital support for active protocols, while Arbitrum Odyssey played a pivotal role in uniting the community and potentially drawing in new users. Celestia's integration alongside other ecosystem expansions such as ApeChain and Rarible's integration underscores a commitment to scalability and community involvement. Together, these efforts highlight Arbitrum's dedication to nurturing a vibrant ecosystem and supporting growth and engagement.

Disclaimer

Disclosure: Nansen has produced the following report as part of its existing contract for services provided to the Customer at the time of publication. While the Customer has the right to review and provide feedback to Nansen, Nansen maintains full editorial control over the publication of this report. All views expressed are the independent opinions of Nansen's research analyst(s) who are the author(s) named in this report. This report is intended for informational purposes only and does not serve as investment, financial, professional, or other advice. For more information, please refer to the disclaimer at the end of this report, as well as our Terms of Service.

The authors of this content and members of Nansen may be participating or invested in some of the protocols or tokens mentioned herein. The foregoing statement acts as a disclosure of potential conflicts of interest and is not a recommendation to purchase or invest in any token or participate in any protocol. Nansen does not recommend any particular course of action in relation to any token or protocol. The content herein is meant purely for educational and informational purposes only and should not be relied upon as financial, investment, legal, tax or any other professional or other advice. None of the content and information herein is presented to induce or to attempt to induce any reader or other person to buy, sell or hold any token or participate in any protocol or enter into, or offer to enter into, any agreement for or with a view to buying or selling any token or participating in any protocol. Statements made herein (including statements of opinion, if any) are wholly generic and not tailored to take into account the personal needs and unique circumstances of any reader or any other person. Readers are strongly urged to exercise caution and have regard to their own personal needs and circumstances before making any decision to buy or sell any token or participate in any protocol. Observations and views expressed herein may be changed by Nansen at any time without notice. Nansen accepts no liability whatsoever for any losses or liabilities arising from the use of or reliance on any of this content