Arbitrum to Airdrop new token and transition to DAO

Arbitrum, the biggest player in Ethereum’s layer 2 scaling landscape, is finally getting a token.

The Arbitrum Foundation said on Thursday that ARB, Arbritrum’s new token, will be airdropped to community members on Thursday, March 23.

According to the Arbitrum Foundation, ARB will mark Arbitrum’s official transition into a decentralized autonomous organization (DAO), meaning ARB holders will be able to vote on key decisions governing Arbitrum One and Arbitrum Nova – networks that allow users to transact on the Ethereum blockchain with greater speeds and lower fees.

“Arbitrum DAO will have the power to control key decisions at the core protocol level, from how the chain's technology is upgraded to how the revenue from the chain can be used to support the ecosystem,” the Arbitrum Foundation said in a statement.

Although the Arbitrum Foundation plans to grant a relatively high number of tokens to investors and core contributors (44%), Arbitrum’s creator – Offchain Labs – boasts that the ARB token will make the Arbitrum ecosystem more decentralized than alternative scaling chains.

“For me, the most exciting part is the decentralization – the fact that Offchain Labs will no longer have any control over the future of this chain,” Offchain Labs CEO Steven Goldfeder told CoinDesk. “We will be a service provider, and if the DAO calls on us to build software, we will.”

What is ARB?

Arbitrum worked with Nansen, the crypto analytics firm, to “snapshot” user activity in February in order to determine who should be eligible for ARB tokens. “How many transactions you did, how many different applications you used, and how long you've been using” Arbitrum One and Arbitrum Nitro were among the factors used to determine eligibility, according to Goldfeder.

Arbitrum users will be able to check their eligibility for the airdrop and claim tokens by visiting gov.arbitrum.foundation. Users are encouraged to use caution while claiming their tokens; scammers frequently use the occasion of airdrops to phish people via spoof websites and other schemes.

ARB’s total circulation will number 10 billion. The Arbitrum community will control 56% of those tokens – the airdrop will grant 11.5% of the total supply to eligible Arbitrum users, and 1.1% to DAOs that operate in the Arbitrum ecosystem. The remaining community tokens will go to a treasury controlled by the new Arbitrum DAO, which will allow ARB holders to vote on how to disburse the funds.

The other 44% of ARB’s circulation will go to the investors and employees of Offchain Labs – the development firm that built Arbitrum. CEO Goldfeder says these tokens will be subject to lock-up periods and vesting schedules, though the proportion of ARB reserved for insiders is somewhat high in comparison to similar projects (Optimism, Arbitrum’s main competitor, rewarded 36% of its OP tokens to investors and core contributors, for example).

Unlike ether (ETH), which is used to pay out fees on Ethereum (and Arbitrum), the ARB token will only be used for protocol governance. Arbitrum DAO’s governance process will be self-executing, meaning votes can be used to directly alter Arbitrum’s core code.

Code changes will be subject to a time delay (to leave time for audits and other safety considerations), but a 12-person security council governed by the Arbitrum DAO will have the ability to make quicker bug fixes.

ARB’s introduction has been timed to coincide with the launch of Arbitrum Obit, which will allow third-party apps and protocols to build new “layer 3” blockchains based atop Arbitrum’s low-fee infrastructure.

Why now?

Arbitrum has $3.69 billion locked into its Ethereum rollup network, Aribtrum One, making it the clear market leader in a cut-throat field of competing chains (according to L2 Beat, a layer 2 analytics site, Arbitrum holds 55% of the Ethereum Layer 2 market share).

As one of the largest crypto projects without a token, anticipation for an Arbitrum token has been at a fever pitch since the network went live in 2021.

Arbitrum’s main competitor in the Ethereum scaling space, Optimism, launched its OP token nearly a year ago when it made its own transition to DAO governance.

Both Arbitrum One and Optimism are so-called “Optimistic” rollup networks. They are blockchains that operate alongside Ethereum, bundle up big groups of transactions, and then write those transactions to the Ethereum ledger in bulk – slicing the fees that one would need to pay to execute those transactions individually.

As for why Arbitrum took longer to launch its governance token, Goldfeder emphasized, “The tech came first. And based on our technical roadmap, now was the right time.” According to Goldfeder, Arbitrum has reached certain technical milestones, like working fraud proofs (the technology underpinning Arbitrum One’s security) that its main competitor has yet to achieve.