What is Arbitrum?
Arbitrum is an EthereumLayer 2 blockchain, built using optimistic rollup technology. Arbitrum aims to scale Ethereum, allowing users to avoid the high transaction fees that Ethereum is notorious for, while leveraging on the security of Ethereum’s battle-tested network.
Arbitrum has been extremely successful in garnering traction, with the total value locked (TVL) on the chain almost doubling since the lows resulting from the FTX collapse. A large part of this move was driven by the popular perpetuals decentralized exchange (DEX), GMX, which currently holds more than 35% of TVL on Arbitrum. But the other significant driver for Arbitrum’s rapid ascent was the speculation around an airdrop of its token.
Source: Artemis.xyz (link)
Airdrop rumors already surfaced initially in 2021 on the launch of Arbitrum, and then later again in 2022 when Arbitrum launched Arbitrum Odyssey, a series of quests on Arbitrum. However, the rumors came to full swing in early 2023 as bullish sentiment began to re-emerge in the markets again.
After much anticipation, Arbitrum finally announced its token, ARB, and its airdrop on March 16, 2023, with the token to go live the following week on March 23, 2023, when block 16890400 on Ethereum mainnet is mined.
Let’s dive into the details.
Who Is Eligible for the Airdrop?
Arbitrum designed a set of criteria to determine users who would be eligible for the airdrop and the size of each user’s airdrop. The airdrop criteria includes:
- Bridging transactions into Arbitrum
- Number of months in which transactions were made on Arbitrum
- Number of transactions made or smart contracts interacted with
- Aggregate value of transactions
- Activity on Arbitrum One and Arbitrum Nova
Source: Arbitrum Foundation (link)
Each criterion is further broken down into several bands granting larger airdrops for achieving a higher band. For example, under the criterion, “Transactions Over Time”, executing transactions over nine distinct months would warrant a larger airdrop than only doing so over two distinct months.
Source: Arbitrum Foundation (link)
Anti-sybil rules were also put in place to remove points from users who:
- Completed all qualifying transactions within a 48-hour period
- Held less than 0.005 ETH on their wallet and interacted with no more than one smart contract
Wallets identified as a sybil address under Hop Protocol’s Bounty Program, were also completely disqualified from receiving the airdrop.
Users can check the criteria they have fulfilled and their allocated airdrop on the official Arbitrum Foundation website.
Aside from the various DEXs on Arbitrum, users can also consider centralized exchanges (CEXs) if they wish to sell their ARB tokens. Currently, several CEXs such as Binance, ByBit, OKX, KuCoin, and several others have announced that they will be listing ARB on launch day.
Token Distribution
On March, 23, 2023, 1.162 billion ARB tokens will be airdropped to individual wallets, representing 11.62% of the total token supply of the ARB token, which sits at 10 billion tokens.
Source: Token Unlocks (link)
The median airdrop size is 1,250 ARB tokens, with more than 245,000 addresses, out of the total 625,143 eligible addresses, falling into this range. On the high end of the spectrum, just over 4,400 addresses will be eligible to claim the maximum amount at 10,250 ARB tokens.
Source: Nansen.ai Twitter (link)
At the same time, 4.278 billion tokens will be released to the Arbitrum decentralized autonomous organization (DAO) treasury. The vesting period of these tokens will be determined by governance vote. The use of these tokens will be controlled by ARB token holders via governance proposals known as Arbitrum Improvement Proposals (AIPs). As such, Arbitrum’s token airdrop also represents the team’s first step towards decentralizing the chain to the community.
But that’s not all. Looking closely at the distribution, 113 million ARB tokens will also be distributed to DAO treasuries of protocols building on Arbitrum.
Token Allocation to DAO Treasuries
Much like the airdrop to individuals, the airdrop to protocols will also be determined by a separate point-based system. The criteria includes:
- When the protocol deployed to Arbitrum
- Whether the protocol was Arbitrum-native, Ethereum and Arbitrum-native or multichain
- Number of daily and total transactions executed on the protocol
- Financial value of transactions that occurred on the protocol as a percentage of the activity registered by all similar protocols on Arbitrum
This distribution to protocols sought to create a more diverse base of ARB token holders to further decentralize the chain across the team, investors and individual users. Moreover, as protocols directly build on the chain, protocols could propose changes from the perspective of builders to the benefit of all users of Arbitrum.
While the exact distribution has not been released, Nansen, which collaborated with Arbitrum to determine the airdrop allocation, has released a chart showing the distribution of transactions and contract logs by entity since the inception of Arbitrum One.
Source: Nansen.ai Twitter (link)
Solely based on this chart, speculation has run wild on which protocols would benefit the most from the airdrop. Certain users are speculating inflows to Arbitrum “blue-chips” such as GMX and MAGIC, whereas others are placing bets on small market cap projects which may see a large bump in market cap from a large ARB airdrop, such as Hop Protocol or Mycelium.
With the distribution of tokens to the Arbitrum DAO treasury, community-owned protocols, and individuals, more than 55% of ARB tokens will be effectively distributed to the community.
Team and Investor Allocations
The remaining 4.447 billion tokens will be subjected to a four-year lockup, with the first unlock occurring one year after the upcoming airdrop, on 23 March 2024. Subsequent unlocks will take place monthly, with the final unlock on 23 March 2027.
Source: Token Unlocks (link)
Arbitrum (ARB) Valuation
As the days count down to the airdrop, users have also begun speculating on the opening price of the ARB token.
One school of thought compares Arbitrum to its closest competitor and fellow optimistic rollup, Optimism. Optimism currently trades at a fully-diluted market cap of $10.81 billion, with TVL of just over $980 million. Using Arbitrum’s current TVL of $1.8 billion, some traders have estimated a fully-diluted valuation for Arbitrum at $19.86 billion. This would give the ARB token an opening price of $1.98.
Another line of thought uses the currently live ARBUSDT futures contract trading on BitMEX to estimate an opening price for the token launch. As of writing this article, the futures contract expiring on 30 June 2023 trades at $1.38 per token.