[Podcast Notes] The Blockcrunch Podcast | Ep. 230 | w/ A.J. Warner, Offchain Labs | Arbitrum: Everything You Need To Know About The Top Layer 2

Feb 25

Notes on A.J. Warner’s 45 minutes interview with The Blockcrunch Podcast. Readable in <10mins.

Many alt-L1s were launched due to grant programs sponsoring alternative environments in the 2021 bull market
High Ethereum base layer’s transaction fees limited scaling
Currently, maturing L2s are starting to draw users back to Ethereum
Arbitrum can handle another 10x capacity at 70% reduced transaction cost
ZK rollups are finally entering the race
Liquidity is attracted to Arbitrum because community really believe in the roadmap

Gas fees depends on cost to post data to Ethereum, which consists of:
- How much bandwidth is taken on the L2
- Call data cost, how much transaction data is required to post to Ethereum to be recorded
Transactions cost 10-100x cheaper on Arbitrum than on Ethereum which advanced DeFi applications will benefit from

Is the goal to make transaction fees as low as possible? How low is low enough?

Mandate is to continue scaling with compromise, providing best-in-class scaling solutions for current use case
Currently working on EIP-4844 with Ethereum devs that will make posting call data to Ethereum fees even lower

In 2021, all their marketing strategy was DeFi-focused
Nova was birthed to provide the correct product fit for social projects
Nova and Arbitrum One share same code base, but Arbitrum One posts call data to Ethereum whereas Nova posts to data availability committee
Transaction costs are therefore 90% reduced on Arbitrum Nova
Nova allows for vertical scaling for low gas prices at the expense of security

Trust assumption that the data availability committee will hold your call data
Any single committee member can force the protocol to a rollup if they detect malicious activities
Recruited a wide and robust set of committee members which consists of significant Web2 parties
Much better design than a sidechain where cartel can form a supermajority and “take over” the chain
Adding people makes it additive, unlike sidechains where you have to vet validators before adding them in

2 possible future scenarios:
- Projects running on multiple public rollup environments
- Projects that can survive on their own application-specific environment
Second scenario will occur for applications with less composability and shared liquidity
Organic demand for blockchain block space is still early stage

Reddit requested for scaling solutions in July 2020
Migrated to Arbitrum on launch day after 1 and a half years of diligence
Two communities were involved, which are the cryptocurrency subreddit and the Bricks Fortnite subreddit

Why did they choose to market-fit Nova as a social platform even though socials is relatively new to DeFi?

Arbitrum want to scale without compromising on security
However, not every project is suitable to be on a cheaper platform
Arbitrum team help projects understand their on-chain footprint to determine which solution is the right fit for them

Internally have a feedback loop from developers for their products
The team is open-minded to technology and always improving on the limitations of their product
Currently Arbitrum is fully EVM-compatible with a developer-friendly code base
Fundamentally believe that achieving EVM is the floor and not the ceiling
Stylus upgrade allows for contracts written in other languages not EVM-based to easily deploy and interact with other protocols on Arbitrum
Solving scaling issues includes developer experience as much as fees and throughput

Because of Arbitrum’s WASM architecture, Stylus is unique only to Arbitrum
ZK tech and optimistic rollups have different limitations and different optimizing objectives
The basic convergence floor is EVM compatibility
L2 techs converge on what is necessary to have ecosystem growth, and diverge on architecture designs to solve different issues

Ethereum currently has more than $5M transaction fees in the past month, but total addressable market is small
Different products will price themselves differently based on their economic models
Subsidies and ecosystem rewards for validators are not sustainable
To achieve sustainability, adoption needs to scale

Validator set is increasing but is still permission-ed
Arbitrum’s permission-less validation will go live in a couple of months
Clearing misconceptions:
- Sequencer can order transactions, but not is able to extract MEV
- System cannot censor transactions as transactions can be posted directly to Ethereum
- Sequencer derives gas fees from Ethereum and has limited autonomous capacity
- Fair ordering of transactions will decentralize the sequencer

As the team is very open-minded to embracing new tech, what is the requirement for the team to switch to ZK tech?

Users are most excited about ZK tech solving the 7 day withdrawal period
However, there is virtually no reason to leave “complete” Arbitrum DeFi ecosystem
Will consider ZK tech adoption if there is advancements in prover tech, flexible tech stack, and decreased proof of cost
They have different goals than ZK tech, which will result in trade-offs for both projects
Optimistic technology is the best today; comparing ZK in the future vs Optimistic now is pointless as advancements are constantly made
Understanding where technology is going and having the flexibility to adapt is part of a successful strategy