Arbitrum, a layer 2 scaling solution for Ethereum, has captured nearly half of the total rollup market share on Ethetherum, Nansen data shows.
Rollups are crafted to enhance user transaction speed and cost-effectiveness on the Ethereum network. This is achieved by relocating computations off-chain and consolidating a set of transactions before submitting them to Ethereum’s base layer.
According to Nansen analyst Sandra Leow,
“Transactions on Arbitrum have been averaging between 600-900k per day, with some spikes due to inscriptions. Optimism, however, is averaging at about half of Arbitrum’s daily transaction count, at 300k-400k per day.”
Arbitrum’s revenue has been on an upward trend since September, with the highest revenue generated in December ‘23 at $11.9M in that month alone.”
Total transactions on arbitrum. Source: Nansen
ARB price has also seen positive movement over the last three months. The layer 2 token is up 25% over the last month and 93% over the last 90 days.
Crypto performance chart. Source: birdeye.so
What’s behind Arbitrum’s growth
A growing DeFi ecosystem
On-chain data from DefiLlama shows that trading volume on decentralized exchanges (DEX) on the Arbitrum network has surpassed other blockchains, including Binance Smart Chain, Polygon and Avalanche, over the past week.
Top 5 Chains by Trading Volume. Source: DeFiLlama
Notably, the DEX volume on Arbitrum briefly outpaced that of Ethereum’s mainnet on Jan. 5, marking a noteworthy milestone.
This accomplishment can be largely attributed to an increase in crypto investors taking advantage of the low transaction fees on the network.
According to data from L2Fees, Arbitrum is one of the most economical networks to transact, boasting an average fee of $0.16. In stark contrast, the average transaction fee on the Ethereum network exceeds $5. This could be the reason why DEXes on the Arbitrum have experienced a significant increase in trading volume.
Transaction fees on Ethereum Layer 2 networks. Source: L2Fees
Skyrocketing TVL on Arbitrum
Since the beginning of the year, the blockchain has witnessed a notable positive net flow exceeding $250 million. This surge has propelled Arbitrum’s total value locked (TVL) to an impressive all-time high, reaching $2.65 billion on Jan. 18.
Total value locked on Arbitrum. Source: DeFiLlama
TVL is a crucial metric for gauging the capital invested in a blockchain or decentralized finance (DeFi) protocol.
Increasing TVL means that there is growing trust among users and developers for the platform as a safe place for their DApps.
As such, Arbitrum’s ARB price has increased in tandem, rising a remarkable 20% increase this year, outperforming leading cryptocurrencies such as Bitcoin and Ethereum.
Is ARB’s bullish flag a hint of what is to come?
After reaching an all-time high of $2.4 on Jan.11, ARB price pulled back as sellers booked profits and the wider crypto market corrected.
Despite the correction, a bull flag can be seen on the daily chart, which hints at the continuation of the uptrend.
ARB bulls face resistance from the flag’s upper boundary at $1.85. A daily candlestick close above this level would signal a possible breakout from the chart formation, projecting an uptick to $4.1. Such a move would represent a 128% ascent from the current price.
ARB/USD daily chart. Source: TradingView
The 50-day exponential moving average, 100-day EMA, and 200-day EMA were all trailing the price, suggesting that the market conditions still favored the upside.
On the other hand, the relative strength index was moving downward and had just crossed the midline into the negative region. The price strength at 48 indicated that the bears still had begun taking control of the Arbitrum price.
As such the bears may pull the price lower with the flag’s lower limit at $1.44 (the 50-day EMA), providing the first line of defense. Additional support lines could emerge from the 100-day EMA at $1.41, the $1.40 psychological level and the major support zone between $1.20 and $1.30, where the 200-day EMA lies.