Arbitrum, the Ethereum Layer 2 protocol, has been seeing renewed interest in the market since the beginning of the year. The decentralized finance space on the network has been particularly lucky during this time, jumping nearly 50% in less than two months.
2023 bodes well for TVL on Arbitrum
The Ethereum Layer 2 scaling solution started in 2023 like any other protocol with low momentum. The entire decentralized finance (DeFi) market was negatively affected by the bear market, causing TVL across the networks to drop dramatically.
However, Arbitrum has been able to take advantage of the recent market recovery to drive its TVL. The protocol that was sitting at $1.02 billion TVL swelled to more than $1.5 billion by mid-February. This represents a 47% increase in TVL on the protocol in less than two months.
Arbitrum TVL jumps to $1.51 billion in 2023 | Source: DeFiLlama
This sudden rise in TVL puts it ahead of other protocols like Polygon, another Ethereum Layer 2 scaling solution. Not only that, but Arbitrum now sits comfortably ahead of the likes of Avalanche, Fantom, and even Solana, as well as Cardano.
To put this in perspective, TVL totals from Avalanche, Fantom, Solana, and Cardano are $926.65 million, $508.58 million, $249.68 million, and $110.15 million, respectively.
With its current TVL, it is the fourth largest space in DeFi after networks like Ethereum, BNB Chain, and Tron.
Market recovery pushes Ethereum price above $1,500 | Source: ETHUSD on TradingView.com
What is driving this growth of the second-tier blockchain of Ethereum?
As with anything in the crypto space, the driving factor behind Arbitrum TVL’s growth has been increasing adoption. Since January, there have been some high-profile launches on the blockchain that have helped bring more attention to it.
One of these is the decentralized exchange Camelot (DEX) which was launched in December. The DEX index token called GRAIL has skyrocketed, reaching an all-time high above $3,000. This spurred the issuance of other tokens which drove up demand on the network.
Other important protocols running on the blockchain include GMX, a derivative platform, which currently holds the highest TVL with a value of $463 million, accounting for more than 30% of TVL. Uniswap V3 has also launched on Arbitrum and has reached a TVL of $117.8 million at the time of writing. Other important protocols include SushiSwap, ZyberSwap, AAVE V3, Cruve, and Synapse, all of which are fully functional on Arbitrum.
Interestingly, Arbitrum itself does not have its own native code. The network is powered by Wrapped Ether (WETH) and offers much cheaper fees compared to the Ethereum Layer 1 blockchain.