How Will the $ARB Token Dictate the Future of the Arbitrum Ecosystem?
Early adopters and projects of a recently flourishing ecosystem will be getting a major liquidity injection. There are likely to be both short-term mania and long-term consequences to this decision.
Disclaimer: This article is not financial advice. The author of this piece has several exposures to both the Arbitrum airdrop itself and ecosystem tokens as an investor.
by Adam Kreitzman, intern
Introduction
The Arbitrum airdrop token went live on the morning of March 23.
Arbitrum has emerged as the leading layer-2 protocol, attracting $2.24 billion in Total Value Locked, despite having no token incentives - until now.
The protocol's success can be attributed to native dApps, such as GMX with $489 million in TVL, Camelot with $104 million in TVL, as well as blue chip DeFi protocols such as Uniswap, Sushi, Curve, Balancer, AAVE, and Stargate all deploying on the chain. Additionally, a multitude of native protocols have gained traction, spanning derivatives, options, and yield vaults.
Arbitrum’s low fees and high throughput have attracted dApps and liquidity from mainnet, enabling the creation of new protocols that would likely not be possible on Ethereum with its current level of scalability.
How will the introduction of the $ARB token affect the current trajectory?
The first effect will be the introduction of a DAO structure for the chain, aligning it more closely with the ethos of the Ethereum community. However, the protocol's reliance on a centralized sequencer to place transactions remains a concern.
A centralized execution system certainly does not align with the decentralization mantra of crypto, and while this move is definitely a step in the right direction, it does not necessarily mitigate the entire issue.
The most relevant impact on the ecosystem long-term is the token allocations that are going to protocols that have been building on Arbitrum. How these tokens are utilized could have serious implications for the ecosystem.
Two major projects, GMX and Treasure DAO (decentralized game infra which enabled game development on Arbitrum), which have been building on Arbitrum since the beginning and have lots of traction are both being awarded 8 million $ARB tokens. Plenty of other projects are also receiving lots of $ARB tokens as well.
Should they choose to use the tokens for incentives, it could attract more liquidity to the platform. However, this comes with the risk of incentivizing short-term farmers and arbitragers who may leave when the incentives expire. Nonetheless, smaller projects that receive allocations are likely to attempt to generate more competitive yields, while bigger projects will maintain some tokens to have a strong DAO influence on the future of the chain.
Finally, we can expect the market to react to the price of the $ARB token with further consideration for additional assets under management for some projects.
With an estimated price of $1.30 a token, projects with higher allocations will now have up to $10 million of added assets to their platform, making the value of governance higher for those under a DAO structure.