What Does the Arbitrum Airdrop Mean for the Crypto Market?

Today, March 16th, the Arbitrum Foundation announced its long-awaited airdrop for users of its Ethereum Layer 2. Their ARB token will be released one week from now, on March 23rd, and will have consequential positive effects on the entire cryptocurrency market. Let’s understand what Arbitrum is, why its airdrop is significant, and what impacts it could have on the market. 

Arbitrum is a Layer 2 scalability solution for Ethereum. It acts like a blockchain in practice but uses Ethereum for storing transaction information and executes the transactions off-chain. Since the execution process is computationally intensive and expensive on Ethereum, bringing it off-chain allows for cheaper and faster transactions, helping Arbitrum support the capacity for thousands of transactions per second. 

Arbitrum is by far the biggest Ethereum Layer 2, with 55% of the Layer 2 market share and $3.3 billion in total value locked. The second biggest Layer 2, Optimism, released its OP governance token in May 2022, and there has been speculation ever since about when Arbitrum would release its platform’s token. Originally, there were rumors that Arbitrum would release the token in Fall 2022, but the chaos surrounding the Terra collapse and FTX fraud seemed to delay the release by several months.

One of the biggest reasons the cryptocurrency community was excited about the Arbitrum token release was the potential for an airdrop: when a protocol gives free tokens to early platform users to increase decentralization and incentivize early adopters. As the biggest Layer 2, the Arbitrum airdrop was speculated to be one of the biggest in history. In reality, 10% of the tokens are allocated to airdrops, with more tokens given to those with more activity on Arbitrum. With a total supply of 10 billion and an unknown initial circulating supply, the value of each token could be anywhere from 10 cents to over $1. 

The airdrop and token release happening now is important for several reasons. First, it signifies that Offchain Labs, the team behind Arbitrum and one that is very well-connected within the space, believes that market conditions are strong enough that it makes sense to release a much-anticipated token. It does not make sense to do an airdrop in a bear market, as users will sell their free money for safer assets. Second, 1% of the token is allocated towards DAOs in the Arbitrum ecosystem, such as Jones DAO, Plutus DAO, Camelot Exchange, and GMX. These protocols, either exclusive on Arbitrum or primarily based on the protocol, will be rewarded for their early development in ARB tokens. As we have seen with previous rewards going to protocols, such as incentive programs on Polygon, Avalanche, and Harmony, the native token either stays in the DAO treasury or is used as rewards for DeFi users and incentivizes more protocol activity. Either way, the DeFi platform’s token becomes more valuable, and we have already begun to see this happen with the aforementioned Arbitrum projects. Additionally, 40% of the token allocation goes to the Arbitrum DAO treasury and could be allocated to DeFi protocols.

Finally, the ARB release allows users to, at long last, invest in the largest and most successful Ethereum Layer 2. Arbitrum is a legitimate competitor to alternative layer 1 platforms and could steal market share from blockchains like Solana, Polygon, and Avalanche, among others. It may also bring more value to Ethereum since it is the source of Arbitrum’s security. The more transactions and volume on Arbitrum, the more transactions are stored and verified on the Ethereum chain. 

The Arbitrum token release is one of the first good pieces of news the cryptocurrency industry has seen since the Ethereum Merge in September 2022. Amidst worries surrounding regulation, USDC de-pegging, and the continued fallout of the FTX crisis, Arbitrum’s confidence to release a token is a positive sign for Web3’s outlook.  

By Lincoln Murr

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