Arbitrum

The market chases $ARB’s numbers and activity metrics, but misses the silent surge of cash flows pouring into the DAO. Arbitrum’s strategy—free L3s, profit-sharing L2s, and Stylus’ multiVM engine—ignites rising adoption and thicker margins. Appealing to developers and enterprises, the model provides a repeatable onboarding playbook that has already locked in big players such as Robinhood and Converge.

Arbitrum is no longer—and shouldn’t be priced as such—just another EVM-compatible L2; it leverages early network effects in combination with a technical edge that allows for protocol-level cash flows, SaaS-level gross margins, and a contractual royalty stream from blue-chip partners and institutional players. Orbit chains, Stylus, and TimeBoost are engineered for high-margin sustainable revenue streams, and the DAO treasury accumulation signals a credible path for $ARB value accrual.

Some of Arbitrum’s most important advances—like Stylus, BoLD, and TimeBoost—don’t make headlines, yet allow us to anticipate a window of opportunity to capture a unique risk/reward skew. The downside is cushioned by the DAO’s treasury and $ETH exposure, while the upside grows as the ecosystem matures. As Arbitrum’s revenue potential becomes clearer, we expect the market to recognize this and price in a higher premium.

Key Takeaways

• No longer just another EVM L2: Arbitrum now stands out for becoming a layered, cash-generating ecosystem with technical and economic differentiation that competitors can’t easily replicate.
• Arbitrum Everywhere Strategy: Free L3s, revenue-sharing L2s, and Stylus multiVM support attract both developers and enterprises, accelerating adoption and locking in major partners.
• Customization & Chain Sovereignty: Arbitrum prioritizes flexibility for sovereign chains with diverse VM support and custom gas tokens in exchange for free L3s settling on Arbitrum One, or Orbit L2s that pay a 10% profit share.
• Flagship Adoption Patterns: Exchanges like Coinbase’s Base or Kraken’s Ink chose Optimism for standardized governance and received incentives; Robinhood and Converge chose Arbitrum for sovereignty and customization, illustrating strategic segmentation.
• Defensibility Rotation: Arbitrum’s moat is being strengthened by the expansion from its flagship rollup to the broader dual free-L3 / paid-L2 model. Orbit is the growth engine while L3s maximize network effects in a classic counter-positioning play.
• Technical Differentiation: Stylus MultiVM for Rust/C/C++ contracts beside Solidity, BoLD (advanced challenge protocol), and TimeBoost (MEV internalization) expand the developer funnel, unlock new use cases, and drive protocol-level cash flows.
• Onchain DAO Accumulation: The DAO treasury accumulates sequencer fees, TimeBoost, and Orbit royalties. In parallel, a barbell strategy—balancing safe, yield-generating RWAs with high-upside ecosystem bets like Arbitrum Gaming Ventures—signals maturity.
• Base Case: 300x P/F (FDV) and $30M annualized fees underpin 88% upside within 3–12 months, reflecting conservative positioning versus historical highs (YoY 950x, all-time 1,338x) as Arbitrum gradually expands its product line and grows existing streams (Timeboost and Orbit fees).
• Bull Case: Converge and Robinhood Chain combined with increasing DeFi activity plus DATs coming onchain could push $ARB’s P/F to a 500x (high Lindy premium), and by generating $50M fees, we could see 421% upside ($25B valuation) within 3–12 months.
• Execution & Positioning: $ARB is fundamentally a bet on future network growth and protocol-level cash flows. The opportunity becomes more attractive under the view that the market is underpricing Arbitrum’s emerging fee lines and over-focusing on unlock overhang.
• Unlocks as a Dilutive Vector Until March 2027: 92.6 M ARB unlock every month until Mar 2027; no perpetual issuance (unlike L1 inflationary tokens). Offchain Labs, however, has hinted at discretionary $ARB purchases.
• A Latent Cash-flow Call Option: Treasury fire-power and pending value accrual provide upside, but dilution and the absence of direct fee share cap current projections.
• Non-passive Conviction: Don’t passively hold—trade around the position. This is not a set-and-forget bet, but the downside is cushioned and the upside is scalable.

Founding & Funding

Offchain Labs was founded by a team of Princeton cryptographers—Ed Felten, Steven Goldfeder, and Harry Kalodner—whose academic work culminated in the 2018 Arbitrum white paper. The company has raised a total of $143.7 million: a $3.7 million seed round led by Pantera in 2019, a $20 million Series A in 2021, and a $120 million Series B led by Lightspeed Ventures, with participation from Pantera, Polychain, Ribbit and others at a $1.2 billion valuation (up 4.5x to date). Execution has been disciplined and patient, acquiring Prysmatic Labs and releasing Nitro and Nova in 2022, introducing Orbit chains in 2023, and Stylus going live in 2024. The $ARB token was launched in March 2023 (11.62% of the supply airdropped to individual users and 1.13% to ecosystem protocols), with all investor (17.53%) and team (26.94%) tokens subject to a 4-year lockup, now ongoing with monthly unlocks after a 1-year cliff. The initial DAO allocation of 42.78 % $ARB has been gradually deployed and now 51.5% of the tokens are circulating.

The Arbitrum ecosystem has grown in number of projects and TVL, but the DAO itself also reflects an ongoing process of maturation. This is supported by initiatives like the formation of Onchain Labs—a joint effort by the Arbitrum Foundation and Offchain Labs—to accelerate the incubation of projects like Talos’ agentic treasury, a track record of ongoing Grants Seasons, and a commitment to governance spearheaded by professional teams like Entropy Advisors, L2Beat, Gauntlet, and Blockworks Advisory among others.

From very early on, two proposal types were defined—Constitutional vs. Non-Constitutional AIPs—and 63 proposals have already been voted and passed onchain. This process is also streamlined by proactive measures to encourage participation, such as the ArbitrumDAO Delegate Incentive Program (DIP). There is also a 12-person Security Council—responsible for technical upgrades and emergencies—that rotates with new elections every 6 months.

Arbitrum’s Stack: beyond the EVM Commodity Trap

Arbitrum launched in 2021 and quickly became the most widely used Ethereum L2 by several metrics—now leading in total value secured (~$19b, as per L2Beat), Perps volume and Fees. The initial traction was attributed to a first-mover advantage as an Ethereum L2, with a thriving ecosystem of leading DeFi apps across multiple verticals driving up liquidity growth and attracting more users. Since then, the Arbitrum Foundation and Offchain Labs have shown their intention to seek differentiation relative to other EVM chains by prioritizing both developer flexibility and user experience. Over this period, the chain’s lead in market share has only been directly confronted by Base’s ascent. Still, Arbitrum has remained a leading rollup, consistently commanding the largest share of dApps, active users, TVL, and fee revenue. It’s this dominance in liquidity and user activity that underpins a strong network effect on Arbitrum One.

Arbitrum, however, is much more than just another EVM-compatible Ethereum L2. Beyond Arbitrum One and Arbitrum Nova, Arbitrum is scaling its technology footprint through Orbit. This initiative introduces two distinct models for deploying new chains:

• Orbit L3s paying settlement fees to One or Nova: Offered with no extra licensing cost for developers, the idea is to onboard more chains and horizontally scale activity atop the Arbitrum stack.
• Licensed Orbit L2s with a recurring revenue stream for the DAO: Sovereign rollups that aren’t forced to settle on One or Nova, but are subject to a licensing agreement—10 % of sequencer net profit (8% to the Arbitrum DAO and 2% to the Developer Guild).

In a commoditized world, edge comes from owning both the system and the economics. Arbitrum’s proprietary tech and business model create that defensible, high-margin edge. This is a moat that escapes the EVM-compatible L2 commodity trap and that competitors can’t cross. By combining proprietary innovations—Nitro, AnyTrust, BoLD, Stylus, and TimeBoost—with a business model that locks in defensibility and margin, this synergy attracts premium partners and recurring revenue.

• Arbitrum One (Nitro Optimistic Rollup): Leading L2 with 250ms block times and Ethereum security, proving the stack’s robustness when it comes to supporting a large ecosystem of dApps deployed on top of its low-latency high-throughput base.

• Arbitrum Nova (AnyTrust Chain): Uses a Data Availability Committee (DAC) instead of posting to Ethereum to cut transaction costs for gaming, social, and other high onchain volume applications.
• Orbit Program (free L3s & licensed sovereign L2s): L3s settle on Arbitrum One or Nova for free, so Arbitrum still earns sequencer revenue. Sovereign L2s pay the DAO 10% of net sequencer profit if they settle elsewhere, locking in a perpetual royalty stream.
• Stylus (WebAssembly + EVM dual-VM): Adds a WASM runtime beside the EVM so engineers can write smart contracts in Rust, C, or C++. Compute is >10× cheaper and memory >100× cheaper than Solidity. This expands the developer funnel and enables workloads that were previously not economically feasible.
• BoLD (Bounded Liquidity Delay): A new challenge resolution protocol for Arbitrum chains that enables permissions validation, pushing Arbitrum to the “Stage 2” rollup status.

• TimeBoost (sealed-bid block-priority auction): Sells “express-lane” rights via a second-price auction while keeping 250 ms blocks. In its first three months the mechanism delivered $3 million to the DAO, proving that Arbitrum can capture and monetize MEV internally.

Today, Arbitrum is best understood as a layered operating system that attracts projects, compounds growth, and locks in recurring revenue. At its core, Arbitrum One and Nova handle the heavy lifting, supporting a diverse ecosystem of dApps. Orbit sits above, letting anyone launch custom rollups—some free, some paying a royalty. Free L3s settle on Arbitrum One or Nova, boosting network effects and onboarding more teams and users. Paid L2s cater to enterprises and pay a 10% royalty in exchange of sovereignty, creating a steady revenue stream for the DAO. Unlike other ecosystems, the result is a system that scales, sustains itself, and builds a strong, cash-generating foundation.

Stylus opens Arbitrum to non-EVM devs and new, cheaper use cases. By letting Arbitrum One, Nova, and Orbit chains run Rust, C, and C++ contracts at a tenth of the compute cost and a hundredth of the memory cost, Arbitrum welcomes thousands of Web2 engineers. Cheaper execution also means that projects can now build things like high-frequency trading and onchain AI—apps that were out of reach before. Because Stylus contracts share state with the EVM, there are no incompatibility issues. What emerges instead is a larger, more creative developer base that builds upon existing composability and network effects.

This combination of technical edge with protocol-level economics enforced through Orbit royalties and a DAO-controlled treasury wallet is also a key differentiation with respect to inflationary L1 tokens. As L2 tokens approach the end of their unlock schedules, they become structurally more attractive than L1s, especially if there is a big mismatch between adoption and valuation. A few leading L1s have built strong ecosystems, but those that haven’t now face pressure from L2s. Without the need for validator subsidies and ongoing emissions, fee-capturing L2s can recycle cash flows that can act as beta to the underlying L1.

With Robinhood and Converge onboard, Arbitrum’s business model gains real-world validation and a surge in protocol cash flows. These partnerships can trigger structural adoption and drive valuation higher, especially as more Orbit L2s generate recurring, high-margin income. Meanwhile, Arbitrum’s substantial treasury acts as a buffer, limiting downside exposure.

Competition & Differentiation

Competition exists, but we think it’s pertinent to relish L2-to-L2 comparisons. Base, for example, commands impressive usage and has a huge distribution funnel, but token holders have no say because there is no token at all. Meanwhile, against the backdrop of L1s, Arbitrum looks less like a “chain to be compared against” and is starting to look more like a capital-efficient royalty trust. In the same breath, L1s necessitate token inflation, with most of them also burning tokens based on activity and transaction fees. This is where the “security bill” leased from Ethereum plays in L2s’ favor: by leasing security from Ethereum, Arbitrum keeps nearly all profits—sequencer fees, MEV, and royalties—inside the DAO, at high margins and without new token issuance. $ARB holders, therefore, own a growing stream of protocol earnings instead of a shrinking share of an inflating supply.

Within L2s, the race isn’t about who moves fastest or offers the lowest fees. Those features quickly become commodities. Arbitrum saw this coming and was proactive differentiating on go-to-market strategy, monetization, and distribution funnels. This approach locks in strategic partners and paves the way for value accrual, resting on 4 pillars:

• Aggressively expand the network’s reach via Orbit chains, letting projects launch their own Arbitrum-based chains (appchains or enterprise chains) either permissionlessly as L3s or as sovereign L2s with revenue sharing.
• Broaden the developer funnel via Stylus, making Arbitrum a multi-VM environment where Web2/traditional engineers can code smart contracts in familiar languages like Rust, C, or C++.
• Maximize value capture from onchain activity by monetizing sequencer advantages with Timeboost auctions capturing and internalizing MEV to improve profit margins post-EIP-4844.
• Recycle and reinvest value into ecosystem growth through the ArbitrumDAO treasury, which funds public goods, incentivizes liquidity, earns yield from “safe” RWAs, and invests on strategic bets.

Only 14 chains are profitable, earning more revenue than they spend (source: Token Terminal). Among them, Arbitrum One ranks 4th overall and 2nd among L2s. With Base (the top L2) lacking a token and COIN being a difficult proxy for exposure, $ARB is positioned to capture most of the flows from investors expressing a bullish view on L2s. For fundamental, revenue-driven investors seeking chains to have exposure to other than majors, ARBstands out as a clear sector leader.

The way Arbitrum wins L2s market share is by offering more flexibility than the OP Stack, expanding both vertically and horizontally. OP Stack chains are required to contribute either 2.5% of the total L2 revenue or 15% of gross profit (whichever is higher) to the Optimism Collective. Even though this model encourages open-source MIT licensing, the “Law of Chains” still applies. This is a tactic that rewards Ethereum alignment and prioritizes the EVM, with the Superchain’s main unlock being interoperability (and collective governance, but that could be seen as a hurdle as well).

In contrast, Arbitrum prioritizes customization and offers greater flexibility, supporting both traditional rollups and AnyTrust mode via Data Availability Committees (DACs), as well as enabling support for non-EVM languages through Stylus. The OP Stack charges fees only for Superchain participation. Arbitrum, instead, hands teams the keys with flexible licensing and full control over their choices. With a Business Source License, it enforces profit-sharing for independent Orbit chains—10% profit-share system with 8% of sequencer profit going to the Arbitrum DAO and 2% to the Developer Guild—but no extra fees (beyond settlement costs on One or Nova) for Arbitrum One L3s.

Ultimately, the OP Stack appeals to those seeking “Ethereum alignment” and standardization, whereas Arbitrum Orbit caters to teams prioritizing flexibility, performance, and sovereign governance. That’s why Base or Unichain joined the OP Stack’s collective, while Robinhood and Converge picked Orbit’s independence. Importantly, these design choices shape who shows up—and who stays.

Optimism leveraged its first-mover advantage and found a flagship partner in Base, which received a grant of 118 million OP tokens vested over 6 years in return for paying the greater of a) 2.5% of Base’s total sequencer revenue, or b) 15% of Base’s net onchain sequencer revenue to the Optimism Collective for public goods funding. The bet is that a thriving Superchain will indirectly make $OP valuable as the centerpiece of this L2 network-of-networks. Led by Base (~$3.8B TVL), Unichain (~$800M TVL), OP Mainnet ($400M TVL), World, Ink and 20+ other chains, the Superchain hosts ~61% of the total L2 transactions with an all-time collected revenue of 17.7 ETH (~$52M). However, the core thesis is that, by reinvesting revenue into grants and public goods, more fees will be generated for further reinvestment. Still, ~124M OP (~$95M) remain in the Governance Fund, ~549M OP (~$419M) in User Airdrops, ~780M OP (~$594M) in the Retro Fund, and ~245M OP (~$187M) for Partners and Seed Funding—all while the $OP token funds incentives without direct value accrual.

Like $OP, $ARB holders don’t benefit from revenue-sharing yet—all revenue flows to the DAO treasury, governed by token holders. Burning a portion of those profits would mean losing funds for grants and incentives, and that optionality value is key for competing on a level playing field. Arbitrum is currently focused on executing its “Arbitrum Everywhere” vision to ensure its tech becomes ubiquitous across many networks, including enterprise and app-specific chains. It’s through the Arbitrum Expansion Program (AEP) that Arbitrum makes it easy for projects to spin up their own L2 or L3 chains using Arbitrum’s Nitro technology, with a focus on customization and sovereignty. Arbitrum’s code is released with an “Additional Use Grant,” allowing free use of its tech only for certain deployments, while others require permission and revenue sharing. This “your chain, your rules” philosophy provides more freedom and control for partners, not forcing them to join shared governance structures with embedded carry cost. Orbit chains have full control over their gas token and can implement custom features with Arbitrum’s support. Stylus, for example, is a standout feature that the OP Stack doesn’t support. Altogether, despite failing to attract exchanges like Kraken’s Ink or Coinbase’s Base, this flexibility has attracted heavy-hitters that desire bespoke environments:

• Converge by Securitize/Ethena is expected to be one of the leading institutional-focused chains for tokenized assets, aiming to bridge TradFi and DeFi with Ethena’s stablecoins (USDe, USDt) as gas tokens.
• Robinhood’s Chain underscores Arbitrum’s push into mainstream fintech and has set big expectations for stocks trading onchain.

The diversity in Arbitrum’s offerings beyond simple EVM rollups gives it a competitive advantage that stands to benefit from both public and private chains. Another difference is that the Arbitrum DAO is also actively managing its treasury for yield and investments, unlike the Optimism’s Collective more passive approach. Neither model currently pays revenues out directly to token stakers or holders, but Arbitrum stands out for imposing no governance obligations while still ensuring economic alignment from the adoption of its stack.

Despite the fact that both are gradually building a warchest, the key question from a business model sustainability perspective is: who subsidizes growth vs who earns revenue at the base layer. Optimism’s model in practice has involved large amounts of $OP incentives to bootstrap activity, effectively trading token inflation for adoption and network effects. Arbitrum, having delayed launching a token, grew Arbitrum One organically and only later introduced incentives. With Orbit, Arbitrum has positioned itself to earn revenue from partners rather than pay them. If Base can be seen as Optimism paying (via incentives and code collaboration) for a flagship chain, Robinhood’s chain can be seen as Arbitrum charging a flagship partner for using its tech.

A Layer 2 token’s worth isn’t set by hype or technical prowess alone. It’s determined by how effectively the ecosystem turns new users, partners, and activity into genuine demand for the token. Some models, like Optimism’s, bet on network effects from many interconnected chains. Others, like Arbitrum’s, let chains operate independently, hoping a few big wins will drive value. The key: unless growth translates into token demand, the ecosystem’s expansion adding more chains will be perceived as noise. The market rewards systems that make the link between activity and value accrual clear and direct.

The Arbitrum Thesis

Arbitrum’s proprietary tech and licensing create a moat competitors can’t easily cross. This allows the ecosystem to lock in a unique lead that rival business models can’t fully copy. By offering a “freemium” stack and enforcing paid access for certain chains, Arbitrum keeps liquidity close and partners loyal. Meanwhile, its rapid pace of shipping—Nitro, AnyTrust, Stylus, BoLD, and Timeboost, all in two years—shows a system built for speed and scale. Rivals struggle to mirror this cadence of shipping and none of them feature IP assets equivalent to TimeBoost or Stylus at scale.

Among the drivers of our thesis stand out Arbitrum One’s deep liquidity and network effects, a DAO-owned treasury, expansive fee capture with Orbit, multi-VM lock-in with Stylus, and signs of maturity that transform $ARB from a single rollup token to a franchised platform that taxes new chains (AEP), monetizes MEV (TimeBoost), and expands the developer funnel (Stylus).

Where most see L2s as commodities, we see Arbitrum’s steady release of new features and ecosystem expansion as a growing edge. When the market focuses too much on token unlocks and ignores rising fee revenue, sharp buyers can spot mispricing—especially as Ethereum drives broader trends.

Arbitrum Everywhere Non-linear Scaling & Economics

Classic aggregators control demand, commoditize supply and capture marginal economics. Arbitrum Everywhere (through the Arbitrum Expansion Program, AEP) pursues the same path: Arbitrum One and free L3s seek to attract as many developers as possible (both EVM and non-EVM with Stylus) while paid L2s provide the DAO with a recurrent revenue stream on sequencer profits. For now, the scale and network effects of Arbitrum One have proven durable, and Orbit royalties are expected to add a new, non‑cyclical revenue stream instead of stealing market share. Strategically, the free‑L3 / paid‑L2 split maximizes network breadth while monetizing sovereignty. Orbit is the growth engine while L3s maximize network effects in a classic counter-positioning play.

L3s – Orbit Chains Settled on Arbitrum One or Nova post settlement batches with the sequencer paying gas fees to Arbitrum’s contract, thus protocol revenue for Arbitrum is the sum of gas used times the gas price.

L2s – Orbit Chains Settled outside Arbitrum One or Nova are required to “give back” through a recurring licensing fee, such that AEP Licensing Fee = (Tx Fees + Sequencer Profits – Settlement Costs) × 10%.

AEP turns Arbitrum into a scalable, royalty-earning platform. Self-service licensing lets Arbitrum expand beyond two in-house chains (One, Nova) and host an open franchise model with recurring cash‑flow streams governed by $ARB holders. This shift creates steady cash flow, ties token value to real usage, and rewards capital discipline. Naturally, if it works, $ARB holders get more than governance—they gain a stake in a growing portfolio of appchains and sovereign ecosystems. We also expect strong ecosystem projects to soon launch their own chains on the Arbitrum stack. Potential candidates include Pendle, GMX, Ostium, and Fluid to name a few.

Allowing for appchains with custom gas tokens diversifies flows that can consist of $ETH, stablecoins (Converge uses $USDe and $UStb for gas), or other strategic tokens from partner protocols. When all is said and done, the transition from “utility token” narrative to “cash‑generating governance asset” becomes clear: retaining differentiation via tech and converting this technological edge into a network-licensing model that can scale non‑linearly with minimal incremental cost.

It’s also worth noting that Orbit chains won’t necessarily dilute the existing Arbitrum One ecosystem or even reach the misled conclusion that Arbitrum is ignoring its own L2 ecosystem. In fact, it’s quite the opposite. The DeFi Renaissance Incentive Program (DRIP) is an example of how Arbitrum is still pursuing and doubling down on the goal of being the chain for DeFi. This proposal passed and seeks to boost activity with as many four 3-month seasons, allocating up to 20 million $ARB (0.2% of the total token supply). Note that it’s still at the DAO’s discretion to decide when to pause the program, but in that case the remaining funds will be returned back to the treasury.

The Timeboost Effect

TimeBoost transforms Arbitrum from a throughput story into a cash‑flow story. What we call “The TimeBoost Effect” is the transition from cost center to cash cow. What previously accrued to external MEV searchers is now monetized with 97% of the fee flows going to the Arbitrum DAO.

TimeBoost is Arbitrum’s overhaul to the chain’s first-come first-serve (FCFS) policy for transaction ordering. Introducing an auction, it allows for market-driven pricing as MEV searchers bid for transaction priority. With TimeBoost, arbitrage bots access an express lane where they submit bids, and the proceeds are earned by the DAO as revenue. Since Genesis, TimeBoost has generated $3.03 million in fees, which translate into 1,102 ETH in revenue for the Arbitrum DAO.

TimeBoost is rapidly becoming a core revenue driver for the Arbitrum DAO, already accounting for nearly half of the total revenue—and Orbit licensing fees are yet to pick up steam. As TimeBoost’s role grows, it could soon shape how value flows to $ARB holders. Arbitrum has started working with research partners like Espresso to integrate Timeboost with a decentralized block-builder marketplace, and this could be one potential entry point for $ARB staking.

As a reminder, post Ethereum’s EIP-4844, the L2 costs for posting data to the L1 are significantly lower. For Arbitrum, whose largest expense was L1 calldata fees (often >90% of L2 costs pre-4844), this drove profit margins sharply higher. Add in new MEV revenue, and this margin boost marks a sharp turnaround. After prior losses, 2025 is set to be Arbitrum’s most profitable year yet.

Stylus & Multi-vm Strategy

Arbitrum’s technical roadmap is not limited to incremental scaling. A bold bet has been made in developer growth fueling innovation at the application layer by launching Stylus. Adding a WASM VM alongside the EVM, Stylus lets developers write smart contracts in familiar languages like Rust, C, and C++, not just Solidity. This is transformative for two reasons: performance, and developer acquisition. Even though there are some differences between the Rust used in Solana’s stateless model and Arbitrum’s, StylusPort (built by security firms Oak Security and Range) aims to simplify the onboarding process for those developers.

On the performance side, WASM allows for intensive computation to run faster and cheaper. Complex use cases that struggle on Solidity can thrive with Stylus, and this is something that L1 and L2 contenders like Monad and MegaETH cannot offer. Stylus upgrades Arbitrum from an EVM-equivalent chain to an EVM+ chain, maintaining full compatibility with existing contracts and assets, but going beyond the EVM’s limits in speed and capability. This is key long-term: while other L2s aim for EVM-equivalence, Arbitrum aims for EVM-superiority without breaking compatibility.

Equally important is the developer angle. By incorporating Web2 languages, Stylus opens Arbitrum to a vastly larger talent pool—an estimated 10 million C++ developers and 3.5 million Rust versus only a handful of tens of thousands of Solidity developers. This is a significant expansion of the potential developer base. These are languages with years of track record and plenty of libraries and open source code—unlike Solidity’s limited utility for EVM development, which only started a decade ago.

The reduced onboarding friction means that—and this is something that has been attempted by plenty of chains in the past, like Agoric with JavaScript and others with Python—Arbitrum now stands a credible chance at being the ecosystem where Web2 developers feel at home bringing their own language-specific skills. Orbit expands Arbitrum’s chain deployment options; Stylus enables non-EVM languages. Their combination increases flexibility and technical reach, making Arbitrum more attractive to enterprises seeking customization and broader developer access.

Capital Allocation as a Strategic Lever

After presenting how Arbitrum’s engineering advantage results in technical differentiation and proprietary technology with favorable economic implications, we now turn to cover Arbitrum’s final strategic pillar. Without token-based revenue-share, Arbitrum’s investment case hinges on DAO stewardship. Therefore, DAO treasury management is a pivotal lever to allocate capital, govern incentives, and reinvest into ecosystem growth.

Among the largest treasuries in crypto, the DAO anchors one end of its treasury in safe, liquid T-Bills for stability, while swinging for upside with targeted grants and ecosystem investments like Arbitrum Gaming Ventures. This barbell strategy signals a mature, adaptive approach: protect the core, but always keep a hand in the next wave of growth.

Launched in July 2024, the Stable Treasury Endowment Program (STEP) represented the first DAO-driven initiative—in coordination with institutional players including Blackrock, Franklin Templeton, Spiko, and WisdomTree—to deploy treasury capital into tokenized RWAs at scale. That initial tranche was extended in May 2025 and has already generated over $1 million in interest. This is done via $ARB sales: 35 million $ARB for STEP 1 yielding $29.3 million allocated to RWAs, and another 35 million $ARB for STEP 2.

STEP’s TradFi partnerships also signal ambition for deeper institutional integration. Arbitrum’s STEP program is a strategic handshake with financial giants like BlackRock, Franklin Templeton, or WisdomTree. These partnerships inject capital today and, more importantly, lay the groundwork for larger institutional ventures tomorrow. The message: capital now, bigger opportunities ahead.

The Case for $ARB

$ARB’s long-term value hinges on the DAO’s diverse revenue streams and strict treasury management. The DAO is responsible for governing protocol upgrades, but also treasury allocations and incentive programs—which influence $ARB’s supply and demand as well as the ecosystem’s health. Arbitrum’s financials draw from multiple sources: transaction and Timeboost fees reflect user demand and network activity, licensing fees expand reach, and investments and treasury returns add resilience. This diversified structure is key for adapting to different market conditions by using incentives strategically and constructing a portfolio that blends risk-off returns for runway with risk-on strategic bets on ecosystem partners.

We apply a 300x P/Fees (fdv) multiple for our base case, representing a 65% increase from current levels and still 10% below the YoY average of 330 (in line with OP), which remains conservative relative to the protocol’s YoY high of over 950x (September 2024) and its all-time high of 1,338x (May 2025). In this base case, we project $30 million in annualized revenue, supported by a 10% increase in existing revenue streams (TimeBoost and chain fees) and an additional $2.5 million from licensing fees, which are expected to grow substantially with the launches of Converge and the Robinhood Chain. Year-to-date, Optimism has derived an average of 75% of its fees from Superchain revenue, with Base contributing approximately 68% of that total — amounting to about $5.3 million in fees collected so far. For our projections, we applied a 50% discount to this figure, as Robinhood and Converge have yet to launch and may face early-stage bootstrapping challenges, unlike Base, which benefits from massive distribution.

• Base Case: 88% upside, $9b valuation, $30M revenue at 300x P/Fees (fdv).
• Bull Case: 421% upside, $25b valuation, $50M revenue at 500x P/Fees (fdv).
• Bear Case: -79% downside, $1b valuation, $10M revenue at 100x P/Fees (fdv).

We expect these scenarios to materialize within a 3-12 month window as Converge and Robinhood go live and significant DeFi activity moves onchain.

On the expenses side of the equation, the majority of the costs are linked to $ARB incentives, but after a steep disbursement that peaked in Q1 2024, the monthly burn has compressed significantly and the mix is gradually diversifying into grants, operations, and strategic partnerships. Arbitrum’s ability to modulate expenses is a strategic asset: in adverse markets the DAO can enter capital-preservation mode for long-term runway, but it can deploy resources into high-conviction ecosystem bets when opportunities emerge. With TimeBoost and licensing, the DAO is pulling in fresh revenue while keeping costs on a short leash. It’s this optionality that allows $ARB holders to be adaptable. Investors can act, not just react.

Risks & Invalidations

$ARB faces steady dilution from monthly unlocks at a rate of ~1% of the total supply, but its treasury and no ongoing inflation soften the blow. Unlike inflationary L1s, $ARB’s fixed supply and a $1B+ DAO treasury provide a buffer. This structure helps limit downside, more so when Offchain Labs has already hinted at the possibility of adding $ARB to their treasury through a strategic purchase plan. Overall, the absence of structural emissions and predictability of unlocks, combined with a large treasury, can serve as a cushion against dilution and dampen downside market volatility in the near term while $ETH performs well.

Base’s growth threatened Arbitrum’s monopoly early on, and uncertain token plans put real pressure on L2 tokens like $ARB. Coinbase still owns the biggest retail funnel; Arbitrum One’s edge is deep DeFi liquidity and dApp composability, not end‑user distribution. While moats exist thanks to AEP, TimeBoost, Stylus, and STEP, they aren’t unassailable. Scale, network effects, rapid shipping, and counterpositioning give Arbitrum a competitive advantage, but none are irreversible and continued tech differentiation in addition to key strategic partners are necessary.

At the same time, even though the label “Powered by Arbitrum” provides instant trust for new Orbit chains, the brand premium doesn’t automatically translate to token demand. It can also be misleading to oversimplify and treat $ARB as $ETH beta, although $ETH-denominated revenue flowing to the treasury does play a role; it acts more as a cash-flow option with profits streamed to a growing DAO treasury.

Besides competitive displacement—Base defeating Arbitrum One, the OP Stack dominating adoption versus Orbit, or the looming threat of upcoming high-performance chains like MegaETH, Monad, or RISE—one of the keys for managing the position resides in staying alert: if the number of Orbit L2s signed stagnates, that’s a warning sign, and if existing chains abandon the Orbitrum stack, that’s a red flag. The confidence of holding this position hinges on both continued expansion and retention—any sign of attrition should prompt reassessments in conviction and risk exposure.

Early warnings span from $ETH downside, stagnating activity on One and Nova, and consecutive periods of flat-revenue after TimeBoost and Orbit fee lanes are fully out when Robinhood and Converge go live. If those signals appear, risk rises. But the real opportunity lies in acting before everyone else sees durable, diversified revenue. By then, the price will likely reflect the evidence. Execution always carries risk, but here, those risks are concrete and time-limited.

Every investor asks: are we early or late? The answer depends on cycles and $ETH sentiment. New entrants often overpromise and underdeliver, but Arbitrum’s maturity and proven ecosystem give it staying power. While new L1 and L2 token launches will have their time and make noise, none can match Arbitrum’s track record of execution. Just like overworrying about unlocks, the market may as well be overlooking this. Depending on your views, $ARB can remain a solid choice for a core portfolio, but there is room for trading around the position. Given the large valuation, this is not a blind set-and-forget bet, although the downside can be protected and the upside is scalable.

Trimming exposure ahead of a significant drawdown is increasingly challenging with high-FDV, low-float tokens, a category $ARB was in but has now moved from. Tight stop losses can be a double-edged sword in such environments, but avoiding “falling knives” is essential, given $ARB’s historical drawdowns. In this context, monitoring the all-time low set in mid-June is key for ensuring price structure remains in a healthy zone, as it sits roughly 50% below ($0.25) current levels ($0.48). Accumulating on significant pullbacks (>10%) can provide an additional cushion, and such corrections are expected given $ETH’s parabolic rally over the past month (+60%).

Over the past 15 days, $ARB and $OP turnover retraced from yearly highs of 10%+ to 5%, signaling reduced demand, likely due to $ETH’s outperformance and re-positioning. To gauge whether the trade is overheated, it is worth monitoring Coinalyze’s aggregated futures data across all major exchanges. Currently, this data shows no warning flags. It’s a key piece of the puzzle that can be used to monitor positions that are overcrowded (OI spike) and whether others are excessively long or short (reflected in extreme funding rates).

Conclusion

Abitrum emerged as the front-runner in the L2 dominance race and is now positioning itself as the most developer-friendly, profit-generating, ecosystem-aligned L2. Free L3s and revenue-sharing L2s maximize network effects by onboarding chains and valuable partners while capturing a meaningful share of their economic activity. This pricing power is supported by demonstrated technical capabilities evidenced by Stylus and TimeBoost, which bring new developers that expand the dApp design space and internalize MEV-driven revenue that would otherwise be lost to third parties. On a parallel track, the DAO-controlled treasury is being actively deployed to strengthen the network’s moat, investing with a barbell strategy that combines the safe returns of tokenized T-Bills with strategic investments on ecosystem bets.

Our core thesis is that $ARB’s value will grow in line with Arbitrum’s network adoption, encompassing One, Nova, and Orbit Chains. This means that buying at today’s $ARB valuation is fundamentally a bet on future network growth. The treasury still has an enormous war chest that can be deployed for ecosystem incentives and, while $ARB doesn’t earn fees today, the intention to decentralize sequencing is there. Even without official mechanisms yet, there are multiple options for value accrual, and markets price in the expectation, not the actual event.

At times, pessimism will overshoot reality. Yes, $ARB still faces dilution and rising competition, but the onboarding of major players is just heating up. We don’t think extrapolating a straight-line loss of market share is a reasonable approach, and instead foresee Arbitrum regaining momentum that could surprise to the upside—catching short positions off guard. Rather than passive holding, actively trading around the position can play well for positioning to “take money” from those prematurely declaring the L2 narrative demise—just like we saw with $ETH perpetual mocking and death sentences.

Given Arbitrum’s tight integration with key players, we see a valuation potential upwards of 420% (5.2x) in the next 3-12months, coming from its new fee stream from Orbit licensing fees and the already dominating Timeboost and chain fees.

Arbitrum offers a pure high beta L2 play on Ethereum, effectively a proxy for $ETH’s success itself. Valuation targets of 88–421% (~2x–5x) over 3–12 months are supported by growing fees and rising Lindy on P/F (FDV) multiples. The DAO further benefits from institutions coming onchain to experiment and expand their moats. As the largest and a highly liquid L2 token, $ARB presents a more attractive skew for fund managers and trading-oriented positions.

References

Arbitrum. Developer Documentation.

Arbitrum Foundation. Airdrop Eligibility and Vesting Details.

Arbitrum Foundation. The Amended Constitution of the Arbitrum DAO.

Arbitrum Forum. Governance Forum.

Bidcast. A.J. Warner, Chief Strategy Officer of Offchain Labs (YouTube).

CryptoRank. Arbitrum Token Vesting.

Entropy Advisors. Arbitrum DAO Financials Dashboard.

Entropy Advisors. Arbitrum DAO Governance Proposals Dashboard.

Entropy Advisors. Arbitrum DAO Treasury Dashboard.

Entropy Advisors. Arbitrum MEV Arbitrage Dashboard.

Entropy Advisors. Arbitrum Timeboost Dashboard.

Karpatkey. Arbitrum Treasury and Sustainability Research.

LamprosDAO. Arbitrum Orbit Chain Revenue Dashboard.

L2Beat. Scaling Activity Overview.

Offchain Labs. Official Website.

Optimism. Developer Documentation.

Optimism. Governance and Vision (Mirror).

SlashData. State of the Developer Nation – 25th Edition.

Steakhouse. STEP Program Dashboard.

Superchain Ecosystem. Official Website.

Tokenomist. Arbitrum Protocol Overview.

Token Terminal. Arbitrum Orbit Ecosystem Overview.

Token Terminal. Arbitrum Project Dashboard.

Disclosures

Alea Research has never had a commercial relationship with the Arbitrum Foundation or Offchain Labs and this report was not paid for or commissioned in any way.

Members of the Alea Research team, including those directly involved in the analysis above, may have positions in the tokens discussed.

This content is provided for educational purposes only and does not constitute financial or investment advice. You should do your own research and only invest what you can afford to lose. Alea Research is a research platform and not an investment or financial advisor.