The Edge Podcast - Offchain Labs CSO on Arbitrum’s Dominance

In this episode of The Edge Podcast, which took place on June 16, 2024, DeFi Dad and Nomatic hosted A.J. Warner from Offchain Labs to discuss Arbitrum’s innovations, the DAO’s gaming Catalyst program, treasury diversification, and more! Read our notes below to learn more.

Background

DeFi Dad (Host) – Host of Edge Podcast

Nomatic (Host) – Co-Host of Edge Podcast

A.J. Warner (Guest) – Chief Strategy Officer at Offchain Labs

Arbitrum – Arbitrum is a technology suite designed to scale Ethereum

Offchain Labs – Building Arbitrum for Secure, Limitless Ethereum dApps

Exploring Arbitrum’s Success: Innovations, Gaming Initiatives, and Community Involvement

AJ Warner shares his background, mentioning his transition from being a real estate lawyer in New York to joining Offchain Labs in 2020. He highlights his early interest in crypto, sparked by the Silk Road incident and his belief in Bitcoin’s potential for individual sovereignty and investment opportunities.
AJ explains his role at Offchain Labs, focusing on partnership and business development within the Ethereum ecosystem. He also mentions his involvement in acquiring Prysmatic Labs, a leading staking client for Ethereum.
AJ details the origins of Arbitrum, noting that it has been live for about three years. He explains that Arbitrum’s roots go back to before Ethereum existed when Ed Felten, one of the co-founders, developed the first version of the Arbitrum fraud prover at Princeton in 2014. After serving as Obama’s deputy CTO, Ed, along with co-founders Steven and Harry, began working on Arbitrum in response to Ethereum congestion issues in 2018. This led to the founding of Offchain Labs and the development of Arbitrum as a scalable layer-2 solution.
AJ highlights Arbitrum’s unique features, including Stylus and Bounded Liquidity Delay (BoLD), and the recent DAO vote to invest $215 million in Web3 gaming. He also mentions ongoing discussions about treasury diversification and ARB staking, underscoring Arbitrum’s commitment to innovation and community involvement.

Arbitrum’s Continued Success: DeFi Applications, Gaming, and the Stylus Advantage

DeFi Dad asks AJ Warner about the success of Arbitrum, highlighting its continued growth and dominance among Layer 2 solutions, despite being years past its airdrop.
AJ attributes Arbitrum’s success to being early to market during a time when Ethereum was in dire need of scaling solutions. He points out that Arbitrum made crucial design decisions early on, such as guaranteeing transaction inclusion within 250 milliseconds, a feature unique to Arbitrum and highly beneficial for financial activities like DEX trading and Oracle updates.
AJ also highlights the confidence users have in Arbitrum’s technology and team, given its track record and the absence of hacks. He explains that these design choices have made Arbitrum particularly attractive for DeFi applications, resulting in significant liquidity and market activity on the platform.
AJ mentions Arbitrum’s strategic focus on DeFi, ensuring liquidity flow and integration with centralized exchanges for seamless user experiences. He highlights partnerships with major exchanges and wallets like Robinhood to make on-ramping to Arbitrum easier, treating Ethereum mainnet more as a settlement layer.
AJ notes that Arbitrum’s technology and rapid block times are also crucial for gaming, enabling on-chain interactions that replicate a Web2 experience. He mentions that many major gaming chains are adopting Arbitrum’s tech stack for its performance advantages.
Nomadic asks AJ to elaborate on the tech, ecosystem, and DAO activities of Arbitrum, starting with Stylus.
AJ expresses excitement about Stylus, explaining that it allows developers to program in multiple languages side-by-side with the EVM on the same blockchain. This flexibility is unique and eliminates the need for teams to choose between different blockchain architectures. He explains that Stylus can compile to WebAssembly (Wasm), enabling the use of languages like Rust, C, and C++ alongside Solidity.
AJ provides an example with Renegade, a team using Stylus to write advanced cryptographic components in Rust, achieving performance improvements that would be impossible in Solidity alone. This capability allows for more powerful and complex applications, pushing the boundaries of what is currently feasible on blockchain platforms.
AJ highlights that Stylus opens up blockchain development to a broader range of programming languages, making it possible to build more sophisticated and efficient applications on Arbitrum, thereby driving further innovation and adoption.

Innovations in Arbitrum: Stylus, BoLD, and the Upcoming “Time Boost” Proposal

Nomadic asks if Stylus makes it easier to redeploy an app originally deployed on Solana using Rust.
AJ confirms that it would be way easier. While Solana Rust and traditional Rust have minor differences, developers won’t need to rewrite their code in Solidity to deploy on Arbitrum. Instead, they can make small adjustments and leverage Stylus to interact seamlessly with existing EVM-based applications like Uniswap.
DeFi Dad asks AJ to explain BoLD, its significance and impact on the ecosystem.
AJ explains that BoLD, which stands for “Bounded Liquidity Delay,” addresses a critical edge case in rollup chains. Currently, someone with enough resources can delay withdrawals by burning money. BoLD caps the maximum delay time, allowing for permissionless validation. This ensures users can withdraw their assets without relying on any entity, enhancing trust and decentralization.
AJ mentions that BoLD also introduces fast withdrawals for chains running in any trust mode, reducing the current seven-day withdrawal period to just 10 minutes. This is a significant user experience improvement for L2 and L3 interactions, making them more efficient and user-friendly.
AJ shares an anecdote about how Arbitrum’s design already supports permissionless validation if no action is taken for seven days. During the ETH POW fork, this feature allowed a team member to defend the network against an invalid state route attempt, demonstrating the robustness of Arbitrum’s security.
Nomadic references a tweet from AJ that mentioned a “redacted” project and asks for more details.
AJ teases the upcoming proposal for “Time Boost,” an update to Arbitrum’s sequencer. Time Boost aims to address the inefficiencies caused by MEV bots and latency wars by introducing a mechanism for selling a fast lane for transaction inclusion. This auction-based system allows users to pay for prioritized transaction processing without introducing front-running. The value generated from this mechanism would be internalized by the protocol or the DAO, enhancing overall efficiency and fairness in transaction processing.

Exploring Orbit Chains and Arbitrum’s Innovations

DeFi Dad asks AJ Warner to define Orbit chains and explain their launch, connection, and liquidity flow.
AJ explains that Orbit chains allow developers to launch their own network using the Arbitrum tech stack. This trend gained momentum when Base launched its stack chain, sparking interest in custom chains for specific use cases like gaming. Orbit chains enable projects to have their own environments while maintaining alignment with Arbitrum.
He details the hybrid approach of Arbitrum’s technology stack, which is under a community source license. This approach ensures alignment by requiring L2 and L3 chains to contribute 10% of their profits to the Arbitrum DAO. There are about 80 Orbit chains in development, with 20 already launched, including XAI, Ape Chain, KYC-focused Kinto, Treasure DAO, and Degen Chain.
AJ highlights the benefits of Arbitrum’s stack, such as Reya’s modification for 100 millisecond block times and Wearable’s protocol-enforced royalties. These innovations showcase the flexibility and power of the Arbitrum tech stack.
DeFi Dad asks for more examples of projects using Arbitrum or Orbit chains to unlock new use cases, especially in DeFi and RWAs.
AJ mentions the Arbitrum DAO’s recent treasury expansion program involving the purchase of $35 million worth of treasury assets. He lists notable participants like Securitize, BlackRock’s product, Ondo, Open Eden, and Superstate. This initiative supports new verticals and brings innovation within the DAO.
AJ discusses the RWA space, emphasizing two aspects: T-bills and equities/commodities on-chain. He explains that the current overlap between on-chain participants and T-bill holders is low, but institutions are interested in on-chain operations for their efficiency. As more people understand the benefits, adoption will grow.
He mentions the importance of supporting experimentation with equities, commodities, and decentralized coins, highlighting the regulatory compliance aspect. AJ also notes the significant volumes in liquid staking on Arbitrum, citing projects like Pendle and Renzo.

Arbitrum’s Gaming Catalyst Program and Future of Web3 Gaming

Nomatic asks AJ Warner about Arbitrum’s Gaming Catalyst Program (GCP) and its significance in Web3 gaming.
AJ explains that the GCP is an initiative born from the Arbitrum DAO, which controls a substantial portion of the treasury, totaling around three and a half billion tokens. The program aims to fund gaming projects sustainably by acting as leverage for gaming publishers, developers, and studios to build within the Arbitrum ecosystem. Unlike traditional grants, the GCP offers economic alignment, allowing for investment and structured deals that benefit both the game developers and the DAO. The goal is to support game development in a way that ensures long-term growth and alignment with the Arbitrum ecosystem.
DeFi Dad mentions the skepticism around Web3 gaming and asks AJ to share his perspective on its future and success.
AJ acknowledges the challenges and past mistakes in Web3 gaming, particularly around projects that were essentially DeFi farming in disguise. He believes that successful Web3 games should prioritize fun and integrate blockchain properties that enhance user experience.
AJ highlights successful examples like Pirate Nation and The Beacon, which focus on enjoyable gameplay while incorporating blockchain elements. He stresses that indie games, rather than AAA titles, are currently finding more success in this space. AJ also mentions the importance of building sustainable projects with long-term intentions, aligning with developers who aim to create lasting impact.
Nomatic inquires about economic sustainability and treasury diversification within the DAO, referencing the recent $ARB staking proposal.
AJ praises the Arbitrum DAO for being proactive in economic sustainability. He mentions the treasury diversification program, which involves investing in $35 million worth of treasury-backed, yield-bearing assets. This initiative generates additional revenue for the DAO. AJ highlights that Arbitrum’s sequencer and chain profits go directly into DAO-controlled wallets, adding another layer of financial stability. He points out that the DAO is actively exploring ways to generate and manage revenue, ensuring future-proof sustainability.
DeFi Dad asks about Arbitrum’s “stage one” status on L2 Beat and what it takes to reach “stage two.”
AJ explains that the stages reflect the degree of decentralization and security. Stage one means the system is centralized to some extent, requiring contract upgradeability to protect against vulnerabilities. Moving to stage two involves reducing centralization and ensuring the system is secure without needing centralized interventions. He highlights the complexity of achieving this balance, as L2s cannot fork like L1s. The goal is to maintain security while reducing the need for centralized control, which is crucial for moving to stage two.
AJ suggests trying a swap on Arbitrum, such as Uniswap or Camelot, to experience the speed and low costs. He recommends using the Arbitrum Bridge to onboard and exploring the portal at Arbitrum.io, which showcases various applications within the ecosystem. AJ highlights the diversity of apps, including DeFi, gaming, and on-chain art projects like Prohibition and Art Blocks, encouraging users to find what excites them and enjoy the experience.

Check Out These Important Links

Show Information

Medium: YouTube (Video)
Show: The Edge Podcast
Show Title: Arbitrum’s Dominance & The Innovation Driving Its Next Act
Show Date: July 16, 2024