The five coolest DeFi projects on Arbitrum, the premiere Ethereum L2

As Ethereum scaling solutions go, Arbitrum is the little engine that could.

The five coolest DeFi projects on Arbitrum, the premiere Ethereum L2

As Ethereum scaling solutions go, Arbitrum is the little engine that could. Launched in September 2021, it arrived at the scene quite late when compared to other L2s. However, its open nature and optimal performance allowed it to quickly overtake most of the competition. The Arbitrum L2 packs, processes, and uses optimistic rollups to validate Ethereum transactions at a fraction of the cost. 

Since the code is compatible with the Ethereum blockchain, Arbitrum started with a complete set of Ethereum apps ready to work through the scaling solution. We’re talking DeFi classics like Uniswap, Sushiswap, Curve, Aave, and Balancer. Reportedly, Arbitrum could process 40,000 transactions per second, and the gas fees are estimated to be around 36 times cheaper than the Ethereum main chain. 

Unlike Polygon, the most used Ethereum L2, Arbitrum didn’t create its own token. Instead, users transact using ETH or any ERC20 token.

Not everything is rosy around Arbitrum, however. The L2 got big by hosting a series of less-than-legitimate projects offering insane returns and staking rewards. While those projects were questionable, to say the least, Arbitrum had nothing to do with them.  Their usage got the first set of eyes and the first billion in TVL to the ecosystem.

Top 5 DeFi projects on Arbitrum in no specific order

Today, the Arbitrum ecosystem is rich and plentiful. These projects are so different from each other that there’s no point in qualifying them. Each one of the items on this list has the potential of being as big as the DeFi classics mentioned earlier. Some are more famous than others but, in general, they’re all in the beginning stages of what can become something wonderful. 

DeFi on Arbitrum: Abracadabra.Money

Unlike many on this list, Abracadabra is an Arbitrum-native project. Basically, it’s a money lending protocol in which you can use almost any asset as collateral to borrow Magic Internet Money or $MIM. The resulting token is a collateral-backed stablecoin, ready to be spent without having to sell the original asset. 

The other remarkable characteristic of Abracadabra is that it offers leveraged “interest-bearing token positions.” According to the documentation, “to open a leveraged position, users need to deposit the interest-bearing token they want to leverage. Kashi allows withdrawing more MIMs than it should be possible, as long as the collateral required is supplied to the position eventually, within the same transaction.”

Is Magic Internet Money a winner to you?

DeFi on Arbitrum: Umami Finance

This one offers passive income, and it’s a little more complicated. According to this blog post, “Umami uses its protocol-owned treasury assets and growing arsenal of DeFi products to provide liquidity that fuels the growth of the Arbitrum network’s ecosystem.” How it generates revenue is the product’s secret sauce. “The treasury returns the value it generates to its holders through its core passive-income product, Marinate v2, in addition to an expanding array of new, yield generating use-cases for its UMAMI token.”

The other key element is UMAMI, the protocol’s native token. Users can stake it to receive a proportional piece of the fees that Umami Finance captures. These staking rewards come in ETH, which can come in handy.

DeFi on Arbitrum: Hop Protocol

As the name implies, the Hop protocol is a bridge. It facilitates transferring tokens between Ethereum, Arbitrum, Polygon, and Optimism. For those paying attention, those are Layer 2 sidechains and the main Layer 1 blockchain. Hop effectively connects the larger Ethereum network.  

According to its FAQ, “Hop is a scalable rollup-to-rollup general token bridge. It allows users to send tokens from one rollup to another almost immediately without having to wait for the rollup’s challenge period.” How does it do it? According to the whitepaper, Hop uses “Automated Market Makers to swap between each bridge token and its corresponding Canonical Tokens on each rollup in order to dynamically price liquidity and incentivize the rebalancing of liquidity across the network.”

DeFi on Arbitrum: Superfluid

The main thing Superfluid offers is digital asset streaming. It seems to be inspired by Podcasting 2.0 and the Value4Value model that’s booming in the bitcoin network. According to the documentation, “Superfluid is a smart contract framework on EVM networks, enabling you to move assets on-chain following predefined rules called agreements.” Among other things, it permits “constant token flows on-chain with no capital lockups. Money streams will continue perpetually until cancellation or the sender’s balance runs out.”

The Superfluid protocol consists of four components: 1. Super Tokens, which are the native currency of the ecosystem. 2. Super Agreements, which is a series of smart contracts that gives the Super Tokens unusual transfer methods as a superpower. 3. Super Apps, which interact with the Super Agreements in usual and unusual ways. 4. Superfluid Host, which connects it all together through the ISuperfluid interface.

Using all of those moving parts, a user could do much more than simply stream digital assets. The Superfluid protocol is… super… fluid.

DeFi on Arbitrum: Vesta Finance

Similar to Abracadabra, Vesta Finance “allows you to borrow collateralized stablecoin

VST against supported crypto assets with no interest rate.” That’s basically it, you don’t have to sell your assets and, at the same time, your assets are the collateral that backs the stablecoin that the protocol gives you. Plus, “users can participate in the Vesta Finance ecosystem, by using their borrowed or purchased VST to contribute to the stability pools.”

Unlike others, Vesta is over-collateralized. And VST is Arbitrum-native.

Buy/ No Buy Recommendations

  • Everyone is talking about Abracadabra. However, as we can see with Vesta, their idea is not exactly original and the protocol is facing heavy competition. Consider buying if you’re a true believer.
  • There’s something about Umami. The fact that their money-making strategy is surrounded by mystery is strange. However, their ETH rewards are nice. Consider buying if you figure out how it generates passive income. 
  • The Hop protocol is a bridge. Bridges are useful, the demand is there. But bridges are dangerous and prone to hacks. Consider buying if your risk appetite is high.
  • The Superfluid protocol seems fun but, is there money in it? Consider buying if you think the answer is yes.
  • Not many people are talking about Vesta, but the project looks solid. And over-collateralization might be the way to go. Can the team generate the necessary hype, though? Consider buying if you think the answer is yes.

About SmartBlocks

Mark Fidelman

Here at SmartBlocks, we believe it’s time to democratize currency and make it available to anyone, anywhere, anytime.