What Is Arbitrum? Ethereum Layer 2 Explained Simply

Arbitrum is the largest Ethereum Layer 2 network by total value locked, with over $15 billion in assets as of 2026. It processes more transactions daily than Ethereum mainnet, at a fraction of the cost. The same DeFi protocols you can use on Ethereum — Uniswap, Aave, Curve, GMX — are available on Arbitrum with fees typically under £0.05 per transaction instead of £5–50.

How Arbitrum Works

Arbitrum is an optimistic rollup. It bundles hundreds of Ethereum transactions together, executes them on its own network, and posts a summary of the results to Ethereum mainnet. “Optimistic” refers to the security model: the rollup assumes all transactions are valid unless someone submits a fraud proof showing otherwise.

The fraud proof window is 7 days. During this period, anyone can challenge a submitted batch by providing evidence that a specific transaction was executed incorrectly. If a valid challenge is submitted, the fraudulent batch is rejected and the challenger earns a reward. If no challenges are submitted within 7 days, the batch is finalised on Ethereum.

This window creates the one practical limitation of optimistic rollups: withdrawing assets back to Ethereum mainnet takes up to 7 days. Fast bridge services like Across, Hop, and Stargate use liquidity pools to provide near-instant withdrawals for a small fee (typically 0.05–0.1%).

Arbitrum One vs Arbitrum Nova

Arbitrum operates two distinct networks. Arbitrum One is the main network, hosting the majority of DeFi activity with strong security guarantees. Arbitrum Nova is optimised for high-volume, low-value transactions — gaming and social applications where ultra-low fees matter more than the highest security level. Reddit used Arbitrum Nova for its Community Points system.

The ARB Token and Governance

The ARB governance token launched via airdrop in March 2023, one of the largest in crypto history. Over 625,000 wallets received ARB tokens, which immediately had a combined value of over $1 billion. ARB holders govern the Arbitrum DAO, which controls protocol upgrades and treasury allocations.

The Arbitrum treasury holds billions in ARB tokens. Governance proposals have debated everything from funding developer grants to investing treasury assets. The governance process is active and sometimes contentious — a genuine experiment in decentralised protocol management.