Arbitrum, a leading contender in Ethereum’s layer-2 scalability solutions, has experienced a significant decline in its token price. Between September 9 and September 11, the price of Arbitrum (ARB) tokens dropped by 14.5%, reaching its lowest point in history. This decline has raised questions about the competitive edge of Arbitrum, despite its high total value locked (TVL) of over $1.6 billion.
While other scaling solutions on Ethereum have also faced challenges in the past week, none have experienced a drop as significant as Arbitrum. One potential concern is the absence of fraud proof issuance since the launch of the Arbitrum mainnet in August 2021. Developers argue that this aligns with the system’s intended operation, as validators with malicious intentions risk losing their stake. However, this factor is unlikely to have had a significant impact on the price.
Governance proposals from Arbitrum’s decentralized autonomous organization (DAO) may shed light on the recent price downturn. One proposal aims to allocate up to 75 million ARB tokens from the project’s treasury to address short-term community needs for decentralized applications (DApps) within the ecosystem. However, even if approved, this allocation represents less than 2% of the DAO treasury holdings and is unlikely to have caused the price correction.
Another governance proposal introduced by PlutusDAO seeks to return tokens from the DAO treasury to ARB holders through a staking mechanism. Some investors view this approach as unnecessary and argue that it exerts downward pressure on prices. Concerns about liquidation risks on centralized and decentralized exchanges offering leveraged trading have also been raised.
The decline in Arbitrum’s TVL to $1.67 billion, its lowest level since mid-February, is another cause for concern. This decrease indicates a loss of investor confidence and could reduce liquidity and hinder network growth. The number of active addresses within the network’s top DApps has also declined, suggesting a decrease in demand for the network.
While it is challenging to pinpoint a singular cause for the price movement, it is speculated that competing chains like zkSync Era and Coinbase’s Base may have contributed. Unless there is an increase in transactions and an expansion of its user base, it is unlikely that ARB will be able to close the price performance gap with its competitors.
Please note that this article is for general information purposes only and should not be taken as legal or investment advice. The views expressed here are the author’s alone and do not necessarily reflect the views of Cointelegraph.
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