97% holder is in a state of loss, and the Arbitrum ecosystem subsidy approach may have difficulty in saving the coin price

Original author: Nancy, PANews

Arbitrum is undoubtedly one of the strong performers among Layer 2 solutions, but its declining token price is its weakness, despite its market capitalization doubling since its launch.

Nearly $2.6 billion in unlocked amount added in the past 4 months, with 97% of holders in a state of loss

Compared to the initial circulating market capitalization of 1.02 billion US dollars at the beginning of its launch, the current circulating market capitalization of Arbitrum Token ARB has exceeded 2.3 billion US dollars. However, holders are still struggling with continuous “bleeding”. According to IntoTheBlock data, Arbitrum’s price performance is weak, with as many as 97% of ARB holders in a loss-making state, with only 3% of holders at break-even at the current price, and almost no profitable holders.

According to CoinGecko data, ARB hit an all-time high of $2.26 in January this year, up 67.4% from its launch in March 2023, but then ARB began to fall all the way down and recently hit an all-time low and is currently down 69% from its peak. However, its circulating market cap is only 30% lower than the peak. In contrast, the price of ARB’s competitor OP has increased by 235% from the highest price at the beginning of the launch, the current price has fallen by more than 65.6% from the peak, and the circulating market cap has fallen by 61.2% from the high.

Arbitrum circulating Market Cap

The continued sluggish trend of ARB in recent months is directly related to the large-scale Token unlocking. In March this year, the Arbitrum team and investors began to unlock a large number of ARB Tokens. According to PANews statistics, from March to the present, the unlocked amount of ARB from the Arbitrum team and investors has exceeded 1.38 billion, with a total value exceeding 25.9 billion US dollars.

Arbitrum will also face more long ARB unlocks on the 16th of each month, such as the addition of the Arbitrum DAO Treasury unlock starting in July, worth as much as $2.41 billion, with an expected increase of about 400% until March 2027. According to Token Unlocks data, as of July 10th, the unlock progress of ARB is currently at 31%.

If the market Liquidity continues to decline, the continuous massive unlock of Arbitrum will undoubtedly drive its Token price further down. For example, encryption analysis platform do your own research recently stated that, given the current Liquidity, if investment institutions sell 5% of the unlock quota every month, the price of assets such as ARB may fall by 30% to 70%.

The long-term data still has a leading advantage, and the ecological subsidy strategy may not be able to rescue the coin price.

Despite the unsatisfactory performance of the coin price, from the data perspective, Arbitrum is still in a leading position among many L2s.

According to the latest data from Dune Analytics, as of July 10th, the total number of accounts created on Arbitrum has exceeded 31.751 million, with a total of over 800 million transactions. The total locked value (TVB) on Arbitrum’s on-chain bridge has exceeded 3 million ETH, with a total of approximately 737,000 bridge addresses. L2 BEAT data shows that Arbitrum One ranks first with a TVL of $16.12 billion, accounting for 40.1% of the market share. According to Growthepie data, Arbitrum Stable Coin’s market capitalization has exceeded $4.07 billion, with a year-on-year growth rate of 116%, surpassing L2s such as Base, OP Mainnet, and ZkSync Era. The growth rate of active addresses in the past 6 months has reached 205%, surpassing ZkSync, OP Mainnet, and others.

The ecological data of Arbitrum is undoubtedly subsidized by the large-scale sowing model.

Arbitrum has always been playing the card of subsidies to assist its own ecological development. For example, in games, in June of this year, Arbitrum approved a proposal of 225 million ARB tokens to fund game development on Arbitrum, aiming to build Arbitrum into a leading blockchain in the gaming field. These funds will be distributed over three years. In terms of RWAs, Arbitrum plans to allocate 35 million ARB tokens to the RWA development plan, aiming to achieve 1% financial diversification for Arbitrum annually through the rise of the RWA ecosystem, which has already received over 99% voting support.

Meanwhile, Arbitrum has been ‘spreading money’ to sponsor projects everywhere, providing approximately 10.6 million USD in grants to about 50 long projects in 2023 alone. In that year, Arbitrum also launched a short-term incentive plan to allocate up to 50 million ARB funds from the DAO treasury to active protocols on Arbitrum, with 106 projects applying for the first round of funding. This year, Arbitrum continues to provide financial support to various projects. For example, Open Campus recently announced receiving funding from the Arbitrum Foundation to launch the first Layer 3 Blockchain EDU Chain designed specifically for education; Pendle announced receiving 1 million ARB in funding from the Arbitrum STIP; Synthetix introduced the Arbitrum Liquidity Incentive Program, offering 2 million ARB as rewards to attract liquidity providers, stablecoin liquidity, and Perps trading activities; and Curve Finance claimed to have received over 237,000 ARB donations from Arbitrum to incentivize the Curve pool on-chain on Arbitrum.

However, Arbitrum’s practice of building an ecosystem through token subsidies has also caused dissatisfaction, and in the eyes of the community, this approach not only fails to empower Token, but also increases selling pressure. For example, Pima, the co-founder of Continue Capital, said bluntly that the leadership of many companies lacks the skills to allocate resources and capital, and the retention of funds is of no long-term value if it is only for predatory subsidies, and the ultimate purpose of subsidies is to serve long-term futures coinized cash flow. KOL BITWU. ETH said that Arb is a typical “low circulation, high emission” ecological subsidy play, which eventually leads to “continuous rise of Market Cap and Fluctuation of Token trend”. To put it bluntly, this way is to constantly sacrifice the Secondary Market, which is more suitable for trend traders, not the kind of coin that holds to get huge odds, the value of these coins has long been mined by institutions and has been fully valued, and there will only be beta returns in the future, and there will be no alpha returns.

In addition, Arbitrum DAO is considering emulating the practices of tech giants to implement acquisitions for ecosystem expansion. In May of this year, Arbitrum DAO approved a proposed eight-week pilot acquisition plan from Areta’s founding partner, Bernard Schmid, with marketing companies, business development, infrastructure providers, stablecoin issuers, and zero-knowledge technology being the most attractive potential acquisition targets. If the pilot is successful, Schmid plans to propose a more ambitious plan: to establish an acquisition department with a fund pool of $100 million to $250 million and to identify and acquire potential targets within two years. According to DeepDAO data, Arbitrum’s Holdings are valued at $2.6 billion, with 97.4% in ARB Tokens, a decrease of over 65.7% from the peak.

It is worth mentioning that Arbitrum is also trying to iterate and update aspects such as products and governance to optimize the experience of developers and users. For example, in April of this year, the Arbitrum Foundation proposed to change the Arbitrum expansion plan to allow the deployment of new Orbit chains on-chain in any Block; at the end of last month, the Arbitrum Foundation proposed to adopt a new transaction ordering strategy, Timeboost, to enhance the efficiency and fairness of network transactions; Arbitrum announced the upcoming launch of features combining Zero-Knowledge Proof and Stylus MultiVM.

In the governance proposal, the new ARB stake reward proposal proposed by Arbitrum has a direct stimulus effect on Token. It is planned to use 50% of the sequencer fee rewards to incentivize staking, thus enhancing the economic security of DAO and dropping the risk of the treasury being attacked. Defi researcher @DefiIgnas commented that in this plan, 50% of the future remaining sequencer fees will be used to reward ARB Token stakers. Assuming an annual fee of 12,000 ETH and an ARB price of $1, this would translate to a 7% APY. This income-sharing mechanism with Token holders is a wise proposal for ARB in a downward state.

So far, Arbitrum’s ecological subsidies have not had a significant boost on the price of ARB in the face of massive unlocking pressure, and as controversy over the low circulation and high FDV approach intensifies, Arbitrum will face greater challenges.

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