Arbitrum Odyssey - Nitro Edition
Run it Nitro Turbo
Welcome, Anon! As Arbitrum Nitro is dawning upon us, knowing what to keep your eyes on to get the most out of Odyssey when it gets started again is a good idea. Buckle up.
When Arbitrum Odyssey originally started we were excited about what it would bring. to the Arbitrum ecosystem. Finally, our beloved L2 where true DeFi innovation is taking place would onboard users through a coordinated marketing effort. Especially as it has been growing organically without any marketing whatsoever. Other L1s and L2s have aggressively incentivized people to use their platforms, meanwhile, Arbitrum has solely existed as talented builders have embarked upon it and built great protocols. Long may it continue.
However, the excitement of Arbitrum and a potential airdrop significantly clogged the network usage leading to the Odyssey being paused until Nitro will be released. Well, that time has come and the great Mt. Arbitrum is shining upon us and it is gearing up for what will be called Arbitrum Nitro.
Quick Arbitrum Nitro Overview
Arbitrum Nitro is an upgrade to the Arbitrum network that will speed up transactions and make transaction costs even cheaper. If you liked Arbitrum before, you will like it even more after Nitro. Instead of using custom-designed language when you’re building on Arbitrum, you can use standardized language and tools to make the experience easier.
What do you have to do as an end-user? Nothing. The integration will be seamless and you can simply enjoy a better user experience when it gets implemented on the 31st of August.
With that out of the way, we can get into the weeds. When Nitro is deployed, Odyssey is expected to resume shortly after. You can read the full Nitro whitepaper here.
What should you look out for when Odyssey resumes?
Before getting into all the exciting projects currently residing on Arbitrum that are about to launch, I will highlight the two projects that you should start using as it’s already clear that they will have a key role in the Odyssey. Remember that Odyssey will force a lot of people to use specific protocols on Arbitrum leading to higher volume. But before that, make sure you have already bridged to Arbitrum from the mainnet.
Odyssey key project #1 - GMX
Even my wife’s boyfriend knows about GMX at this stage, it’s a decentralized perpetual protocol that enables you to take up to 30x leverage making it the perfect DEX for true degens. GMX was the last Odyssey mission that was supposed to be completed before Odyssey was initially canceled. You can bet that it will be included again and receive an Odyssey NFT in return. Either way, it provides the lowest slippage I’ve experienced so far making it a no-brainer. If you’re going to use the protocol feel free to use my referral code for a 10% discount on your trading when you’re completing the quests.
Either way, GMX is set to become a key part of DeFi considering how popular it has become and that doesn’t even include me diving into the token economics and attractive yields. If you want a deeper dive, you can read my overview here.
Odyssey key project #2 - Treasure DAO
If you’re not familiar with Treasure DAO it is a decentralized game console that allows builders to launch games within their ecosystem using $MAGIC as a reserve currency. Considering the token economics of prior GameFi games have been horrendous, the tokens have been dumped beyond hell. Treasure DAO aims to mitigate this problem by allowing multiple games to plug in the $MAGIC token which is the native token of Treasure DAO into their own ecosystem providing $MAGIC with further utility as it is used across a wide ecosystem.
Also, by the time this is published Treasure DAO will have released their own AMM called MagicSwap which is built for their ecosystem of games. Tying all game’s native tokens to $MAGIC as a base pair creates a strong foundation for the token.
However, I’m barely doing the Treasure ecosystem justice by this short overview but that’s not key at the moment. Why should you pay attention to Treasure DAO? It’s already well documented that Treasure will be included in the Odyssey. However, one thing I’ve noticed is that multiple staff members of the official Arbitrum team currently have smolbrain NFTs as profile pictures on their Twitter. It wouldn’t surprise me if these smolbrain NFTs would have a role to play in the Odyssey.
Note: This is a high-risk move solely based on speculation. If you already have a smolbrain NFT then you should be in good stead. This doesn’t mean that you should insta-turbo ape. If you are going to ape, do it responsibly.
Also, it might be a good idea to acquire any Arbitrum native NFT, who knows it might come in handy. Two marketplaces for this would be TofuNFT and StratosNFT (notwithstanding Treasure’s native NFT marketplace). Interesting Arbitrum NFT projects include Mithical, Diamond Pepes, and Blueberry Club but don’t take my word for it and look into it yourself.
There are twelve other projects that will be included in the Odyssey and the quests covering them will be released on the official Arbitrum Twitter so make sure you follow them.
What else is going on @Arbitrum?
Exciting projects on Arbitrum
I mentioned in one of my previous articles that the protocols on Arbitrum have the potential to be the new gold standard of DeFi”. The innovative nature of DeFi protocols on Arbitrum as they happily build on top of each other instead of trying to cannibalize each other makes the L2 very exciting. So what are some Arbitrum native projects worth keeping on your radar if you haven’t already?
Dopex
I’ve mentioned Dopex multiple times on my substack but if this is your first time here, it is a Decentralized Options Exchange. On Dopex you can trade European-style options intuitively through their SSOVs (Single-staking options vaults) making options trading an easier process for beginners that want to get started.
Looking to hedge yourself or take on additional risk without the risk of getting liquidated, in that case, options provide a better option than simply leverage trading that can wipe you out. Used correctly you’ll be able to optimize your portfolio for different market environments by buying/writing puts or calls.
Dopex recently launched Atlantic Straddles allowing users to profit from volatility in the market which has seen extreme demand so far. In the coming months, they plan to release Atlantic Options which will be directly integrated with GMX.
Their native token is $DPX which can be bought on SushiSwap on Arbitrum (you can buy it on the mainnet if you like to pay a higher price for it instead).
Also, don’t fade the 2nd token in their ecosystem which is $rDPX which is bound to get upgraded token economics soon making it a deflationary asset (#wen?). Don’t fade it Anon.
Vesta
Vesta is a lending protocol residing on Arbitrum and is a direct fork of Liquity on Ethereum. Vesta allows you to deposit collateralized Arbitrum native assets along with ETH, renBTC, and gOHM on their platform and take a loan against them in VST which is their protocol-native stablecoin.
Users can stake the VST stablecoin in stability pools for attractive yields as these pools enable you to liquidate other assets that have fallen below their collateralization rate. The liquidated assets consequently get distributed to the VST stakers in the pool. The stability pools exist to guarantee the overall health of the protocol and absorb the debt of liquidated users.
People that have taken out a VST loan can exchange it for their collateralized asset at any time. Vesta is currently the main lending protocol on Arbitrum profiting from a first-mover advantage.
Jones DAO
Jones DAO provides yield strategies for users that don’t want to actively manage their positions. They utilize Dopex SSOVs to achieve this and are an alternative for people that find options hard and want to outsource it to another protocol.
Users can deposit their capital into Jones vaults. Depending on your risk appetite and strategy you can find different vaults for different strategies
When you deposit an asset into jones you get a jAsset in return which is a yield-bearing asset that enables capital efficiency. When you redeem your initially deployed capital the jAsset gets burned and you get your asset + the generated yield if the strategy was profitable in return.
Note: These strategies are not guaranteed return and you can still lose money in them, we’ve already seen instances where some epochs have been more profitable than others that have been negative.
Plutus DAO
Plutus DAO is a layer 2 governance black hole on Arbitrum. It operates in a similar mold to Convex Finance and has aggressively acquired Dopex, currently controlling over 50% of its governance power. Considering the protocol is betting on the success of Dopex and is relatively dependent on that, they are hedging this strategy by acquiring tokens of other protocols such as Jones DAO and Sperax.
They have also announced plans of offering a GLP vault and an impending partnership with Redacted Cartel which most likely will include a bribe marketplace for $PLS holders (their native token). However, this bribe marketplace is of course dependent on DPX governance power being perceived as valuable which might be the case but has not been demonstrated yet.
Nonetheless, Plutus DAO unlocks capital efficiency by enabling non-discounted rewards for DPX holders that want to get access to the veDPX rewards of 4-year-lockers. It is the go-to meta governance protocol on Arbitrum.
Sperax
Speaking of Sperax, it is an auto-yield bearing stablecoin. Before diving into the weeds of it, clarifying what auto-yield bearing means sounds like a good place to start. Sperax USD (USDS) is auto-yield bearing because you don’t have to stake it to acquire the yield. By simply holding the stablecoin in a wallet your USDS balance will grow as the stablecoin collateral is deposited into other DeFi protocols to generate a yield for its users.
The yield generated by the protocol is split 50% by USDS holders and SPA holders which is their native token. The protocol has a target yield of 11% and everything that is generated above that is stored in the protocol to support funding the APY. However, as I’ve talked about in one of my previous articles regarding yields and risk management, the higher the yield the higher risk you’re taking. While Sperax is a direct competitor to Vesta as the go-to Stablecoin on Arbitrum they both have their respective trade-offs.
Umami
Umami got notorious for providing a delta-neutral stablecoin strategy proposed to yield 25% APY and is a treasury management protocol. However, this initial strategy turned out to not be as profitable as it generated an initial negative return during the first months. However, all users got refunded for their deposits meaning that no retail user lost money and only the protocol itself. While the situation isn’t optimal it makes a case for healthy leadership from a team that remains accountable for its decisions.
To be fair, when you’re delta neutral that means that you’re short gamma, which means that you lose money in a trending market. Considering the merge narrative picked up towards the end of July it hurt Umami’s delta neutral position as that strategy is more profitable in ranging crab markets. Nonetheless, if you believe that Umami will come through as they have plans on releasing V2 in the coming months, then it might be something worth taking a look into.
Note: There are rumors of a potential USDC partnership (what that means is still unclear).
The native token of the protocol is called UMAMI, which took a severe hit after this. The UMAMI token can be staked to take part in protocol rewards. If you’re interested in a deep dive into Umami you can read one of my previous articles here.
Had Potential but turned into a mess so far
Radiant Capital
The idea Radiant Capital proposed sounded exciting. Omnichain-lending and borrowing facilitated by the protocol are good ideas although it comes with bridging risks. However, trying to solve the fragmented liquidity problem across different chains is a respectable mission to take upon yourself.
However, I’m not going to dive deep into this one as their founders have been shady concerning the token economics and how much of the tokens actually have been distributed to them. I’ll leave it to this thread.
TL;DR: Shitshow.
Just released and to be released
The Arbitrum ecosystem is ever-growing and there are new protocols that recently launched or are looking to launch there. Here are a few others to keep your eyes on.
Finance Liquid
Finance Liquid was released two days ago and is a protocol that aims to provide MEV profits to its users. The protocol has launched its own fractional reserved-based token pegged to the price of $ETH called $lqETH. This token can be minted and redeemed by the protocol allowing for arbitrage opportunities.
Through the protocol’s Liquid Arbitrage Mechanism (LAM) lqETH can maintain price stability and generate revenue. How would this work? When lqETH is above the normal ETH peg, arbitrage hunters would buy lqETH and sell it onto the market for a premium until it maintains its peg. When lqETH is below the peg the mechanism will borrow collateralized assets from the pool filled with WETH backing the lqETH and buy lqETH at a discount and burn it until the peg is restored. Considering the lqETH was below peg —> more lqETH will have been burnt than the WETH was spent from the treasury.
The profit generated from these arbitrage opportunities is distributed to the treasury.
An important benefit to take into consideration here is that all these arbitrage opportunities take place in one transaction when they are executed.
However, it is obvious that this strategy is dependent on liquidity between WETH|lqETH which is incentivized by the 2nd token in the ecosystem called LIQD.
The LIQD token can be staked for protocol rewards being paid out in ETH.
The main risk associated with the protocol is clear and that is a bank run that will result in severe de-pegging. In that case, the LIQD token will be used as a backstop in an attempt to stop the bleeding. Also, it is clear that despite the fractional reserve model working for Frax, it doesn’t guarantee that it’s sustainable here as it is reliant on the belief that the peg actually will be restored. Stay vigilant.
3xcalibur
3xcalibur is among the more interesting protocols on my radar that haven’t been released yet. It is a liquidity marketplace that will facilitate stable and variable swapping of tokens through what they call a Tri-AMM. The meaning of a Tri-AMM is that it uses 3 different constant formulas that are built into the protocol. These three are the stableswap AMM, x*y = k (Uniswap formula), and 3xCaliCredit (facilitates borrowing and lending).
The team states that the tri-AMM has enabled the protocol to become oracleless and liquidationless. What does this mean? Oracleless adheres to the fact that it doesn’t need an oracle for the pricing for swaps or interest rates for lending as it’s determined by 3 constant product AMMs. The liquidationless parts mean that they have removed the complexity of lending through stability pools that allow borrowers to pay back their debt at any time and in case of default pay back the collateral to lenders.
As there is no leading native Arbitrum protocol in this mold 3xcalibur has the opportunity to cement itself among the leading Arbitrum protocols if everything is done correctly.
The native token of the protocol is XCAL and will be issued on Arbitrum. The protocol just launched a discounted community round to raise capital and is currently the only way to acquire the token prior to the public round. It will have an initial price of $0.5 and will be locked for 3 months prior to linear vesting as it unlocks.
Note: Be aware that the discounted community round is launching at a price of $0.5 and 9,000,000 (9%) tokens initially released at a FDV of 50M in the discounted round at 100M during the public round. The team has been transparent with this which is refreshing, albeit a high valuation for a new protocol in my opinion.
The protocol will incorporate ve-governance, enabling you to lock your XCAL to receive non-discounted rewards, including platform fees. Locking the token gives you a veXCAL NFT which implies that they have incorporated features of Solidly into 3xcalibur. There’s still a lot of information to be released over the coming 90 days concerning the protocol so this is one you should keep your eyes on.
What does the future hold for Arbitrum?
Arbitrum has been growing organically in comparison to its competitors which have heavily incentivized users to transact in their ecosystem through token incentives. Before the initial Odyssey, people were not given any incentive to use Arbitrum except that it’s quicker and more efficient to use from a cost standpoint compared to the mainnet. Still, Arbitrum TVL already starting to exceed Optimism despite all the incentives.
If the Arbitrum team does launch a token after all, which would allow the rollup to become more decentralized as the sequencer can be controlled by governance instead. This would draw further capital to an ecosystem that already has been thriving without any incentives or marketing. The layer two wars are heating up and in the current scenario, I know what horse I’m betting on (ZK-rollups might change that but time will tell).
Lastly, I haven’t even mentioned Arbitrum Nova which will be the next iteration of Arbitrum development with ultra-low transaction costs and high speed tailor-made for games. I can probably see the Treasure ecosystem migrate to Nova as their gaming & metaverse expands but that is for another substack.
Well done if you managed to congest all that information, I hope you enjoyed the post. Don’t forget that you are more than welcome to leave feedback or drop any questions in the comment section.
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Disclaimer: All Content on this site is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing on the site constitutes professional and/or financial advice, nor does any information on the site constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. I am just a random degenerate sensei sharing an opinion.
Great piece, much appreciated.
Amazing article, subscribed and shared. Thank you!