Stakes are high in the crypto universe as Arbitrum (ARB), one of Ethereum’s leading layer-2 scalability champions, feels the heat from falling network usage metrics. Between September 9th and 11th, ARB tokens’ price plunged by a sharp 14.5%, an all-time low score in its history. This downswing is partly triggered by dwindling levels of activity on its decentralized applications (dApps), a decline in total value locked (TVL) to $1.6 billion, and general market-wide blues.
The downward spiral unique to ARB over the past week, despite most other cryptocurrencies undergoing their challenges, points to potential investor uncertainty. They are closely scrutinizing ARB’s position and relevance in an increasingly competitive playing field.
Amidst this backdrop, a bit of a quandary manifests in ARB’s governance proposals. One proposal aims to allocate up to 75 million ARB tokens towards catering to active dApps’ “short-term community needs”. However, with the allocation representing less than 2% of DAO treasury holdings, its impact on ARB’s price correction is arguably insignificant.
A controversial proposal introduced by PlutusDAO seeks a redistribution of DAO treasury tokens to ARB holders through a staking mechanism. This approach has been touted as unnecessarily inflationary, putting added pressure on already low prices.
One school of thought blames declining network activity for ARB’s recent woes. Calculations of the TVL of Arbitrum show a dip to $1.67 billion — its lowest level since mid-February. Moreover, the 25% decrease in TVL over the past two months signals a potential decline in investor confidence.
Data from DappRadar reveals a worrying downturn in 30-day active addresses, even within long-standing dApps such as Uniswap, 1inch, Radiant, SushiSwap, and GMX. With TVL and user activity both on the slide, it points to a significant drop in the network’s demand. The rise of competing chains, such as zKsync Era and Coinbase’s Base, are possible contributors to this predicament.
Ultimately, the 14.5% price correction evident in Arbitrum could be an amalgamation of investor dissatisfaction with an inflated governance mechanism and lackluster network activity. Despite its significantly lower fees compared to Ethereum, ARB might remain in the shadow of its competitors if it can’t boost its transaction volumes and expand its user base.
Source: Cointelegraph
