$ARB -- $50 mm ARR could multiply w/ timeboost, 10% fee share from AEP, and Financial Inst. onboarding post $HOOD validation, short basket of ETH L2 as pair-trade to capture BD, Tech, and token val...

TL;DR

• ◆Long Arbitrum ($ARB) vs. Short Weak L2 Basket: Arbitrum is the leading Ethereum Layer-2 (L2) network with real usage and cash flow, yet its token trades at a discount to peers.
• ◆We propose a long $ARB position hedged by shorts on a basket of smaller Ethereum L2 tokens that have minimal traction or fee revenue (e.g. Optimism, StarkNet, Metis, Boba).
• ◆This pair trade capitalizes on Arbitrum’s undervalued fundamentals and superior growth prospects: Arbitrum generates tens of millions in annual fees (with a clear path to grow further via new revenue streams and a major Robinhood partnership), while the short basket’s tokens lack meaningful adoption and do not accrue tangible value.
• ◆Arbitrum’s token also features no protocol inflation (only scheduled investor unlocks) and direct fee accrual to $ARB holders via the DAO treasury – unlike peers where fees bypass tokenholders.
• ◆Bottom line: As the market recognizes Arbitrum’s revenue leadership and scalable model, $ARB should outperform, and the long/short positioning offers an attractive, market-neutral way to capture this mispricing.

Investment Thesis Overview 🚀

Going long $ARB and shorting weaker L2 tokens is a conviction bet on Arbitrum’s dominance among Ethereum scaling networks. Despite Arbitrum’s top-tier metrics – highest transaction throughput, DeFi activity, and fee generation among L2s – its token’s valuation does not fully reflect these strengths. Meanwhile, many rival L2 tokens trade at lofty valuations without the usage to justify them. By buying $ARB (to gain exposure to Arbitrum’s growth and cash flows) and shorting a basket of L2 tokens with little to no traction, we aim to capture the widening fundamental gap. This strategy is directional and opinionated: we believe Arbitrum’s real revenues and adoption will drive outperformance against overvalued, underutilized peers. Below we detail why Arbitrum is the premier L2 investment and why the short basket (e.g. OP, STRK, METIS, BOBA) is poised to underperform.

Arbitrum: Market-Leading L2 with Real Revenue 📈

Arbitrum is the largest Ethereum Layer-2 by usage and ecosystem activity. It processes about 3.4 million transactions per day – over 2x the daily throughput of Optimism (≈1.3M) – and hosts ~$3.5B in DeFi TVL (versus ~$0.5B on Optimism). Crucially, this heavy usage translates into substantial fees collected on Arbitrum, giving the network a real revenue stream. Users pay transaction fees in ETH on Arbitrum, and after covering L1 costs, the net fees accrue to Arbitrum’s sequencer/DAO. Currently Arbitrum One (the main chain) is generating on the order of $15–20 million in annualized transaction fees for the Arbitrum DAO at ~93% gross margin. This run-rate came down post-Ethereum’s data cost reduction (EIP-4844) – which lowered L1 posting costs – but Arbitrum’s profit margins tripled as a result. Even after the fee reduction, Arbitrum’s revenue dwarfs other L2s at 15-20 mm USD per annum. No other L2 approaches this scale – for context, StarkNet’s fees over 365 days were under $0.6M, and Metis did only ~$75k in Q4 2024 revenue. Arbitrum’s financial heft (tens of millions in annual fees) not only validates its product-market fit in providing scalable Ethereum throughput, but also provides resources for reinvestment (more on the DAO treasury later).

New revenue streams are also coming online for Arbitrum, adding optionality to the thesis. In 2025 Arbitrum introduced TimeBoost, a novel MEV auction mechanism that lets traders bid for priority transaction ordering. In just a few months, TimeBoost is already contributing ~$1M per month in extra revenue (≈$12M annualized) to the protocol. This effectively doubled Arbitrum’s revenues at launch, and it’s still early – only a few arbitrageurs and market makers (e.g. Wintermute, Selini) use it today. As more participants discover TimeBoost and more on-chain activity (like liquidations, arbitrage, NFT mints, etc.) competes for priority, this could scale meaningfully (internal estimates suggest TimeBoost could reach >$100M/yr if fully utilized). The key point is that Arbitrum is innovating on revenue capture – unlike most L2s that simply collect gas fees, Arbitrum is actively monetizing MEV in a user-friendly way (without harming user experience with slow block times). This demonstrates a savvy approach to maximizing profitability while improving UX (TimeBoost’s 100ms priority window preserves Arbitrum’s fast 0.25s blocks for normal users). It’s a win-win that other chains have yet to replicate.

With 15-20 mm in Arbitrum One fees, 15-20 mm in timeboost fees, ~10 mm USD in AEP’s 10% fee share, and ~5-7 mm from ARB’s treasury (110 mm USD) earning 5%+, we are looking at roughly 50 mm of revenue going to the Arbitrum treasury on an annual basis. While it’s no comparison to things like HYPE/ BONK / PUMP, nonetheless a respectable sum vs. ghost L2s.

Undervalued Relative to Peers 📊

Despite these strengths, $ARB’s valuation appears undemanding versus peers. Arbitrum’s fully diluted market cap (FDV) is roughly in line with Optimism’s, yet Arbitrum produces ~60% higher revenue and nearly 3x the protocol profit of Optimism. In other words, Optimism’s token trades at a premium multiple of revenue despite trailing badly on usage – a sign that $ARB is mispriced on the low side. According to Messari, “Despite Arbitrum’s higher usage, Optimism is valued at a premium across several multiples…indicating it may be overvalued relative to its current usage.”. We concur and see multiple expansion for $ARB as justified. Even versus Ethereum itself, Arbitrum looks attractive: Ethereum’s P/S (price/revenue) ratio is around 156x, whereas a basket of L2 tokens (ARB/OP/STRK) was recently ~194x. But note that Arbitrum’s revenue is growing with new streams (TimeBoost, Orbit chains), which could compress its forward P/S dramatically. We estimate $ARB currently trades around 80× annual fees, whereas many smaller L2s have virtually infinite multiples (negligible revenue against sizable market caps). For example, Metis Andromeda and Boba Network each generate well under $0.5M in yearly fees yet their tokens command market caps in the tens of millions – a disconnect we aim to exploit on the short side. Overall, the long/short trade sets up such that Arbitrum’s valuation multiple can rise (or at least stay supported by real cash flow growth) while the bubble valuations of low-usage L2s deflate.

Importantly, Arbitrum’s valuation does not rely on speculative future tech or hypothetical adoption – it is already the established leader in L2. Network effects in Ethereum scaling are significant (developers and liquidity gravitate to the chain with the most users and assets), and Arbitrum has a clear lead here. The market may have been slow to price this in due to $ARB’s token only launching in 2023 and broad risk-off sentiment in crypto since. That provides an opportunity now to go long the best-in-class L2 at a reasonable price.

Catalysts: Robinhood & “Arbitrum Everywhere” 🌐

Arbitrum’s growth trajectory is supported by high-profile adoption and technical expansion, which serve as catalysts for our thesis. The marquee development is Robinhood’s partnership with Arbitrum. In June 2025, Robinhood (NASDAQ: HOOD), a major retail trading app, launched its new crypto offering on Arbitrum One and announced plans to build a dedicated Arbitrum-based chain (“Robinhood Chain”) using Arbitrum’s technology. This is a huge validation of Arbitrum’s tech and business model: Robinhood chose Arbitrum over all other L1s and L2s, citing Arbitrum’s technical flexibility and scalability as well as the ability to seamlessly start on a shared L2 then migrate to their own chain. In Robinhood’s case, they wanted to tokenize stocks for European users quickly (hitting the market by mid-2025), which they did on Arbitrum One, while planning a custom chain for the longer term. Arbitrum uniquely enabled this “launch now on L2, later upgrade to your own L3” path – something Optimism’s ecosystem couldn’t as easily match (Optimism’s model would have forced Robinhood into the OP Superchain or a less flexible arrangement). Robinhood’s choice showcases Arbitrum’s “have it your way” approach: developers can deploy on Arbitrum’s public L2 or spin up their own L3 with whatever customizations they need, all while leveraging Arbitrum’s proven tech stack.

For $ARB holders, Robinhood’s chain is more than just a vote of confidence – it’s a direct economic catalyst. Under the Arbitrum Expansion Program (AEP), any Orbit chain that does not settle on Arbitrum One pays a 10% fee share of its sequencer revenue to the Arbitrum DAO. Robinhood’s forthcoming chain will fall in that category (settling directly to Ethereum), meaning 10% of all its transaction fees and MEV profits will accrue to $ARB via the DAO. Consider the potential: Robinhood has millions of users; if even a fraction begin transacting on Robinhood’s crypto chain, the fees could be significant (and mostly profit, since L2s have high margins). Robinhood’s existing business model involves payment-for-order-flow and internalizing trading spreads – an Arbitrum chain lets them monetize on-chain trading in a similar fashion, possibly generating substantial sequencer revenues (which $ARB holders get a cut of). In essence, $ARB will gain a new quasi-equity stake in Robinhood’s crypto volume. And Robinhood is just one example – Arbitrum’s team hints that more enterprise/fintech deals are in the pipeline, especially after the visibility Robinhood brought. They’ve already onboarded projects like Securitize (partnering with BlackRock) for tokenized assets, gaming app-chains like Proof of Play, and others via Arbitrum Orbit. This “Arbitrum Everywhere” strategy – getting Arbitrum’s tech embedded across many app-specific chains – could multiply the DAO’s fee streams over time, all flowing to $ARB token holders.

Beyond partnerships, Arbitrum is also differentiating through technology improvements that widen its moat. A prime example is Arbitrum Stylus, a feature enabling developers to write smart contracts in popular languages like Rust, C, and C++ alongside the usual Solidity. This appeals to traditional developers (like those at Robinhood or in fintech firms) who may prefer or already use those languages – it lowers the barrier for non-Web3-native companies to build on Arbitrum. No other L2 offers this level of flexibility today. We view such developer-focused advancements as underappreciated catalysts: they make Arbitrum the default choice for serious, large-scale builders, which in turn drives more usage, more fees, and more value to $ARB.

Short Basket: Little Usage, Lofty Valuations 📉

To hedge our long position and express the relative value gap, we target a basket of Ethereum L2 tokens that lack traction to short. These include both well-known competitors and smaller upstarts that, in our view, are overvalued given their meager adoption. Key candidates:

• ◆Optimism ($OP) – The second-largest optimistic rollup. While not “no traction,” OP’s network activity is far below Arbitrum’s (e.g. ~60% fewer transactions and <15% of Arbitrum’s TVL), yet its token trades at higher multiples of revenue and TVL. Optimism’s sequencer revenue is also substantially lower – Arbitrum’s profit is ~193% higher. Moreover, Optimism’s token economics rely on heavy incentive issuance (e.g. OP rewards for usage, “Superchain” incentives), effectively an inflationary subsidy, whereas $ARB has no comparable emission program. In short, OP’s valuation prices in a future scale that hasn’t materialized; we see it as an attractive short against Arbitrum’s tangible lead.
• ◆StarkNet ($STRK) – A much-hyped ZK-rollup that is still early in terms of user activity. StarkNet’s technology (validity proofs) is promising, but current on-chain usage is minimal – recent data show well under $1M in annual fees, and the project has actually purposefully kept fees low (even subsidized) as it iterates on tech. The $STRK token was launched with a large fully diluted valuation and will face years of token unlocks. With little revenue and no clear value accrual (StarkNet’s fees presently just cover costs, not profit), $STRK is mostly a speculative bet on eventual success. We think that’s an overly risky bet to hold in size – better to short it against $ARB, which is already delivering results.
• ◆Metis Andromeda ($METIS) – One of the smaller Optimistic L2s, Metis saw some attention in 2021 but has since fallen off the map in activity. Its transaction fees are trivial (e.g. only ~$75k total in Q4 ’24 and declining) and developer traction is scarce. Yet $METIS still has a >$100M FDV and often trades on speculative fervor during “L2 narrative” moments. With negligible real adoption, we see no fundamental support – an ideal short to pair with long Arbitrum (which owns the narrative with actual numbers).
• ◆Boba Network ($BOBA) – Another small optimistic rollup that forked from Optimism. Boba’s usage is very low (daily transactions under 100k) and revenue almost non-existent – just $1,624 in Q1 2025 revenue according to Messari. $BOBA token has been in a persistent downtrend, and we expect it to keep decaying as the network remains irrelevant. Shorting BOBA hedges some of the idiosyncratic L2 tech risk on the long side by taking an opposite position in a failing project.

(Note: The short basket can be adjusted based on availability/liquidity of shorts. OP and STRK are larger and more liquid; METIS and BOBA are smaller caps but high conviction shorts fundamentally. Position sizing should reflect liquidity – e.g. heavier on OP, lighter on the micro-caps).

Why these shorts? In aggregate, these L2s generate little to no protocol revenue, have weak or shrinking user bases, and in some cases suffer from continuous token dilution. Yet their tokens still carry sizable market caps (and in OP’s case, aggressive hype). This is the polar opposite of Arbitrum, which has growing revenue, the largest user base, and a capped supply trajectory. By shorting the weak and long the strong, we isolate the core bet: that actual usage and cash flows will be rewarded over hype. If the crypto market turns risk-off, the short basket should fall more, as people flee story-driven alts – and if the market turns bullish on Ethereum scaling, Arbitrum should attract more capital than the others due to its clear fundamental superiority.

Token Economics & Value Accrual 💰

A crucial part of our thesis is that $ARB actually accrues value from Arbitrum’s success, whereas many other L2 tokens do not. Arbitrum’s tokenomics and governance structure are uniquely aligned with tokenholders. All of the fees and revenue generated by Arbitrum – whether from transaction fees on Arbitrum One, TimeBoost auctions, or Orbit chain revenue-share – flow into the Arbitrum DAO treasury, which is controlled by $ARB token holders. As AJ Warner (Offchain Labs CSO) put it, “these revenues are directed on-chain into the Arbitrum DAO’s treasury… The only way to get these assets out is a token holder vote.”. This means $ARB holders effectively control a growing war chest of cash and ETH. Indeed, the Arbitrum treasury already holds over $110M of stablecoins and Ether from accumulated fees, which are being deployed to generate yield and fund ecosystem growth (e.g. providing liquidity, investing in DeFi strategies at ~5% APY). In the long run, token holders could vote to use treasury funds for buybacks, staking rewards, or other value-accrual mechanisms. Even without explicit distributions, the treasury is a tangible backing for $ARB – unlike most L2 tokens, $ARB is almost like a claim on a productive, cash-generating business (albeit via governance control).

Contrast this with the peers: Optimism’s sequencer revenue does not flow to OP holders – it’s allocated to the Optimism Foundation for grants and public goods (great for Ethereum, perhaps, but not directly rewarding investors). Optimism explicitly separated token incentives (OP emissions) from sequencer profits. StarkNet is even further: its fees currently just pay operators and aren’t designed to enrich STRK holders. Metis and Boba have tokens mainly for staking/governance; any fees they collect are minimal and there’s little evidence of value returning to token holders. In short, Arbitrum aligns token holders with network financial success, whereas others largely do not. This makes $ARB fundamentally more attractive to own, especially as revenues grow.

It’s also worth noting that $ARB has no native inflation via block rewards. Many L1 tokens suffer ongoing inflation (paying miners/validators), and even some L2s plan to use tokens to decentralize sequencers or reward usage. Arbitrum doesn’t need that – it uses Ethereum for security (paying Ethereum with a portion of fees), and runs its sequencer without issuing new $ARB. The only increase in ARB supply comes from investor/team unlocks, which are finite and scheduled through March 2027. Approximately 1.1% of the supply unlocks per month – a headwind, but a predictable one already priced in by the market (and importantly, these are early backers who chose to support Arbitrum pre-launch, indicating they saw long-term value). Once the unlock period ends, $ARB will actually become deflationary or neutral if the DAO chooses to use fee revenue to buy back tokens or simply refrains from new issuance. Competitors like Optimism and StarkNet, by contrast, are still highly inflationary: OP has large token grants and incentive programs ongoing, and StarkNet’s initial token unlock schedule will significantly increase circulating supply in coming years. This difference means $ARB holders are less diluted over time, and more of the network’s growing value accrues on a per-token basis. In a market that increasingly values real yield and sound tokenomics, Arbitrum stands out.

Key Risks & Mitigants ⚠️

• ◆General Crypto Market Risk: As a long/short trade, this idea is relatively hedged, but extreme market moves could still impact it. In a sharp crypto selloff, $ARB could decline along with the short basket (though short positions would gain to offset). Conversely, in a wild bull market, weaker L2 tokens might rally on speculation (incurring losses on shorts) even as ARB rises. Mitigation: adjust basket weights dynamically and use stop-losses. The fundamental divergence should play out over a medium-term horizon, but position sizing must account for volatility.
• ◆Ethereum L1 Changes: Arbitrum’s value is tied to Ethereum’s scaling roadmap. If Ethereum base layer suddenly increases capacity massively or lowers fees beyond expected (e.g. danksharding advances), L2 fee revenues could compress. However, Ethereum’s roadmap actively relies on L2s for scaling, and recent upgrades like EIP-4844 were actually beneficial to Arbitrum by cutting its costs (boosting margins). Additionally, any L1 improvement applies to all L2s – Arbitrum would still likely lead peers in activity, so the relative thesis holds.
• ◆Competition from Other L2s: There are many new scaling solutions (e.g. zkSync, Polygon’s upcoming zkEVM, Base by Coinbase) vying for users. It’s possible a rival L2 could take share from Arbitrum or dilute the “Ethereum L2 trade.” We see Arbitrum’s head start and network effects as a strong moat. Its closest rival, Optimism, is actually collaborating via the Superchain, but Arbitrum’s independence and tech flexibility have attracted more projects (as evidenced by Robinhood and others). We also note that our short basket includes several competing L2 tokens – if one of them unexpectedly flourishes, the short could hurt, but that would likely coincide with overall L2 growth where ARB still wins net. Keeping a basket dilutes single-project risk.
• ◆Adoption of Orbit Chains Uncertain: Part of the thesis is Arbitrum capturing fees from many Orbit chains (L3s). If enterprises like Robinhood don’t actually generate high on-chain volumes, or if they choose alternative solutions later, the anticipated fee share might underwhelm. Mitigant: Arbitrum One on its own is a thriving chain, and our long case doesn’t require huge Orbit revenue – that’s upside. Even one or two big wins (Robinhood, plus maybe another major fintech or game) could move the needle, and indications are strong with more inbounds post-Robinhood.
• ◆Token Unlock Overhang: The monthly ARB unlocks through 2027 mean a continuous supply entering the market, which could suppress price if demand doesn’t keep up. This is a known factor and likely contributes to ARB’s muted valuation. However, Offchain Labs insiders have shown confidence – notably, the team bought back ARB from the market to signal belief in its value. Additionally, the growing DAO treasury (denominated in stable/ETH) could potentially be used to mitigate unlock impact (for example, the DAO could vote to use revenue to soak up tokens, if desired). The unlock schedule is also linear and transparent, allowing the market to digest it gradually.

In summary, the risk/reward remains compelling: Arbitrum doesn’t face any unique existential risk beyond general crypto factors and competition, and our short basket choice helps offset many of those sector or competitor risks.

Conclusion 🏆

Arbitrum is the closest thing Ethereum’s L2 sector has to a “blue chip.” It boasts the largest user base, strongest revenue, and most forward-thinking roadmap among its peers. Yet its token has been overlooked, trading at a discount relative to its demonstrated traction, while lesser L2 projects command premium valuations they haven’t earned. This mispricing presents a classic buyside opportunity: go long the quality asset and short the overhyped alternatives. With $ARB, investors get a token that is effectively backed by a growing stream of cash flows (deposited in the Arbitrum DAO, owned by tokenholders) and a network that is rapidly expanding through real-world adoption (Robinhood and beyond). On the other side, the short basket ($OP, $STRK, $METIS, $BOBA) provides both a hedge and an alpha source, as those tokens lack fundamental support and could continue to bleed value.

We anticipate a re-rating of Arbitrum upward as revenue and usage metrics continue to outshine the field – the market will not ignore a high-growth, profitable network forever, especially as crypto investors refocus on sustainable token models. Any positive catalyst – e.g. Robinhood chain launch driving fee spikes, or Arbitrum DAO announcing strategic use of its $100M+ treasury – could spur a reassessment of $ARB’s value. In contrast, the shorted L2s face the grind of low adoption and, in some cases, dilutive token emissions, making them likely underperformers.

Investment Recommendation:Buy $ARB and short a basket of weaker L2 tokens. This long/short L2 trade expresses a confident view that Arbitrum will continue to dominate and monetize Ethereum scaling, and that its token’s value will rise to reflect its blue-chip status among infrastructure projects. We believe this positioning offers attractive asymmetric upside (if Arbitrum’s success accelerates) while minimizing broad market beta, aligning with a buyside strategy that seeks alpha from fundamental divergence. In simpler terms – we’re long the Arbitrum empire, and short the pretenders. Time to let the numbers – and the trade – do the talking. 🚀💡

Sources: Arbitrum and Optimism network data from Messari; revenue figures from Token Terminal/Messari and project reports; StarkNet, Metis, Boba fee data from Token Terminal/Messari; commentary and strategic insights from Offchain Labs (BidCast interview, July 2025).

This article is being AI-generated based on the July 16th, 2025 BidCast Episode on $ARB and may contain mistakes. It does not constitute as investment or any advice and does not represent the view of the BidClub.io platform.

Generated by grok.com and chatgpt.com

BidCast Source: https://www.bidclub.io/posts/cmd8prrbw0001mjcd3a7vn7hh