Wen Free Money?

Arbitrum finally launches $ARB, the L2's native token

Some Good ol’ Free Money

If you are not native to crypto, “free money” isn’t an alien concept in this space. Whether its a ponzi DeFi protocol that gives you 7 digit APY’s to not sell a uselsess governance coin, or an airdrop for fat fingering a transaction on Uniswap, if you are slightly aware, lucky, or both, there is free money to be collected in crypto. This isn’t about airdrops specifically, this is about $ARB, and whether it’s a gud internet coin. Let’s dive in.

After months of psyops and a continuous stream of hopium that saw users throw their time, money and mental health into the popular L2, farming a speculated airdrop, Arbitrum announced their native token $ARB, and that they will be airdropping 11.62% of the total supply of ten billion magic internet coins to early and frequent users of the chain. The speculators, finally, won.

10 billion magic internet coins, 11.62% to users, 1.13% to Arbitrum protocols, 42% for the investors and team, and 42% to the DAO treasury. Not the best distribution to be honest, but at least the team and investor tokens won’t hit the market for a year and will be subject to a 4 year vest. At launch, we’ll be dealing with a low float (~12.75%) high FDV token. A strong pumpamental factor.

The main use case of the token is governance, so far. The structure is pretty cool, with governance completely in the hands of token holders and enforced on-chain. No staking (yet) but more on that later. If you want a starting point to think through what L2 token models look like, read this.

Now, on to the more pressing question, what is ARB worth in U.S. dollarinos, and do you sell the token (if so, when)? I won’t answer the second question, since that would be financial advice, and I am incapable of giving any. Nothing in this blog post is financial advice. Literally nothing. The first question, however, we shall attempt to answer. Take everything with a bucket full of salt.

Napkin Math

A quick prelude would be that in my opinion, Arbitrum is gud chain, even better than its red counterpart, Optimism. As such, I believe that ARB will trade at a premium to OP, a premium that reflects larger dollar flows, more economic demand, and better profit margins.

In the medium to long term, how the market values ARB is anyone’s best guess, but at listing, investors will probably look to what they know (OP), and determine their buy and sell ranges accordingly. Here are some numbers:

Optimism, at $2.48 per internet coin, is currently valued at $780m circulating, and $10.6bn fully diluted. The float is really low, with airdrop tokens all of the supply.

Economically, Arbitrum is better than Optimism. It has 71% more TVL than Optimism, makes more money than Optimism, and even the applications on Arbitrum make more revenue than the applications on Optimism. Arbitrum is the better chain, and it makes sense that the market will value it that way.

OP has a FDV/TVL ratio of 10.94

Hopium math says that if you assume a FDV/TVL ratio slightly higher than that of Optimism (this premium prices in the economic dominance of the network), of 11.5, one can arrive an an implied fully diluted value of $19.2bn, and a circulating value of $2.44bn. This would put the price of the token at $1.92. (Both these numbers would more or less pass the eye test, putting Arbitrum into the top 30 protocols by mcap. Not too bad)

$4 isn’t out of the question, we’ve seen crazier things in crypto. It will be interesting to see whether the market does assign a premium to Arbitrum, and to what extent.

Again, take these numbers with a bucket full of salt.

Conclusion

Everybody likes free money, so congratulations on your airdrop if you got it. Airdrops in the past have been brutally dumped, but recently, as we saw with BLUR, early sellers may come to regret selling. Do whatever you want, there is no right answer.

(Don’t be dumb and buy a car with your airdrop though)