Why Arbitrum Succeeds While ARB Token Struggles: Layer 2 Economics Explained
Arbitrum processes over 3 million transactions daily and holds $18 billion in total value locked, ranking as the dominant Layer 2 network by most metrics. Yet ARB token traded between $0.80 and $1.50 through most of 2025, well below its January 2024 peak of $2.40.
This disconnect between network success and token performance confuses investors expecting Layer 1 tokenomics where native tokens capture value directly from network activity.
How Arbitrum Actually Works
Arbitrum processes transactions off Ethereum's main chain, bundles them together, then settles final state on Layer 1. This cuts gas fees by over 90% compared to Ethereum mainnet while maintaining security guarantees.
Users pay transaction fees in ETH, not ARB. That single fact explains much of the token's price behavior. Network growth doesn't automatically create ARB demand the way it does for chains where the native token pays for gas.
What ARB Token Actually Does
ARB functions as a governance token. Holders vote on protocol upgrades, treasury spending decisions, and network parameter changes. The Arbitrum DAO controls over $3 billion in assets, giving governance real economic weight.
The token doesn't capture fee revenue directly. Arbitrum's fee structure sends revenue to sequencers and validators rather than token holders. This separates network profitability from token value in fundamental ways.
Major protocols run on Arbitrum: GMX for perpetual trading, Camelot for decentralized exchange activity, Radiant for lending. These applications generate substantial fees, but that revenue doesn't flow to ARB holders under current tokenomics.
Supply Pressure Through 2027
Total ARB supply reaches 10 billion tokens. About 1.3 billion circulate currently, meaning over 80% remains locked. Major unlock events occur quarterly through 2027.
Team allocations vest over four years. Investor allocations follow similar schedules. Each unlock releases millions of tokens into circulation. Recipients often sell to realize gains, creating consistent selling pressure regardless of network performance.
What Could Change ARB's Direction
Fee-sharing mechanisms could redirect network revenue to token holders. The DAO has discussed proposals for buyback programs funded by protocol fees or staking rewards distributing sequencer revenue.
Implementation would fundamentally change ARB's value capture. Instead of governance-only utility, the token would gain direct claims on network economics.
Increased governance activity adds utility incrementally. As the DAO manages larger treasury assets and makes more consequential decisions, governance rights gain value. Recent votes on fee structures showed governance mattering more than symbolic participation.
Understanding the Disconnect
Arbitrum succeeds as infrastructure while ARB struggles as investment. This reflects tokenomics design rather than network quality.
Layer 2 networks face different economic models than Layer 1 chains. Users paying gas in ETH removes automatic demand creation for Layer 2 tokens. Governance utility matters, but it captures value differently than fee revenue.
ARB faces structural headwinds through 2027 as vesting continues. Without tokenomics changes, price depends more on broader market conditions than Arbitrum-specific developments.
The network performs well technically. Transaction volume stays strong. Total value locked grows steadily. But token price disconnects from these metrics under current economics.
For detailed analysis of potential scenarios and technical catalysts, see ARB price prediction.
The gap between network metrics and token performance will narrow if governance implements fee-sharing mechanisms. Until then, ARB price reflects supply pressure and governance utility rather than Arbitrum's technical success.