What Arbitrum does
Arbitrum is an optimistic rollup built by Offchain Labs that executes transactions off Ethereum's mainnet, batches them, and posts the compressed data back to Ethereum along with a fraud-proof mechanism that lets anyone challenge an invalid batch. That design inherits Ethereum's security while cutting fees to a fraction of L1 costs. Arbitrum One is the flagship, general-purpose chain; Arbitrum Nova is a cheaper sibling using an AnyTrust data-availability model aimed at gaming and social applications that need higher throughput than cost-sensitive security.
Arbitrum Orbit extends the stack further, letting other teams spin up their own app-specific L3 chains that settle to Arbitrum One, which itself settles to Ethereum — a layered approach several major projects have adopted to get dedicated blockspace without building a rollup from scratch.
What ARB actually does
ARB launched via airdrop in March 2023 and functions primarily as a governance token: holders vote on Arbitrum DAO proposals covering protocol upgrades, ecosystem grants and treasury allocation, including large incentive programmes like the Short-Term Incentive Program that funnelled hundreds of millions of ARB into ecosystem app rewards. What ARB doesn't do is capture network fee revenue directly — sequencer fees flow to Offchain Labs and the DAO's own operations rather than to ARB holders as a yield or buyback, which has left the token's value accrual story weaker than its usage numbers would suggest.
Risks
Arbitrum's sequencer — the component that orders and batches transactions — remains centrally operated by Offchain Labs, and full decentralisation of that role is still on the roadmap rather than delivered. Optimistic rollups also carry an inherent seven-day withdrawal challenge window for native exits to Ethereum, worked around in practice by liquidity bridges but a real constraint of the base design. Competition is unusually intense: Base, Optimism's OP Stack chains, and zk-rollups like zkSync, Starknet and Linea are all chasing the same developers and liquidity.