Arbitrum’s Owners Acquire Key Ethereum Development Team

Offchain Labs, developer of popular Ethereum layer 2 scaling solution Arbitrum, has closed a deal to acquire Prysmatic Labs, one the core software development teams responsible for maintaining, upgrading, and innovating the Ethereum network, Offchain announced Wednesday. 

The move signifies a major development for Arbitrum, one of the many so-called rollup solutions built atop the Ethereum network. Rollups sidestep the Ethereum mainnet’s slow speed and volatile, often exorbitant gas fees by collecting large quantities of Ethereum transactions into a unit that is then presented to the mainnent as a single transaction.

Arbitrum is currently Ethereum’s leading rollup solution by total value locked. According to data from DeFi Llama, some $965 million currently flows across its 123 protocols. By acquiring Prysmatic Labs—one the key teams responsible for innovating the Ethereum mainnet—Arbitrum’s creators are reinforcing the scaler’s centrality to the Ethereum ecosystem.

“We believe that Arbitrum at layer 2 and Ethereum at layer 1 will grow and succeed together,” Ed Felten, co-founder of Arbitrum developer Offchain Labs, told Decrypt. “Joining up with the Prysmatic team connects us even more closely to some of the most exciting and important research happening in the Ethereum community.”

Prysmatic Labs is the developer of Prysm, a consensus client software used by node validators across the world to implement the proof of stake consensus algorithm that has powered Ethereum and authenticated its transactions since the network’s historic merge last month. According to data from clientdiversity.org, 41.5% of node validators use Prysm to validate Ethereum transactions, more than any other software. 

Despite the fact that Prysmatic’s developers will now report to Arbitrum’s owners, the team does not expect its day-to-day work to change all that much. 

“The Prysm client will continue to be a leader in Ethereum node software,” Prysmatic Labs co-founder Raul Jordan told Decrypt. “We will continue to develop the Ethereum roadmap at the same pace as other consensus client teams and be present at the forefront of the challenges Ethereum L1 faces.” 

Perhaps not coincidentally, Ethereum’s development roadmap is currently leading toward rollup solutions like Arbitrum in the months and years ahead. Danksharding, one of the most anticipated upgrades on Ethereum’s post-merge agenda, would dramatically increase the speed and ease with which huge amounts of data is verified on layer-2 networks. Ethereum co-founder Vitalik Buterin has emphasized the centrality of perfecting Ethereum’s layer 2 solutions to the network’s future. 

“Many of [Ethereum’s] upcoming items are very focused on major improvements for L2s, which makes our work at Offchain Labs perfectly aligned,” Jordan said. “Ethereum is following a rollup-centric roadmap, and the bulk of upcoming work will be around enabling this as much as possible. On top of that, we have a lot of big ideas on the L2 front we are eager to explore at Offchain.” 

That alignment between Prysmatic and Offchain’s priorities, however, could also be interpreted as a conflict of interest. Prysmatic will have a key role in charting Ethereum’s future, specifically as it pertains to the network’s relationship with layer 2 solutions—and one of those layer 2 solutions is now paying Prysmatic’s bills. 

That fact is not lost on Jordan; he is adamant, though, that Ethereum’s client diversity would naturally correct for any favoritism exhibited by his software team towards Arbitrum.

“If Prysm tries to disadvantage other teams with our software priorities deliberately, it will be obvious to the Ethereum community and to our users,” Jordan said. “Many would immediately switch and use some of the other, great options for node software. We will face consequences. Prysm will remain neutral on all fronts.”  

Whether or not that mechanism proves effective, Wednesday’s acquisition highlights the relatively small number of players in the supposedly decentralized Ethereum ecosystem. Arbitrum and one other scaler, Optimism, together account for over 96% of all financial activity on Ethereum layer 2’s. Only two other consensus client softwares besides Prysm—Lighthouse and Teku—have amassed followings over 5% of all node validators. 

While validators do still have alternatives to turn to, if Arbitrum were to flex its control of Prysmatic in a self-serving manner, it would take less than a handful of acquisitions like today’s to permanently upend the delicate power balance currently governing Ethereum.