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Arbitrum risks: what can go wrong when you use it

Using Arbitrum brings bridge contract, single sequencer, delayed withdrawal and upgrade control risks. ARB's US legal status remains unclear.

Vahe HakobyanEditor-in-chief Updated Oct 6, 20263 min readFact-checked

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What are the main risks?How does Arbitrum bridge work?Who orders Arbitrum transactions?How long do withdrawals take?Who controls upgrades and when did it launch?FAQ

Short answer

Arbitrum is an Ethereum Layer 2 rollup built to make transactions cheaper, its developer Offchain Labs says. Its main risks are bridge contract failure, a single sequencer, delayed withdrawals and upgrade control. The US legal status of the ARB token is unsettled.

Arbitrum is an optimistic rollup. It processes transactions off Ethereum and posts records back to it.

What are the main risks?

Arbitrum risks at a glance

Purpose (company says): Cheap transactions to users
Aim (company says): Feels very similar to Ethereum
Volatility: More volatile than fiat
Cyber risk: Hacking or phishing attempts

Arbitrum does not inherit all of Ethereum's security. Its bridge, sequencer and upgrade process add separate risks. The main ones are:

Bridge risk: bridged assets rely on a separate contract.
Sequencer risk: one party controls ordering.
Withdrawal risk: funds take extra time to return to Ethereum.
Upgrade risk: network changes can affect your assets.

How does Arbitrum bridge work?

The bridge locks your tokens in an Ethereum contract and issues a matching amount on Arbitrum. Bridging back releases the original tokens. If that contract fails or is hacked, the bridged assets can be lost.

Who orders Arbitrum transactions?

A single sequencer orders transactions on Arbitrum. It posts them to Ethereum. The sequencer can delay or censor your transactions. If it goes down, transactions may stall.

How long do withdrawals take?

Withdrawals to Ethereum are not instant. Optimistic rollups have a challenge period before funds are final. For Arbitrum, that period is about seven days.

Who controls upgrades and when did it launch?

The Arbitrum DAO and a Security Council control upgrades. The DAO votes, and the Security Council acts in emergencies. Offchain Labs launched the Arbitrum mainnet in August 2021 and the ARB token in March 2023. The US legal status of ARB is unsettled.

Who controls upgrades on Arbitrum?
Group	Role
Arbitrum DAO	Votes on upgrades and proposals
Security Council	Can act in emergencies to upgrade the network

Frequently asked questions

Funds are generally not lost if the sequencer goes down; transactions may be delayed. Arbitrum also has a way to force transactions through Ethereum, but that takes time.

A standard withdrawal takes about seven days because of the challenge period. Faster bridges add their own trust assumptions.

No. ETH pays network fees on Arbitrum. ARB is a governance token.

The bridge holds locked tokens on Ethereum, so a failure there can affect everyone who bridged.

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Written byVahe HakobyanVahe Hakobyan is the editor-in-chief of World-Crypt. He covers bitcoin, markets and regulation, and leads the newsroom that fact-checks every story before it goes live.