Offchain Labs raises $3.7 million to develop Layer 2 scaling solution

Offchain Labs, a New Jersey-based startup that aims to make smart contracts more private, secure, and scalable using a combination of protocol design, incentives, and virtual machine architecture, today announced it has raised a $3.7 million USD seed round led by Pantera Capital. Additional backing also came from Compound VC, Raphael Ouzan of Blocknation, Jake Seid (Managing Director of Stone Bridge Ventures), and others.

The funding will be used to grow the team of developers to build Offchain Labs’ blockchain-agnostic Layer 2 scaling solution, Arbitrum. Offchain Labs is close to releasing its prototype, which seeks to lower the barrier to entry for businesses seeking the advantages of blockchain, without the disadvantages that hold back adoption today.

Arbitrum is led by Professor of Computer Science at Princeton and former Deputy CTO to the White House, Ed Felten, as well as a team of academics and Ph.D. technologists, including Steven Goldfeder and Harry Kalodner. Using a mechanism design to incentivize parties to agree off-chain how a virtual machine would act, Arbitrum streamlines the execution of smart contracts in that miners only need to verify digital signatures, rather than every part of the contract, to confirm a virtual machine’s actions.

[perfectpullquote align=”full” bordertop=”false” cite=”Joey Krug, Co-Chief Investment Officer at Pantera Capital” link=”” color=”” class=”” size=””]“At Pantera, one of the biggest problems we see in the blockchain industry is that dApps face scalability challenges. The team behind Offchain Labs has developed a novel solution to this issue with Arbitrum, and we’re enthusiastic about this platform’s potential to help dApps really take off. The unique properties of Arbitrum allow it to serve as a great Layer 2 scalability solution.”[/perfectpullquote]

Arbitrum will enable both sidechains and state channels for sophisticated off-chain execution, with support for optional smart contract privacy. The Layer 2 protocol incentivizes the parties involved in a contract to mutually agree to a sequence of messages and operations off-chain, only posting a single transaction on-chain. Through the ‘AnyTrust’ consensus mechanism, Arbitrum will guarantee correct behavior for each transaction, even if only one of a contract’s validators is acting honestly. The platform’s interoperability with Ethereum and the accessibility that Arbitrum will provide in allowing programs to be coded in any computer language, provides a seamless use case for enterprise and developer adoption. Offchain Labs will target the gaming industry, financial applications, and consortium blockchains for initial use cases of Arbitrum.

[perfectpullquote align=”full” bordertop=”false” cite=”Co-founder of Offchain Labs, Ed Felten” link=”” color=”” class=”” size=”17″]“With Arbitrum, we have invented a protocol that sits on top of any blockchain, with the ability to execute code and transactions off-chain through either sidechains or state channels. With increased privacy and scalability, as well as much lower costs to run a contract, Arbitrum adds immense value to developers and enterprises. We believe it can create a new wave of quality, blockchain-based applications, and services. Arbitrum has the capability to serve as an enhancement layer to blockchains because it greatly increases speed of transactions, as well as limits the public exposure of contracts and information to companies and individuals that need to know. It adds value to developers because it is interoperable with Ethereum. Developers can easily move any service, dApp, or token from Ethereum to Arbitrum, and gain significant privacy and scalability advantages.”[/perfectpullquote]