Author: Yue Xiaoyu

1. How far are we from the emergence of network states?

Initially, well-known investor Balaji wrote a book called "The Network State," proposing the concept of network states.

A network state refers to a highly cohesive online community that possesses collective action capabilities, able to crowdfund the purchase of land globally, and ultimately gain diplomatic recognition from existing sovereign states.

In this concept, the network state starts from a digital community, gradually shifts to physical existence, utilizing blockchain technology for governance and resource allocation, without relying on traditional institutions.

Ethereum founder Vitalik, also known as V God, has repeatedly mentioned and discussed this concept.

He believes that blockchain and the spirit of network states are very compatible and that blockchain is an important infrastructure for network states.

V God has even explored this concept through practical actions, the most famous being the Zuzalu experiment initiated in 2023 in the Republic of Montenegro:

This was a two-month temporary "popup city," gathering over 200 members of the Ethereum community, crypto executives, biotech entrepreneurs, and researchers, focusing on longevity science, public goods, and discussions on network states.

However, V God admitted that the subsequent steps are unclear, especially regarding governance issues, such as centralization and elitism.

2. With the maturity of infrastructure, today, Ethereum Layer 2 leader Arbitrum has proposed its vision of building a Digital Sovereign Nation.

This digital sovereign nation has three core elements:

First, it requires diverse participants and stakeholders.

The final presentation form is a DAO, with ArbitrumDAO having complete on-chain control over protocol upgrades and fund holdings.

This control is the foundation for realizing the vision of a digital sovereign nation.

Second, it requires valuable digital resources.

Here, these resources refer to Arbitrum's block space and execution environment, which are actually high-profit digital commodities.

The economics of Layer 2 allows it to retain a significant amount of network revenue, with an average gross margin of over 95% for Arbitrum One transactions.

The value generated from on-chain activities in Arbitrum can be directly accumulated into the ArbitrumDAO treasury.

Third, it needs to create economic experimental zones through fiscal deployment.

The ability to create and retain revenue enables ArbitrumDAO to reinvest assets into new projects.

These projects, in turn, will drive demand for Arbitrum's block space and activities, creating a growth flywheel.

3. If we consider Arbitrum as a country, let's look at the specifics of this country.

(1) First, this country is federal.

The largest central zone is Arbitrum One, along with 48 Arbitrum Chains.

However, this country is not a loose alliance but has strong binding and relational ties, with a common technological foundation that enables high interoperability.

These federations also have very high autonomy: they can customize gas tokens, choose their own DA (data availability scheme), and settle to.

(2) This country's GDP reaches 200 million USD.

On-chain GDP refers to the total revenue generated by applications on the network.

Among them, the three major applications, Uniswap, GMX, and Aave, account for 40.5% of Arbitrum One's on-chain GDP.

(3) The pillar industry of this country is DeFi.

Every country has its pillar industry, and for Arbitrum, the pillar industry is DeFi.

However, having only one core industry is too singular, so Arbitrum is actively expanding into other industries, such as RWA, gaming, and social.

Of course, Arbitrum hopes that its various federations will explore, meaning achieving different types of ecosystems on different sub-chains.

4. In summary

The blockchain industry is constantly giving birth to highly innovative new things.

At its core, blockchain is a technology that transforms production relationships, aiming to reconstruct current organizational forms.

Thus, the network state can be seen as the ultimate goal, a grander vision.

Arbitrum clearly positions the digital sovereign nation as its vision, which can be seen as a bold attempt.

These regional and phased experiments will ultimately lead to breakthroughs from quantitative changes to qualitative changes.

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