Is COTI the Next Arbitrum for Privacy? A Layer 2 Face-Off

As Arbitrum dominates scale, COTI rises with a new value proposition: encrypted, compliant computation.

The Layer 2 ecosystem has been dominated by chains racing for scalability and low fees. Arbitrum has emerged as one of the leaders in this field, offering Ethereum compatibility with high throughput and thriving developer adoption. But as the Web3 space matures, a new kind of need is emerging - confidentiality.

Enter COTI V2, a Layer 2 focused not just on scaling Ethereum, but encrypting it. Using Multi-Party Computation (MPC) powered by Garbled Circuits, COTI V2 brings a first-in-class approach to privacy-first smart contracts. So how does it compare to Arbitrum? Let’s explore.

Arbitrum vs. COTI: A Tale of Two Architectures

Arbitrum:

• Type: Optimistic Rollup on Ethereum
• Focus: Public smart contracts, DeFi, composability
• TPS: Up to ~40,000 theoretical (practical depends on use case)
• Privacy: None natively
• Dev Stack: Full Solidity support, rich ecosystem

COTI V2:

• Type: EVM-Compatible Layer 2
• Focus: Encrypted smart contracts, compliance, real-world apps
• TPS: ~1,000 native | ~40 for encrypted contracts
• Privacy: Native encrypted computation via Garbled Circuits
• Dev Stack: Solidity + custom SDK for encrypted logic

Where Arbitrum is about throughput and public state, COTI V2 is about privacy and encrypted execution without compromising usability.

Encrypted vs Transparent Computation

Arbitrum's model is fully public. Every smart contract, transaction, and interaction is visible. Great for transparency, not so much for apps dealing with sensitive data like:

1. Identity

2. Financial records

3. AI decisions

4. Healthcare or legal data

COTI solves this through Garbled Circuits, a cryptographic method that allows computations on encrypted data. Combined with its MPC architecture, it enables Privacy-on-Demand, a unique feature that lets developers toggle confidential logic and embed regional compliance.

Use Cases: Different Chains, Different Worlds

Arbitrum Is Ideal For:

• Traditional DeFi (AMMs, lending protocols)
• DAOs and token governance
• GameFi with public economies
• Public NFT marketplaces

COTI V2 Is Built For:

• Confidential AI agents

•  Encrypted DeFi vaults and private asset management

• Region-based compliance dApps
• Mental health, whistleblower platforms, anonymous voting
• On-chain KYC/AML logic embedded per smart contract

Ecosystem & Growth Trajectory

Arbitrum:

1. $2B+ TVL

2. Dozens of live DeFi apps

3. DAO governance with ARB token

COTI V2 (early stage):

1. Key apps: Carbon DeFi, COTI Agents, Crafter, Poolz, CodeX

2. Growing builder base via grants and partnerships 

3. Privacy-focused tools not found in traditional rollups

The opportunity with COTI lies in its differentiation, not its size (yet).

Conclusion: The Privacy Race Has Just Begun

COTI is not here to beat Arbitrum at its own game - it’s here to play a different one. While Arbitrum will continue leading in public-scale applications, COTI V2 is carving a niche in encrypted, regulated computation. These two models can coexist. In fact, they may complement each other: public state and private state, each powering a different side of the future Web3 stack.

As regulation tightens and users demand privacy, COTI’s Garbled Circuits may prove to be the key infrastructure primitive many developers never knew they needed.

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