Arbitrum kicks off $40M incentive program with focus on leveraged looping
Season One of the DeFi Renaissance Incentive Program (DRIP) will distribute up to 24 million ARB to users
RoseRodionova/Shutterstock and Adobe modified by Blockworks
ArbitrumDAO has officially launched Season One of its DeFi Renaissance Incentive Program (DRIP), deploying up to 24 million ARB to supercharge top lending protocols.
The initiative marks the first phase of a $40 million campaign, approved by the DAO in June, to roll out targeted DeFi incentives over four seasons.
The program serves to scale capital-efficient strategies on Arbitrum by incentivizing borrowing against popular yield-bearing assets, according to Matt Fiebach, co-founder at Entropy Advisors, which helped design it.
“With the rise of LSTs and LRTs like Lido and EtherFi, yield-bearing stables such as Ethena and Syrup, and robust Pendle Markets, leveraged looping has become one of the cornerstones of DeFi,” Fiebach told Blockworks. “It’s an open secret that looping these assets is a primary driver of lending market growth today. However, a small fraction of this activity currently takes place on Ethereum L2s.”
“There is a significant opportunity to enable similar activity on Arbitrum, but doing so requires building a solid foundation,” Fiebach added. “The motivation behind DRIP’s Season One is to ensure that users on Arbitrum can loop frictionlessly with the most popular yield-bearing assets.”
Looping — whereby users deposit yield-bearing assets, borrow against them, and redeploy into the same positions — drives tens of billions in open interest on Ethereum mainnet, accounting for about 20–30% of DeFi money market activity, according to RedStone co-founder Marcin Kaźmierczak. He expects DRIP will give that percentage a boost.
“As DRIP brings more exotic collaterals into play… growth will depend on risk management tools keeping pace with innovation,” Kaźmierczak told Blockworks. “Also, we need to remember that looping is mainly around correlated assets with collateral accruing yield over time.”
The ability to double-dip on yield in this way is how DRIP aims to bring greater capital efficiency to Arbitrum, and the rewards will be structured to attract sticky liquidity rather than short-term mercenaries. Entropy plans to adjust the incentive design “continuously” to target “high-quality” capital.
“The program is structured in two-week epochs, enabling measurable iterative progress,” said Fiebach. “We believe the program design is robust, but there is no ‘free lunch’ when it comes to incentives,” he said.
Season One is live across Aave, Morpho, Euler, Fluid, Dolomite, and Silo, with ARB rewards for borrowing against collaterals like weETH, rsETH, sUSDC, and syrupUSDC.
Not included, at least initially, is Notional Finance, which made a big push to Arbitrum already in 2023 after pioneering the concept of leveraged stablecoins vaults.
Protocols were selected based on scale, traction, and alignment with Arbitrum.
In the “alignment” camp, Fiebach cited thBILL, noting that while it’s “a brand-new asset, and still relatively small in size, it is backed with RWAs that are held entirely on Arbitrum One, which we felt justified its inclusion despite its early stage.”
He added that DRIP incentives are already catalyzing deployments: “We have found incentives to be an effective tool to get deployments of applications/assets not yet deployed to Arbitrum (syrupUSDC, Morpho, Euler, etc).”
That’s already playing out. Maple Finance launched its high-yield stablecoin syrupUSDC on Arbitrum this week, integrating with Euler, Morpho, and Fluid. According to Maple CEO Sid Powell, DRIP rewards will compound Maple’s native yield and “accelerate the adoption of onchain capital markets.”
Entropy plans to publicly track DRIP’s effectiveness, via “efficiency metrics, including TVL per dollar spent and overall market share growth,” Fiebach said. “However, not all TVL is created equal; what matters most is how much of that growth remains after the program ends.”
Beyond TVL and strictly onchain metrics, Arbitrum will be looking for qualitative progress in its DeFi offerings, such as new deployments, co-incentives, and integrations.
Get the news in your inbox. Explore Blockworks newsletters:
- The Breakdown: Decoding crypto and the markets. Daily.
- 0xResearch: Alpha in your inbox. Think like an analyst.
- Empire: Crypto news and analysis to start your day.
- Forward Guidance: The intersection of crypto, macro and policy.
- The Drop: Apps, games, memes and more.
- Lightspeed: All things Solana.
- Supply Shock: Bitcoin, bitcoin, bitcoin.
