- The scheme will first target DeFi loopers.
- 80 million Arbitrum tokens earmarked for the programme.
- Arbitrum’s token is down almost 80% from its 2024 peak.
Arbitrum is opening its token rewards faucet and spraying out fresh incentives to boost DeFi activity on its blockchain.
On Wednesday, Arbitrum launched the DeFi Renaissance Incentive Programme, a scheme that dangles 80 million Arbitrum tokens, worth $40 million, to woo DeFi traders onto its onchain money markets.
The first phase of the scheme focuses on looping, a DeFi strategy where traders lever up by borrowing endlessly against the same collateral to boost their yield.
It’s risky, sure, but also lucrative, and for blockchains that capture fees on every deposit and loan, it can be a major source of recurring revenue.
And Arbitrum is eyeing that revenue by dangling carrots at the loopers first. The eligible lending markets and collateral assets for the incentives cover all the major looping favourites, including Pendle derivatives.
The incentive programme comes as Arbitrum’s token is down 80% from its 2024 peak of $2.39.
Arbitrum’s token woes are part of a broader slump that has battered the layer 2 blockchain sector, including rivals like Optimism, Mantle, and Starknet.
The token rewards could add significant inflationary overhang to an already battered token.
The gamble is whether the incentive scheme will build sticky liquidity that generates significant revenue without contributing to further token price decline.
Arbitrum has enjoyed some success on the revenue front, especially with the launch of Timeboost, a transaction ordering system where traders jostle to win an auction to process their trades faster.
Timeboost has delivered about $5.4 million in total revenue and more than $3.4 million in profit for Arbitrum DAO since its introduction in April.
Still, the stakes are high for Arbitrum, having been overtaken by Coinbase’s Base as the Ethereum layer 2 blockchain with the most investor funds sloshing around in its DeFi market.
Arbitrum’s DeFi investor funds stand at $4.5 billion, while Base is at $6.8 billion, according to DefiLlama.
To be sure, Arbitrum’s overall blockchain funds still dwarf Base, according to data from L2Beat.
That’s because L2Beat’s data contains both the investor funds in their DeFi markets and other assets such as externally bridged tokens and natively minted assets, which aren’t necessarily locked into DeFi protocols.
Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. Got a tip? Please contact him at osato@dlnews.com.
