ArbitrumDAO has rolled out Season One of its DeFi Renaissance Incentive Program (DRIP), allocating up to 24 million ARB tokens to enhance leading lending protocols. This initiative represents the first step in a larger $40 million campaign, which received approval from the DAO in June, aimed at introducing targeted DeFi incentives across four seasons.
The program is designed to promote capital-efficient strategies on the Arbitrum network by encouraging borrowing against popular yield-bearing assets. Matt Fiebach, co-founder at Entropy Advisors, the firm that helped design the program, emphasized that leveraging strategies such as looping of yield-bearing assets is crucial for the growth of lending markets. However, much of this activity is currently dominated by Ethereum’s mainnet, with only a small fraction occurring on Ethereum Layer 2 solutions like Arbitrum.
Fiebach pointed out that while there is considerable potential to replicate this success on Arbitrum, establishing a reliable framework is essential. DRIP’s Season One aims to facilitate seamless looping for users by integrating popular yield-bearing assets more effectively into the platform.
Looping, the practice of depositing yield-bearing assets, borrowing against them, and then redeploying into similar positions, generates significant open interest on Ethereum, accounting for approximately 20–30% of DeFi money market activity. Marcin Kaźmierczak, co-founder of RedStone, expressed optimism that the DRIP initiative will increase this percentage, particularly as it introduces a broader range of collateral options.
He also noted that as more complex collateral types come into play, the sustainability of this growth will heavily rely on the advancement of risk management tools. Kaźmierczak highlighted that looping typically revolves around correlated assets that accrue yield over time.
The DRIP initiative intends to enhance capital efficiency on Arbitrum by enabling users to double-dip on yield. To attract stable liquidity rather than temporary participants, rewards will be structured strategically. Entropy plans to adjust the incentive structure continuously to focus on attracting high-quality capital flows.
The program operates through two-week epochs for measurable progress. Fiebach remarked on the rigor of the design, stating there is no “free lunch” when it comes to incentives, underscoring the need for ongoing evaluation.
Currently, Season One is live across multiple platforms, including Aave, Morpho, Euler, Fluid, Dolomite, and Silo. ARB rewards are specifically available for borrowing against collateral types such as weETH, rsETH, sUSDC, and syrupUSDC. Notably, Notional Finance, which has already established a presence on Arbitrum this year, was not included in the initial rollout, despite its significant contributions to leveraged stablecoin vaults.
The selection of protocols for DRIP was based on their scale, traction, and compatibility with the Arbitrum ecosystem. Fiebach cited thBILL as an innovative addition, despite it being a newer asset, due to its backing with real-world assets entirely held on Arbitrum One.
The incentives have already lured new projects to the platform, fostering additional deployments of applications and assets not previously available on Arbitrum. Maple Finance recently introduced its high-yield stablecoin syrupUSDC onto the Arbitrum ecosystem, integrating with Euler, Morpho, and Fluid, as CEO Sid Powell noted that DRIP rewards are set to enhance Maple’s native yield while promoting on-chain capital markets’ wider adoption.
Entropy plans to ensure public tracking of DRIP’s effectiveness through efficiency metrics, assessing total value locked (TVL) per dollar spent and overall market share developments. Fiebach stressed that not all TVL is equal; the focus will be on how much growth remains after the program concludes. Additionally, Arbitrum will evaluate qualitative improvements in its DeFi landscape, including new deployments and integrations.
