Arbitrum bets big on DeFi growth with risk-driven reward model
Arbitrum has launched the DeFi Renaissance Incentive Program (DRIP), a $40 million initiative aimed at boosting decentralized finance (DeFi) activity on its network. The program, designed by Entropy and powered by Merkl, is governed by the ArbitrumDAO and spans four seasons, with the first season focusing on incentivizing leveraged looping strategies on lending markets. This season, which began on September 3, 2025, and is scheduled to run until January 20, 2026, allocates up to 24 million ARB tokens. The initiative seeks to drive liquidity and reinforce Arbitrum’s position as a leading blockchain for DeFi applications [1].
The DRIP program is structured around performance-based incentives, rewarding users for borrowing against yield-bearing Ethereum (ETH) and stablecoin assets on participating lending platforms. Users can deposit eligible assets, such as weETH, wstETH, sUSDC, and syrupUSDC, and engage in leveraged looping—repeated borrowing and swapping to maximize borrowing exposure. Rewards are distributed based on the time-weighted average borrow amount, with higher rewards allocated to markets that demonstrate greater performance over each 2-week epoch [1]. This approach aligns user activity with the goal of increasing organic liquidity on Arbitrum.
The program follows a phased rollout, with the initial two epochs serving as a discovery phase to establish baseline data using only 15% of the allocated budget. As the program progresses, the focus shifts to a performance-based model, where markets and projects that contribute more meaningful innovation and liquidity receive a larger share of incentives. The bulk of the budget will be deployed during the performance phase, which aims to drive competition and efficiency among participants [1]. This structure is intended to ensure that incentives are directed toward high-performing protocols while allowing for flexibility in adapting the program based on ongoing results.
Participation in DRIP is open to any user engaging in eligible DeFi activities on Arbitrum, with no sign-up required. To begin, users must bridge their assets to Arbitrum One and select a market via the DRIP website. However, participants are reminded that leveraged strategies carry risks, including potential liquidation due to price volatility or interest rate changes. ARB rewards do not compensate for losses, and users are encouraged to monitor their exposure carefully [1]. This caution is consistent with the broader DeFi risk profile, where smart contract and market risks remain prevalent.
The first season of DRIP has already drawn support from major DeFi protocols, including Aave, Morpho, Fluid, Euler, Dolomite, and Silo. These platforms have expanded onto Arbitrum, citing the program as a catalyst for growth. Morpho, for instance, highlighted that DRIP will facilitate deeper liquidity and improved rates for DeFi Mullet integrations, such as the Earn feature on Gemini Onchain [3]. With Arbitrum already serving as the largest Ethereum layer-2 in terms of TVL and market share, the DRIP initiative is positioned to further cement its dominance by attracting both liquidity and innovation.
By structuring incentives around targeted DeFi use cases, the DRIP program underscores Arbitrum’s commitment to fostering a decentralized and community-driven ecosystem. The initiative reflects a broader trend in DeFi, where user incentives are increasingly being designed to align with specific economic goals rather than general participation. As DRIP unfolds, its success will likely depend on the ability of participants to navigate the balance between risk and reward while contributing to the broader growth of the Arbitrum DeFi landscape [3].
Source: [1] Introducing DRIP: The DeFi Renaissance Incentive Program (https://blog.arbitrum.io/introducing-drip-the-defi-renaissance-incentive-program-on-arbitrum/)
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