Arbitrum has launched the DeFi Renaissance Incentive Program (DRIP), a $40 million initiative designed to stimulate leveraged looping and boost liquidity in its decentralized finance (DeFi) ecosystem. The program, managed by Entropy Advisors and powered by Merkl, spans four seasons, each focusing on a different DeFi vertical. Season One, titled “Loop Smarter on Arbitrum,” began on September 3, 2025, and is set to conclude on January 20, 2026. It allocates up to 24 million ARB tokens (valued at $12 million at the current exchange rate) to incentivize users to engage in leveraged looping strategies on Arbitrum One’s lending markets. This represents a 30% portion of the total 80 million ARB allocated across the entire program.

Under DRIP, users can earn rewards by borrowing against yield-bearing ETH and stable assets on participating lending platforms. For instance, a participant might deposit syrupUSDC and borrow USDC, which is then swapped for more syrupUSDC, repeating the cycle to maximize ARB rewards. The program’s performance-based model ensures that rewards are distributed proportionally to the time-weighted average borrow amounts. Each epoch, lasting two weeks, concludes with a reward distribution based on the total ETH or USDC borrowed during that period. In select markets, rewards are also provided for supplying ETH or USDC, encouraging both liquidity provision and active borrowing.

The phased rollout of Season One includes a discovery phase, where only 15% of the budget is allocated over the first two epochs. This is followed by a performance-based phase, where incentives are dynamically allocated to markets that demonstrate greater efficiency and innovation. By the third phase, the majority of the season’s budget will be deployed. This structure aims to optimize liquidity distribution and encourage competition among lending platforms while minimizing initial risks for participants.

Arbitrum’s DRIP program follows a broader strategy to enhance its position as the leading Ethereum Layer 2 blockchain for DeFi. The initiative is part of a series of efforts by the ArbitrumDAO to address the challenges posed by rival platforms like Coinbase’s Base, which currently holds $6.8 billion in DeFi investor funds compared to Arbitrum’s $4.5 billion. Despite these pressures, Arbitrum remains the largest Layer 2 by total blockchain funds, according to L2Beat, due to the inclusion of natively minted and externally bridged assets. The DRIP program, alongside the recently launched $14 million Arbitrum Audit Program, is intended to strengthen Arbitrum’s security, liquidity, and overall appeal to developers and users.

While the incentives are significant, the program carries inherent risks. Leveraged strategies such as looping expose users to potential liquidation if asset prices or interest rates fluctuate, and ARB rewards do not offset any financial losses incurred. Additionally, the increased supply of ARB tokens—already down 80% from its 2024 peak—could exacerbate inflationary pressures and further depress token value. This creates a strategic gamble for Arbitrum: while the program may generate sticky liquidity and recurring revenue, it also risks undermining token price stability.

The DRIP program is governed by the ArbitrumDAO and managed by Entropy Advisors, with no direct control from the Arbitrum Foundation or Merkl over program parameters or asset allocations. This community-driven approach aligns with the broader DeFi ethos of decentralization and user empowerment. By rewarding specific, high-impact DeFi activities rather than general participation, DRIP aims to drive targeted growth in Arbitrum’s ecosystem. As the program progresses, ongoing performance data and adjustments to future epoch allocations will be available through the DRIP dashboard, providing transparency and adaptability in response to market dynamics.

Source: [1] Introducing DRIP: The DeFi Renaissance Incentive Program on Arbitrum (https://blog.arbitrum.io/introducing-drip-the-defi-renaissance-incentive-program-on-arbitrum/)

[2] Arbitrum floats $40m token incentive reward for DeFi users (https://finance.yahoo.com/news/arbitrum-floats-40m-token-incentive-164131830.html) [3] Arbitrum’s DRIP program: A major initiative for DeFi growth (https://www.cryptopolitan.com/arbitrum-allocates-40m-defi-growth/)