Arbitrum's DeFi Revival: An Analysis of the Arbitrum Foundation's Strategy
While Optimism was the first L2 with a TGE, Arbitrum was the real powerhouse behind the L2 wave. In the first half of 2023, Korean whales were live-streaming futures trading on GMX, DeFi Degens were using GLP lego bricks for Yield Farming, and grassroots communities were banding together to speculate on ancient meme coins. Arbitrum was one of the brightest sectors in the spring market of 2023. However, this ecosystem prosperity, like flowers embroidered with silk, came to an abrupt end after the epic TGE and airdrop of Arbitrum's native token ARB. Looking back from the vantage point of November 2025, the main reasons for this situation are threefold:
Key Reasons for Arbitrum's Downturn
- The huge positive externalities generated by Arbitrum's epic airdrop were seized by competitors ZkSync, Starknet, and Linea.
- The core business model of top-tier L2s at the time was not natural and organic, nor was it self-sustaining. Instead, it was highly dependent on the false prosperity created by the industrialization of airdrop farmers.
- Too much of the airdrop was allocated to ecosystem developers, most of whom were well-disguised advanced airdrop farmers. After receiving the airdrop, most of these developers lazed around, and some used the large amount of ARB in their hands to vote in DAO governance to allocate more ARB to themselves.
The best solution to the above problems is time. After nearly 30 months of settling down, the Arbitrum Foundation believes the time is ripe to launch the DeFi Renaissance Incentive Program (DRIP) to revitalize the Arbitrum ecosystem.
Arbitrum Foundation's Initiatives
The Arbitrum Foundation's first arrow is to use ARB incentives from DRIP's first quarter to subsidize the yield of ecological DeFi lending protocols (Aave, Morpho, Fluid, Euler, Dolomite, Silo, etc.) to attract on-chain users with real money. According to Dune Dashboard data (https://dune.com/entropy_advisors/drip-season-1-lending-protocols), DRIP's first quarter raised the DeFi lendable fund balance from $1.38B to $1.67B, and raised the loan balance from $967.52M to $1.17B. However, in the L2 market share ratio of the above DeFi lending protocols, Arbitrum's market share only increased from 3.09% to 3.75%. In contrast, Base's market share increased from 5.04% to 6.64% during the same period. It can be seen that in terms of attracting on-chain DeFi lending Degens, real money subsidies are still inferior to airdrop expectations with the potential for critical hits.
The Arbitrum Foundation's second arrow is to incubate new PerpDEXs that are highly coupled with the ecosystem: Variational Protocol and Ethereal Perps.
Arbitrum has a good relationship with today's PerpDEX, Hyperliquid, like a special Anglo-American relationship. Hyperliquid has bridged $4.59B USDC to Arbitrum, accounting for 69.08% of the total supply of Arbitrum USDC. However, the contribution of this $4.59B USDC to Arbitrum's revenue is only in the form of transfer gas fees, and other high-value revenue and positive externalities are captured by Hyperliquid. In this new version of the environment where PerpDEX wins the world, the Arbitrum ecosystem must have a "own" PerpDEX. The OLP mechanism of Variational Protocol has the potential to reproduce the former GLP glory of GMX.
The Arbitrum Foundation's third arrow is to deeply bind with Robinhood and work hard on the tokenization of US equities. The current Arbitrum RWA asset scale is $1,026.53M, mainly composed of tokenized US Treasury bonds, tokenized European bonds, and tokenized US stocks EXOD. There are 615 RWA assets in number, most of which are tokenized US stocks issued by Robinhood. Due to current regulatory restrictions, the structure of tokenized US stocks consists of off-chain SPV custody + CEX/DEX liquidity pool. This leads to problems such as insufficient liquidity, unclear legal status, and settlement relying on centralized entities at this stage of tokenized US stocks. However, whether it is Arbitrum x Robinhood's rapid march of US stock tokenization or Solana's new ICM narrative, they all point to a future vision set by SEC Project Crypto: the complete blockchainization of global financial infrastructure. In short, the three arrows of the Arbitrum Foundation - the DRIP plan, incubating Variational, and betting on the tokenization of US stocks - focus on the present and point to the future.
The Arbitrum Foundation is really getting things done this time.
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