Arbitrum Season is Here
Over the next two months, Arbitrum STIP incentives are set to be released, with $55M $ARB to be distributed to native projects.
The ecosystem is witnessing a surge in user participation, driven by the pursuit of optimal returns. Consequently, protocols offering the highest yields are positioned to capture most of the capital and user flow, potentially translating to positive tailwinds for their native tokens.
When the STIP was first proposed, many ecosystem tokens surged as traders rushed to position themselves ahead of this narrative
.The liquidity influx also saw Arbitrum’s TVL increase by 27%, and even now continues to cement Arbitrum’s place as the leading L2.
As capital surged into Arbitrum, protocols reaped the benefits, leading to a notable increase in the value of many ecosystem tokens. In this analysis, we examined the performance of tokens associated with protocols that secured the STIP grant. We created an equally weighted basket comprising of these tokens to gain a comprehensive perspective on overall token performance.
In general, a majority of the tokens have outperformed $ETH, with a few underperforming it. Notably, Arbitrum native tokens are among those that have outperformed, , whereas tokens showing underperformance are typically multi-chain assets.
It's worth noting that only 4 out of the 17 protocols exhibit grant-to-TVL ratios surpassing 0.2. This suggests that users engaging in farming $ARB rewards would likely require substantial capital to optimize their profitability.
There are another 27 protocols that have successfully passed the STIP snapshot vote yet did not secure funding. Nevertheless, there is a back funding proposal currently in motion aiming to distribute 21.4M $ARB in additional funding to these projects.
The improving market conditions have compounded the positive effects of Arbitrum's STIP stimulus. Additional catalysts, such as $ARB staking in December and the upcoming EIP-4844 upgrade in Q1 2024, add another exciting dimension to the ecosystem.
However, a significant $ARB token unlock for March ‘24 could introduce substantial selling pressure to $ARB. In total, 1.11b $ARB, constituting 87.2% of the circulating supply will be distributed to the Arbitrum Team and Investors.
While the unlock might represent a significant obstacle for $ARB in the medium term, these other catalysts could be strong enough to mark the start of the long-awaited Arbitrum season. Nevertheless, it remains to be seen whether the short-term impacts of the grant and the upcoming catalysts have sufficient momentum to drive sustained network growth.