Vertex Protocol Sees Growth Amidst Arbitrum’s STIP

Per Arbitrum’s AIP-9 vote that was proposed on September 22nd, the Arbitrum DAO recently rolled out its Short-Term Incentive Program (STIP) to provide additional incentives to DeFi users within its ecosystem. A total of 29 protocols were approved to take part in the STIP, as the DAO looked to push further adoption, growth, and activity on Arbitrum.

November marked the beginning of the STIP incentives, and both November and December have seen a significant uptick in fees and total revenue on Arbitrum. In the month of October Arbitrum cleared just over $1m USD in revenue, and $1.4m in December, seeing roughly a 40% increase. Fees have increased at an even higher rate, growing from $2.42m USD in October to $8.54m in December.

The STIP stimulated an array of sectors within DeFi including DEXs, Perpetuals, Lending, Yield and Yield Aggregation, Options, Gambling, Collateralized Debt (CDP), and Stablecoins.

Source. Arbitrum Fees & Revenue: DeFiLlama

Pre-STIP vs Post-STIP

The primary goal of the Arbitrum STIP was to increase the audience size and general activity on the Arbitrum network.

Before incentivization began in November, perpetuals platforms such as GMX and Vertex Protocol commanded the lion's share of TVL on Arbitrum and naturally continued to do so Post-STIP. Nearly all the sub-sectors that received STIP grants noticed increased TVL throughout the first month, however the Lending market actually saw a slight decrease in total TVL during this period.

Source. TVL Per Sector: OpenBlock Labs

While metrics such as TVL multiply easily on significantly smaller protocols, the day-to-day growth indicates that even throughout this incentivization period more users are not just trying new platforms, but they are staying on new platforms.

Vertex Protocol’s Growth

During the STIP incentivization period many of the smaller protocols started claiming a larger percentage of TVL and volume within their subsector. This is demonstrated clearly in the perps market for example, where market leader GMX’s TVL increased by roughly 25%, while Vertex Protocol’s TVL rose by 280%. With growth in both TVL and volume traded, Vertex has now moved into the top 10 DEX’s by daily volume across all networks at the time of writing.

Source. Vertex Cumulative Volume: Dune

This increase in market share against other DEX-perps on Arbitrum has been a testament to the effectiveness of the DAO’s STIP. Between the usage-incentives and a reduction in fees during mid-December, Vertex Protocol has gathered significantly more activity than it did prior to the start of the incentivization period.

Effectiveness of the STIP

Arbitrum provides users with a DeFi-rich L2 ecosystem. As the broader crypto markets continue to heat up, Arbitrum is looking to double down on its identity as a dominant DeFi Layer 2. With the largest number of active protocols amongst Layer 2’s, programs such as the STIP allow for DeFi participants to expand into some of the smaller platforms on the chain.

So far the STIP has proven to be effective in drawing more attention to Arbitrum and the products built on it. This doesn’t only apply on a per-dApp basis, but across the entire ecosystem. Since the start of November Arbitrum has seen an increase in the strength of inflows. After touching a TVL as low as $1.6b USD in mid-October, the TVL now sits at $2.6b following two months of consistent flows into Arbitrum.

Source. Net Flows: DeFiLlama

While many market participants have come to take advantage of extra yield and rewards, others are likely to have found some of these Arbitrum-native protocols to their liking. The stability of these numbers moving further into and eventually beyond the incentive program in April 2024, will be telling of its true effectiveness.