Arbitrum’s TVL is back with a new ATH. What’s the reason?

• Due to increased liquidity from STIP, Arbitrum’s TVL reached $2.7 billion.
• Active addresses and development activity have decreased.

Four months after Arbitrum’s (ARB) Short-Term Incentive Program (STIP), Total Value Locked (TVL) has hit another all-time high. Arbitrum’s TVL was $2.7 billion, according to analysis from AMBCrypto’s Artemis dashboard.

For those unfamiliar, TVL measures the overall health of a DeFi protocol. To arrive at this value, the metric looks at the total value of digital assets locked in a particular network.

More Liquidity, More Control

Simply put, a decrease in TVL means lack of liquidity in the protocol. This also means that market participants do not trust the protocol to generate sufficient returns.

However, Arbitrum’s increased TVL suggests otherwise. AMBCrypto has seen the chain’s TVL increase by 9.85% over the past 30 days. It has also become the most valuable protocol among all layer 2 chains (L2).

OP (Optimism) and zkSync Era also saw growth, but fell short of Arbitrum in that respect. AMBCrypto’s previous mention of Arbitrum’s STIP was intentional. This is because this program seemed to be the driving force behind the surge in TVL.

In October 2023, the Arbitrum Foundation reported how it developed STIP. One of the main reasons for the decision was to enable the use of ARB and attract liquidity to the Arbitrum blockchain. A few weeks later, TVL soared, showing that the decision paid off.

Again in December 2023, Arbitrum DAO approved additional budget to expand the STIP initiative. By funding additional projects, the project was able to attract more developers and users.

At press time, the total allocation was 68.68 million ARB, according to data from Dune Analytics. Of these, 38.64 million have been claimed and 10.43 million ARB tokens remain unspent.

Source: Sand Analysis

Developers and users take a break

From my perspective, Arbitrum’s TVL could be higher if more unspent tokens are used. This will also make it difficult for Optimism and zkSync Era to keep up.

As of this writing, Optimism’s TVL was $796.15 million and zkSync Era’s TVL was $131.6 million.

Additionally, Santiment’s on-chain data shows a decline in development activity on the chain. Development activity on January 29 was 8.50. These numbers mean that new features are being released by Arbitrum. However, at press time, the metric had been lowered to 7.35.

If the project attracts more developers to meet its goals, metrics could soar back to previous highs. Regarding active addresses, Santiment showed that the metric had dropped to 17,200. As of February 8, the active address reached $36,000.

Source: Santiment

Realistic or not, ARB’s OP-based market cap is:

This decline means fewer people are directly participating in ARB transactions. If the number of active users continues to decline, it may be difficult for Arbitrum network activity to increase.

However, in the long run, things may change for the better as blockchains have more liquidity and developers.