Synthetix Faces Challenges on Arbitrum, Fails to Extend Long-Term Incentive Program Grant

Synthetix, a popular DeFi protocol, is facing challenges regarding its plans for Arbitrum, a layer-2 platform for Ethereum.

DeFi protocol Synthetix has encountered a setback in its plans for Arbitrum, a layer-2 platform for Ethereum, as the community voted against extending its Long-Term Incentive Program (LTIP) grant. The goal was to support the launch of Multi-Collateral Perps, a feature that would have allowed traders to trade on margin with ETH, BTC, and USDx as collateral when initiating perpetual futures on Arbitrum via Synthetix perpetuals.

If the Arbitrum community had agreed, it would have enabled Synthetix to distribute 900,000 ARB as trading fee rebates. According to the Synthetix proposal, they aimed to incentivize users and, in turn, boost the active trading volume of Synthetix on the layer-2 platform.

While novel and a net positive for Synthetix, the ARB community ultimately deemed the extension, which would have run from September 16 through November 16, to be unnecessary. As a result, 66% of all ARB votes were cast against the extension, while only 9% supported the proposal.

With the extension being voted down by ARB holders, the launch of the Multi-Collateral Perps feature will now be delayed. As such, Synthetix users on Arbitrum will have to wait longer to trade trustless perpetuals with the ability to use a variety of margin assets.

At the same time, there will now be less incentive for users to engage in trading on Arbitrum. Fewer users will be willing to trade on Arbitrum using Synthetix perpetuals without the extension, which will have a negative impact on the DeFi trading portal.

Combining the above, engagement on Arbitrum would be impacted as Synthetix traders, who were aiming to receive the fee rebates from the 900,000 ARB, would withdraw.

What’s Next? Will ARB Recover From Record Lows?

Moving forward, it remains to be seen how Synthetix will proceed on Arbitrum, the largest Ethereum layer-2 by trading volume. As it stands, the protocol may now have to explore other methods to incentivize traders and launch the important Multi-Collateral Perps feature.

Though SNX prices might suffer, ARB might find support now that supply will be lowered. Looking at the daily chart of the ARBUSDT, sellers are in control.

After peaking in January 2024, ARB has been plunging lower, sliding by as much as 80% to spot rates. The token finds itself at critical support. If bears take over, ARB will fall, printing fresh all-time lows.