On the rollup scene, we have nearly seen somewhere around 69 new L2s (a totally made-up figure, but you get the point) launch or go to market between January and summer.

Yet, Arbitrum still reigns supreme, boasting the highest total value locked (TVL) among Ethereum rollups.

What this invariably entails is that Arbitrum remains the go-to hub for users and protocols, with more native protocols than any of its competitors.

It's no wonder that DeFi and derivatives are the top market segments on Arbitrum, driving innovation and growth in the ecosystem.

Source: Defillama

Speaking of DeFi and derivatives on Arbitrum, throughout the year, we have covered a few native protocols that fall within both categories.

Some of them, like Tapioca, on the side of DeFi, have caught the public eye and are on the journey to kickstart a new narrative in community incentivization.

On the other hand, on derivatives, one of the protocols that we’ve explored is Perennial, an Arbitrum-native protocol designed to be a hyper-efficient liquidity layer for derivatives trading.

For an exhaustive read on how Perennial works, we’d recommend going over our previous article. However, for you lazy folks, here’s a primer to help you grasp the main point.

Perennial Primer

Perennial functions as a peer-to-pool system using decentralized oracle networks and a modular architecture that allows innovative derivatives to be built on top of it, achieving a plug-and-play experience with sufficient shared liquidity for even the most exotic derivatives.

But that’s not all; it’s driven by a fully on-chain automated market maker (AMM), enabling Perennial to execute trades directly at prevailing market prices.

Perennial operates an isolated pool, thereby reducing contagion risks, settling trades in fiat, and determining funding rates based on pool utilization—all with zero slippage!

Moreover, since we last spoke about them, they’ve kept their gloves on, hitting milestones and progressing to become the choice liquidity layer for derivatives building natively on Arbitrum and other chains.

For example, our last article was authored just after the release of Perennial v2.1 and promised the release of the next version.

Since then, Perennial has released v2.2, bringing to its plethora of features additional ones such as a shift of settlement from USDCe to USDC, improved market balancing mechanics, a non-linear price impact curve, and Chainlink data stream integration.

These features, integrations, and partnerships set Perennial on course to become, in their words, “the connective tissue of DeFi—a global liquidity layer that links liquidity from every protocol and every chain.”

But no kidding. To achieve this, Perennial will need to do more than the above; it’ll require lots of cross-network partnerships and incentives, allowing Perennial to spread its tentacles quite thoroughly.

At first, there was the initial incentive program, rewarding traders on the platform with over 750k ARB tokens over a 12-week period.

Looking back at the results of this incentive campaign, we can say that Perennial has made significant progress in achieving some of the following:

• Trader growth with an increase in notional trading volume up to $500m and a 723% increase in time-weighted open interest (OI), as well as a 153% increase in unique trader retention.

• For maker growth, Perennial achieved liquidity depth, showcased by a 3x increase in absolute TVL and a 6x increase in total liquidity. Liquidity provider churn was lowered by 24%, and maker diversity was achieved with an increase in pro maker and vault utilization by 4x

• A lot more capital efficient, offering up to 5.5x more in liquidity to traders when compared to other protocols

• And ecosystem growth with more teams building on Perennial than before the incentive program  

While all of these stand out, one of the most important or rather significant strides that Perennial has succeeded with is in its incentive and expansion partnership with Kwenta.

Perennial and Kwenta Partnership and Incentive Program

Kwenta is a decentralized perpetual exchange that gives traders access to dozens of markets with up to 50x leverage. It is the leading perp DEX on Optimism and Base and is looking to expand into Arbitrum.

This is where Perennial comes in. Perennial v2 will provide infrastructural support for Kwenta’s UI and UX layer, taking advantage of Perennial’s efficient and broad liquidity to power a comprehensive marketplace for on-chain perpetuals.

To accelerate their partnership, both parties are joining forces to launch an incentive program that’ll onboard new users or traders who will trade on Kwenta with Perennial underneath.

The incentive program will focus on onboarding incentives wherein new users will receive rewards for signing up or joining Kwenta on Arbitrum and placing trades. The program will also activate trading rebates focused on driving trading volume and retaining users. Lastly, the incentive program will boost liquidity through incentives for liquidity providers.

Kwenta and Perennial’s incentive partnership will see the distribution of 1.9 million ARB tokens across the three-month incentive period, which will be sufficient to meet the demands of the incentive program.

For more info on the incentive model and mechanism, check out the proposal on Tally.  

Concluding thoughts

Community, user engagement campaigns, and innovative products remain central to Arbitrum’s growth as it continues to be home to many derivative products.

Perennial and Kwenta are leveraging their strengths with these three aforementioned aspects of growth to accelerate product growth on both sides rather than locking horns competitively.

The choice to collaborate is not new and can be said to be some sort of Arbitrum culture as lots of projects have chosen to collaborate in the past before Perennial and Kwenta, such as GMD and Jones DAO building GLP-based vaults, launches on Camelot, as well as a synergy between Silo and Dolomite.

There’s an air of excitement at what both parties (Kwenta and Perennial) can achieve in tandem, both of them with uptrending metrics that further align with Arbitrum's positioning as a market leader amongst other networks in innovative DeFi and derivatives.