My ranch uses chips/mulch, thankfully only in one arena. My biggest beef is that it isn't "mulched" enough. There can be some pretty big "chips" in there, and it can be quite dangerous if you fall off (large branch pieces can and do pierce the skin), not to mention the horses lower legs. Also, the chips get stuck in the horses foot, but that is easier to manage. I did come off my horse once in there, and although I was lucky and didn't get stabbed by anything, the footing there certainly wasn't enough cushion to keep me from cracking my tail bone. Maybe if you made sure it was finer, and spread it evenly (just like sand) it could work.