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The guy has gems on his arm that indicates his power level and when he increases his power level he can morph his arm into different weapons. He's fighting in this arena to beat others like him with different arenas with different obstacles and his arm can transform into a gun or wall or tree or bridge.

I also remember that the main character looks a lot like Luffy from One Piece and the art style is very similar as well.

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Is it Ueki no Hōsoku (The Law of Ueki)?

title card showing green haired main character and four other characters

Main character's powers fit with your description. Here's the gems on his arm (from Tremble! The Law of Dogura Mansion):

6/10 gems lit up

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