Is Loopring the Future of DeFi and NFT ?

Loopring is Ethereum's first zkRollup Layer 2 chain which enables high-throughput and low-cost trading and payment on Ethereum.

Is Loopring the Future of DeFi and NFT ?

Investment Disclaimer:

  • I am not a registered investment, legal, or tax adviser or a broker/dealer, and all opinions expressed by me are from my research for educational purposes only.
  • Past performance presented here is not an indicator of future performance.
  • This post expresses my own opinion about the cryptocurrency mentioned herein and is not an offer to buy or sell, or a solicitation of any offer to buy or sell the cryptocurrency mentioned in this post.
  • I do hold a long position in LRC as a token holder.

1A. What is Loopring?

Loopring is Ethereum's first zkRollup Layer 2 chain which enables high-throughput and low-cost trading and payment on Ethereum.

Popular products which have been built with Loopring include:
- loopring.io
- Loopring Wallet (available on both Android and iOS)

A. Loopring.io

Loopring.io is an Ethereum L2 decentralized exchange (DEX) web application where it offers gasless and blazing fast trading experiences to the end users. Users could choose to trade via an AMM (Automated Market Making)-based model or through an order book-based model where both models are supported by Loopring.io.

B. Loopring Wallet

Loopring wallet is a mobile wallet where users could trade, earn, invest and pay using the mobile wallet itself. It functions like a mix of Robinhood (where you could perform your investing/ trading activities on this mobile app itself) and Venmo (a digital wallet where you store your cash/ financial assets and pay for goods and services).

All payments and trades can be carried out on loopring wallet with zero gas fees and ultra-fast speed, just like Robinhood and Venmo, but all transactions here are maintained by decentralized Ethereum L2 blockchain which is more censorship-resistant and probably having higher uptime than the 2 apps which are running on centralized servers.  

Loopring wallet does receive a high approval rating from both Android and Apple users.

Screenshot from Google Play Store
Screenshot from Apple Store

1B. Costs of Trading on Loopring

As mentioned above, users are free to choose between trading on AMM or on its order book. Please note that the price of an identical pair could be different between these 2 models.

One-Off ETH Gas Fees in Bridging Ethereum L1 Assets to Loopring (Avoidable)

A one-time high gas fees would be incurred by Ethereum network during the very first time when you bridge your Ethereum layer-1 assets to Loopring L2.

However, this is not the only way to deposit assets onto Loopring. Depends on Ethereum network congestion, you would find it cheaper most of the time to deposit your assets via the following methods:

a. From CEX to Loopring via LayerSwap CEX Bridge
b. From other L2 to Loopring via Orbiter cross-chain bridge

Trading on AMM
- Trading on Loopring AMM would not incur any gas fees, but a 0.3% swap fees would be taken from the asset where you are swapping into.
- 0.2% of the collected swap fees would be paid to liquidity providers while 0.1% of the remaining would be paid to Loopring relayer and protocol

Trading on Order Book
- Loopring order book supports both limit order (placing a price to buy/ sell and your order would be filled once triggered) and market order (execute right away with the best bid/ ask price).
- Technically speaking, you are a market maker if you are placing a limit order and a price taker if you are placing a market order.
- Same as AMM, no gas fees would be incurred but if you trade using market order (i.e. being a price taker), 0.25% fees would be charged from you as taker fees.
- For stablecoin-to-stablecoin pairs however, only 0.04% would be charged as taker fees.

1C. Earning on Loopring

There are 2 main ways where you could earn income on Loopring, but each of them come with some degree of risk and cost.

- Providing Liquidiy to Loopring AMM

By providing liquidity to Loopring AMM, you could earn part of the 0.2% swap fees collected in accordance to your percentage share of liquidity in your liquidity pool. This however comes with the risk of impermanent loss, and a little gas fees which would need to be paid during deposit and withdrawal. These gas fees vary with L1 gas fees, but would be just at a fraction of it.  

Besides, there are also liquidity incentives being provided in LRC and other tokens for certain AMM pools. These incentive campaigns change in 28-day cycles, so keep an eye on the AMM pools page and Loopring Discord for updated APRs and cycles.

- Making Market on Loopring Order Book Using Limit Order

Market makers receive rebates on their orders that get filled on the books. The rebate is 0.02% (2 bps). So any resting limit order you have that gets taken by another user, you earn 0.02% of that amount — i.e., a negative fee!

2. Loopring Project Updates



- Loopring just launched its NFT project, Loophead earlier this year. This NFT project would launch airdrops to Loopring users throughout the year of 2022 with mechanism that rewards early adopters of Loopring and its active users.

- Loopring also released its open minting program where minting can be done under $1. Its low-cost features and robust growth profile has successfully landed itself with a NFT integration partnership with Gamestop.
- Few direct L2 on-ramps were launched, namely:
a. LayerSwap CEX Bridge (from CEX to Loopring)
b. Orbiter Cross-chain Bridge (from L2 to Loopring)
c.  BANXA Fiat On-ramp (from Fiat to Loopring)

- A Loopring HQ was launched on Decentraland

- Launch of Loopring University and Knowledge Base on Discord and YouTube



3. Loopring Tokenomics and What Determines LRC Strength



Loopring Protocol Tokens (LRC) have a maximum supply capped at 1.375 billion tokens. At the time of this writing, according to CoinMarketCap, 97% of LRC supply is already in circulation. LRC tokens would be used to incentivize behaviour that is beneficial to Loopring ecosystem.

Trading volume could be one of the main determinants of LRC stregth. As Loopring derives its revenue from all transactions that are happening on Loopring chain, a greater trading volume would generate more fees to the protocol, hence attracting more liquidity providers to its ecosystem.

Larger trading volume =>More protocol fees => Higher yield to existing LP providers => Attracting new LP providers => Increasing LRC overall Total Value Locked (TVL)

Protocol fees are collected from the tokens where users are buying (refer to 1B). Fees accrued in tokens other than LRC and ETH will be sold for LRC and/or ETH and all protocol fees are distributed in LRC and/or ETH. As more non-LRC tokens are being traded, a greater amount of these non-LRC protocol fees would be collected and eventually being sold for LRC, increasing LRC's relative strength to other tokens.


4. Analysis of Loopring's Transaction Volume


For the purpose of this analysis, transaction volumes of all LRC trading pairs (i.e. MASK-LRC, LRC-ETH, LRC-USDC, LRC-USDT and LRC-WBTC) are collected using Loopring API from Jan 2021 to current month.


Based on the trend observed, it seems that the overall  transaction volume is declining in year 2022 as compared to 2021. However, this issue is more on a macro-driven issue rather than a micro or blockchain specfic one. The same thing was observed too in Trader Joe which has been covered earlier this week.

One of the explainations on this scenario is the global tightening of monetary policies around the world, which would make risk-free government securities more attractive to institutional investors and hedge funds due to increased interest rate hike. Besides, Federal Reserve has also slowed down its quantitative easing program (a program where Fed pumps money into the economy by buying bonds from the financial institutions).

As a result, in the environment where fiat money is harder to obtain and circulates less in the economy, some of these funds which have been holding crypto assets during the pandemic period (2020 - 2021) when rates were close to zero at that time have sold a significant portion of their crypto assets in exchange of risk-free assets by the end of 2021.

The significant drop in Loopring's transaction volume going into 2022 also causing its price to drop from its all-time-high at $ 3.86 to its current level below $1.

5. How Loopring Performs Relative to Other Cryptos ?

Performance of All DEX-Themed Cryptos Under Quantdoge’s Watchlist since 2021 (Sorted by % Return)

LRC has undergone 433.35% return from USD 0.1754 to USD 0.9355 since 01 Jan 2021.

Market Cap Growth of All DEX-Themed Cryptos Under Quantdoge’s Watchlist since 2021 (Sorted by % Change in Market Cap)

LRC market cap has increased 431.02%  from  $ 218.93M to USD $1.16B since 01 Jan 2021.

LRC is the 11th best performing crypto assets among others here by market cap growth.

Despite being the 4th in terms of price return, LRC's market cap still lagged behind many DEX projects where their price return is not as great as LRC. This signifies that LRC still have a huge potential to grow as it's not yet maximized on its growth potential, and its growth is increasing at a steep rate.

6. Risk Profile of LRC Token

According to Investopedia, Value-at-Risk is defined as:

A  statistic that quantifies the extent of possible financial losses within a firm, portfolio, or position over a specific time frame. This metric is most commonly used by investment and commercial banks to determine the extent and probabilities of potential losses in their institutional portfolios.

Based on the 100-day 95% historical Value-at-Risk (VaR) profile of Loopring Protocol Token defined above, LRC seems to trade at a lower risk level on 20 Apr 2022 as compared to 10 days before on 11 Apr 2022, with its biggest pullback being seen at -20.53% on a single day during the last 100 days. However, I could be wrong, hence please make your careful due diligence before making any financial decision.

7. LRC Community Analytics

LRC has the largest number of Reddit community among other comparable DEX projects !

Recorded as of 20 April 2022

8. Binance Futures Analytics

LRC-USDT futures were in a net selling position this month, with selling volume overweigh its buying volume.

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