Cross-chain bridges and layer two solutions have become a major topic of conversation in recent weeks as protocols compete for the best solution to skyrocketing transaction costs on the Ethereum network.
While the focus of decentralized finance (DeFi) following the recent development of Binance Smart Chain and Avalanche has been on creating a sprawling multichain ecosystem, those who want to stick with Ethereum have opted for Layer Two solutions like Loopring as their preferred method of escape.
In a recent report by Delphi Digital, Loopring’s decentralized exchange (DEX) was identified as one of the top Layer 2 competitors, as the volume reached $ 590 million as early as 2021.
Loopring daily volume vs. AMM percentage vs. order book percentage. Source: Delphi Digital
As shown above, the decision to start an automated market maker (AMM) as part of Loopring v3 resulted in increased engagement on the platform and accounts for 60% to 90% of Loopring’s total volume.
Gas prices on the Ethereum network began to rise in late December 2020, which coincided with an increase in the number of unique wallet addresses that interact with Loopring. This suggests that a number of Ethereum users had already migrated to the second level of Loopring in order to avoid high fees on the mainnet.
The number of wallets that will interact with the Loopring DEX. Source: Delphi Digital
Delphi Digital analysts were cautious as Loopring’s native LRC token currently accounts for more than 40% of the nearly $ 250 million in Total Value Locked (TVL) on Loopring v3.
For comparison: UNI accounts for 3.4% of the TVL on Uniswap, while SUSHI accounts for 6.5% of the TVL on SushiSwap. While LRC’s dominance in Looprings TVL has been on the downtrend, this number needs to be further reduced to show a healthy amount of liquidity for other tokens.
DEX fees bring added value to Loopring
One area where LRC beats UNI and SUSHI is in value for money, with LRC currently having a ratio of around 155 while UNI and SUSHI are below 6.
Data from Cointelegraph Markets and TradingView show the price of LRC has increased more than 430% since Jan 2nd, rising from $ 0.165 to a high of $ 0.89 on Feb 12. The altcoin also hit a new record trading volume of $ 1.23 billion on January 1st. 5 were initiated as second tier AMM liquidity mining incentives.
LRC / USDT 4 hour chart. Source: TradingView
Despite the recent hype about cross-chain solutions dating back to the days of the “Ethereum killer”, it is wise to note that the largest DeFi protocols on Ethereum are committed to the network through the introduction of Layer 2 infrastructures such as Optimism and zk will rollups.
Loopring’s decision to focus on scalability rather than attracting users is now paying off as ERC-20 token holders are willingly coming to the working solution of the project.
What remains to be determined is whether a large amount of liquidity will follow suit or will wait for Optimism to deploy Layer-One DEXs like Uniswap to lower transaction costs.
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