Layer 2 race heats up as Loopring (LRC) price gains 430% in 2021


Cross-chain bridges and layer two solutions have become a hot topic of conversation in recent weeks, as protocols compete to offer the best solution to soaring transaction costs on the Ethereum network.

While much of decentralized finance (DeFi) has focused on building a large multi-chain ecosystem following the recent emergence of Binance Smart Chain and Avalanche, those who want to stay on Ethereum have turned to Layer two solutions like Loopring have their preferred method of escape.

A recent report from Delphi Digital identified the decentralized Loopring exchange (DEX) as one of the main contenders for layer two, as it has already settled a volume of $ 590 million in 2021.

Daily loop volume vs. AMM percentage vs. order book percentage. Source: Delphi Digital

As noted above, the decision to launch an Automated Market Maker (AMM) as part of Loopring v3 has led to increased engagement on the platform, and this represents 60% to 90% of Loopring’s total volume.

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Gas prices on the Ethereum network started to rise in late December 2020, coinciding with an increase in the number of unique wallet addresses interacting with Loopring. This suggests that a number of Ethereum users had already migrated to the second layer of Loopring to escape the high charges on the mainnet.

The number of wallets interacting with the Loopring DEX. Source: Delphi Digital

Delphi Digital analysts have issued a word of warning, as Loopring’s native LRC token currently represents more than 40% of the nearly $ 250 million total locked-in value (TVL) on Loopring v3.

For comparison, UNI represents 3.4% of TVL on Uniswap, while SUSHI represents 6.5% of TVL on SushiSwap. While LRC’s dominance in Loopring’s TVL has been on the decline, and this figure needs to decline further in order to show a good amount of liquidity for other tokens.

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DEX fees add value to Loopring

One area where LRC beats UNI and SUSHI is in the price / sales ratio, with LRC currently having a ratio of around 155, while the value is less than 6 for UNI and SUSHI.

Data from TBEN Markets and TradingView show that the price of LRC has risen more than 430% since January 2, from $ 0.165 to $ 0.89 on February 12. Altcoin also hit a new all-time high trading volume of $ 1.23 billion on January 12, 5 as the incentives to extract liquidity from layer two AMMs were launched.

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4 hour LRC / USDT chart. Source: TradingView

Despite the recent hype around cross-chain solutions dating back to the days of the “Ethereum killer”, it would be wise to note that the larger DeFi protocols on Ethereum are engaged in the network through the adoption of a layer two infrastructure like Optimism and zk -Rollups.

Loopring’s decision to focus on scalability rather than attracting users is now paying off, as ERC-20 token holders readily look to the project’s working solution.

What remains to be seen is whether a large amount of cash will follow or wait for Layer One DEXs like Uniswap to roll out on Optimism as a way to lower transaction costs.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move comes with risk, you should do your own research when making a decision.