Why Loopring's zkRollup AMM is Such a Big Deal?

Why Loopring's zkRollup AMM is Such a Big Deal?

By DrBreakThru | PayAttention | 4 Dec 2020


On December 2, 2020, Loopring (LRC) – a zkRollup-powered decentralized exchange and payment protocol – launched its AMM based on their improved Ethereum zkRollup implementation Loopring 3.6. 

The launch of Loopring’s layer 2 Automated Market Maker (AMM) is a true game-changer. It’s the industry-first layer 2 AMM and it brings the ability to do gas-free, instant swaps, and gas-free, instant adding/removing liquidity as a liquidity provider.

Loopring’s AMM launch differs from their orderbook-based DEX and is a highly popular and sought-after DeFi product. It’s a lot like Uniswap but even faster and you don’t pay gas fees, which is a significant strong point for Loopring’s layer 2 AMM.

That said, Loopring’s launch of zkRollups for AMMs is a very big deal and should not go unnoticed.

But guess what?

DeFi news is kind of flying under the radar right now as Bitcoin reaches new ATHs. People are barely paying attention to these types of breakthroughs, which would surely steal the spotlight back in September. 

That said, take a moment and pay attention to this groundbreaking development. Loopring’s layer 2 AMM is live. Here's what that means and why it’s such a big deal.

The Problem of Layer 1 AMMs  

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(Source)

I’ve written about Layer 1 AMMs like Uniswap, Balancer, and Bancor before – if you haven’t already seen those pieces, be sure to check them out. 

These three AMM protocols, however, share the same main issue – they reside on layer 1 of Ethereum, which means their operations are slow and expensive, reaching crazy fees for a simple swap or token pooling.

It’s already widely known and established that layer 1 of Ethereum doesn’t scale. Vitalik Buterin himself has urged Ethereum developers and users on multiple occasions to start using layer 2 scaling solutions such as “zkRollups”:

Developing dapps and protocols solely on Ethereum layer 1 is a thing of the past and ETH 2.0 and layer 2 scaling solutions are the future. 

Those are the facts. Period.

Layer 1 of Ethereum simply cannot handle the throughput that’s needed by many of the leading AMM DeFi applications of today. We have seen time and time again, the Ethereum network gets completely congested to the point where transaction fees go through the roof and transactions either fail or take hours and even days to confirm. 

How can we expect Ethereum to reach the masses if every time someone wants to make a simple token swap on an AMM, they have to pay exorbitant fees and wait hours on end? 

While some may argue it only got bad during the DeFi craze in August and September, let me tell you, that period of mass congestion wasn’t just a one-time thing. We’re going to experience another DeFi craze that’s magnitudes larger than the last one and if developers and users don’t start using Layer 2 AMMs, it’s not going to be pretty.

That said, thank god we now have viable layer 2 scaling solutions like Loopring’s zkRollup Layer 2 AMM. Solutions like this are what will save us until we move over to ETH 2.0, which is still ~ 2 years away. 

Why Loopring's Layer 2 AMM is Such a Big Deal? 

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Loopring Swap Interface (source)

Does that look familiar? Looks Uniswapish, a bit like Bancor swap too. That's Loopring and its newly released AMM.

So, why is it such a big deal? Why not just stick with Uniswap?

Loopring’s AMM enables instant, gas-free token swaps, and instant, gas-free adding/removing liquidity as a liquidity provider. 

Comparing this to Uniswap, if I were to swap between two tokens right now on Uniswap, I would have to pay nearly $4.00 in gas fees and wait an average of between 15 seconds - 5 minutes for the transaction to confirm. 

Paying for this gas fee can sure add up if you’re using Uniswap on the regular to swap between tokens and it’s not even close to being a sustainable method for active trading.

With Loopring’s AMM however, you can make 1000 token swaps and pay zero gas fees for doing so. Not only that, the swaps are instant. It’s truly groundbreaking and poised to change the AMM game forever. 

However, there is one catch. 

You have to deposit your crypto assets to their layer 2 exchange account first in order to move them with zero fees. This does come with a one-way gas fee (when depositing & when withdrawing), but once it’s on Layer 2 you can make unlimited token swaps instantly with zero fees.

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Depositing funds to activate Layer 2

While this may seem like an inconvenience, take note that Loopring is a non-custodial exchange protocol, which means only you have access to your exchange account and assets. You can request withdrawals anytime.

Also, per the announcement post, Loopring said that in an updated release you will be able to trade on the AMM directly from your personal crypto wallet.  

Moreover, they also stated that in the near future:

“[Loopring’s orderbook-based DEX] will add support for smart order routing – so that a user’s order can be routed to corresponding AMM pools and order books, splitting orders to find best pricing execution.”

That said, Loopring’s layer 2 AMM is poised to be significantly better than existing layer 1 AMM solutions. And to top things off, at some point in December Loopring will be launching an AMM liquidity mining program, incentivizing LPs for selected pools with rewards paid out in LRC.

So there you go. Loopring’s zkRollup Layer 2 AMM is extremely exciting and it will be interesting to see how quickly it grows with liquidity. Maybe it’ll outperform Uniswap… let’s wait and see. 

How Investors & Community Reacted?

Amazingly enough, most everyone is sleeping on Loopring’s Layer 2 AMM announcement. Everyone’s too busy watching Bitcoin battle its ATH, and that’s okay. The king deserves the spotlight right now. 

But make no mistake, people will soon take notice of Loopring’s groundbreaking development, especially when the $LRC liquidity mining program launches.

As stated by Lewis Harland, a researcher at Decentral Park Capital, Loopring is the first real AMM on layer 2 and it will be fascinating to see its novel architecture at work:

Furthermore, popular crypto data provider Messari recently asserted that layer 2 scaling solutions like roll-ups will beat out layer 1 solutions in the race to scale Ethereum. 

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(Source)

Messari emphasized that other low-fee, low-latency competitors will eat into Ethereum’s monopoly on DeFi unless layer 2 scaling solutions are implemented into the wide variety of DeFi applications on Ethereum 1.0. 

Hmm… isn’t that interesting. 

Messari brought this up in their ETH 2.0 report and the implementation of layer 2 into DeFi is exactly what Loopring is doing and they’re the first to do it. 

Looks like Loopring is ahead of the game here and we’ll just have to wait for the DeFi community to wake up and see what’s happing here.

Cheers guys! I’ll catch ya in the next one. 


DrBreakThru
DrBreakThru

I'm a simple guy, I see a crypto breakthrough, I talk about it


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