Sirwin
Sirwin

Publish0x Interview: Loopring (LRC)


Over the course of the past few weeks, we've been interviewing teams from some of the most exciting projects in the DeFi space. Our latest conversation saw us speak to Matthew Finestone, Head of Business at Loopring. We spoke to him about the team's mission, technical developments, tokenomics, and plans for the future, in addition to going into detail about specific features.

Here's our shortened list of questions: 

1. What's new for $LRC token?

2. Loopring's AMM 

3. Best resources to track Loopring's growth.

4. L2 Onboarding fees

4b. Is is possible to get rid of L2 onboarding fees

5. Once ETH2 gets fully implemented, will Loopring scaling solutions be still needed?

6. Any erc-20 pooling on Loopring's AMM 

7. How’s Loopring different from other scaling solutions like Polygon(ex. MATIC) or Optimism?

8. Loopring now scratches $200M in TVL. What's next?

9. Other upcoming news. 

1. Loopring started off 2021 strongly with the reveal of a new tokenomics model. Can you explain in a before/after way what changed and what’s new to $LRC?

True, 2021 started off strongly for us. The ‘biggest’ things for us have always been protocol development, and more recently, product development. Throughout 2020, we made tremendous progress on those fronts, but LRC was something we barely touched/upgraded. So while Loopring made huge advancements, LRC mechanics were still stuck in the stone age, relatively speaking. 

The new LRC token model (v2), brings LRC in line with the rest of the project. Briefly, the big difference is that now LRC is used to incentivize behaviors that are beneficial for the Loopring ecosystem, whereas before it was mostly just ‘idle’ staking - staking which didn’t necessarily benefit the system. Now, LRC is used to incentivize different participants: liquidity providers (LPs), insurers, and DAO members.

Every transaction that happens on Loopring L2 - orderbook trades, AMM swaps, and transfers, have a protocol fee that is taken out. This protocol fee is then paid to those users/stakeholders who are productively using LRC: 80% goes to LPs, 10% to insurers (an insurance fund which would pay out if ever there was a security incident, so far no need), and 10% to DAO members. These proportions are just the initial configuration, it can change by the Loopring DAO voters, beginning in Q2 or Q3.

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2. What was the *AHA* moment you realized that Loopring should shift focus from your regular order-book DEX to your own AMM?

This is a good question. I’m unsure if we had a big ‘AHA’ moment. More so just the realization that AMMs are objectively doing really well (on Ethereum L1), for the great characteristic of ‘anyone’ being able to provide liquidity very easily.

Passive LPs, as opposed to active orderbook market makers (MMs), just open you up to a wider audience of liquidity. Anyone with assets can then become a part of your DEX just by depositing. On the other hand, orderbooks require a more sophisticated market participant, or really, a bot that someone builds. It needs to be active, placing and removing bids/asks as the market moves. This is just a smaller, typically more professional group of people.

So, when we were able to technically achieve the first AMM on a zkRollup, it made sense we were going to pursue that path. So now the Loopring Exchange has both AMMs and orderbooks, which is unique in the market.

To be clear, MMs and orderbooks have it’s really nice properties too, such as greater capital efficiency. So while it’s true these past several months have had the Loopring L2 AMM more in the spotlight, we are not actually ‘shifting’ focus completely.

In fact, we are currently working on ‘reembracing’ the orderbooks, and working with some programmatic market makers, have revamped our API, have third party trading bot software that is integrated, etc. And indeed, a big thing which we have mentioned: blending the AMM and orderbooks from a taker’s POV. So someone making a trade will be able to have their order split between AMM pool and orderbook, as the order seeks for best price execution.

On the liquidity ‘supply’ side, there will still be both: AMM LPs, and orderbook MMs. We think this will be an amazing experience and result in deep, tight liquidity.

3. Is there any way we can track the amount of $ users saved in total by using Loopring’s AMM or some other dashboard aside from TVL people can follow? 

Anyone can see transaction history and activity right from Ethereum - that’s one major feature of a zkRollup, on-chain data availability. Making it easier for users to read that data and track fees is something like we have on Dune Analytics, which parses through Ethereum blocks looking for Loopring transactions, and easily displays them on a dashboard.

Here you can see that the average gas cost for a Loopring transaction on L2 is $0.71 (as of March 20). Of course, different tx types have different costs on L1, and on L2 as well. 

In general, transactions like transfers and trades are about 100x cheaper vs L1 right now. But actions like adding liquidity to an AMM pool are ‘only’ between 2-4x cheaper. 

For example, a simple token transfer on Ethereum L1 has a cost of 60k gas, typically. A swap on Uniswap is about 125k gas. At $1850 ETH, that’s $16.65 for a transfer, or $34.68 for a swap. A transfer on L2 costs $0.20, and a swap costs 0.25% of the swap amount.

4a. Given that the gas fees are so high, it’s surprising that more people aren’t using L2 solutions, which has been alluded by Vitalik and others. Do you think the onboarding fee is the main reason that holds people’s backs?

I don’t think the onboarding fee is the big blocker. We have gotten our fee down to quite a small amount - it is one deposit transaction, and that’s it, you are on. And that deposit costs only about as much as a normal token transfer on L1. So, it works out that you break even getting on L2 immediately.

If you do even a single transfer on L2, you have made a good decision. For trades & swaps, this is even more true, you are saving significant money right off the first swap. 

So I think it’s just a matter of necessity. The users that needed to come to L2, have largely come. Assuming two things: 1) they are aware of it (which mostly means being aware of Loopring over the past year), and 2) that they could have done what they needed to on L2. i.e., trading, swaps, add liquidity, transfers.

For that second point, I mean to say that you cannot do ‘everything’ on Loopring L2 yet. Meaning no borrowing/lending, etc. So this is why L1 still has a major pull on people. Soon, as we add more functionality, and as L1 gets even more expensive, and as we continue to educate folks in articles such as this, we will see the pace of L2 adoption pickup.

4b. What can be done to reduce or completely remove the layer 2 onboarding fee in your case?

As kind of mentioned above, I think we have reached basically the lowest possible barrier and cost to onboarding. Onboarding to Loopring L2 just means depositing your asset in a smart contract - the zkRollup deposit contract. This will always be necessary, no matter what.

The asset being sent to the deposit contract IS what onboards a user to L2. Nothing else needed. And since this is an L1 transaction, you cannot escape that transfer gas fee.

One thing I should note: while we have succeeded in reducing the friction for an individual user to onboard, we are currently making progress on allowing a big batch of users to onboard at once.

So imagine 1000 users migrating from another L2 to Loopring L2, or from a CEX to Loopring L2: this will mean really negligible onboarding cost, effectively the small cost stated above, divided by the number of users being migrated in the batch.

5. Once ETH2 gets fully implemented, will Loopring scaling solutions be still needed?

Definitely still needed, and in fact, Loopring and other rollups will have magnified power once Eth2 is implemented. The scaling effect is multiplicative, and rollups actually take a very prominent place in scaling Ethereum, not just for right now, but looking far into the distance too. You may have heard Vitalik’s piece, ‘A rollup-centric Ethereum roadmap’.

As a brief explanation: rollups use Ethereum to store data, not to execute/compute things (transactions). They also use Ethereum to verify the things that they did execute off-chain is correct. zkRollups submit a validity proof, Ethereum says, ‘yup that's a valid proof, carry on please’.

With a sharded Ethereum L1, there will be more room for rollups to store data and verify proofs. No need to go back to the old ways of executing stuff on L1. Execution can remain on rollups, which can just get much more scalable given all the shards they can store stuff on now. 

For some quick numbers:

  • Rollups + sharded data (which happens at Eth2 phase 1) = ~100k TPS
  • No rollups, but just Eth2 phase 2 (doing execution on those L1 shards) = ~5k TPS

So you see, rollups remain the viable path far into the future.

6. What’s needed for Loopring to enable pooling of any ERC-20 by users themselves? Is it something we can expect in the near future?

We can allow this at the protocol level. Anyone can register a token, and anyone can register an AMM pool on the rollup. You can see the full list of tokens and pools at the bottom of this link for example.

However, in practice, that doesn’t mean that anyone can enable a pool themselves and it will be ‘live’. This is because the nature of the zkRollup: the relayer (backend system that does all the off-chain work, zkSNARK proof generation, etc), has discretion over what it ‘recognizes’.

Loopring team runs the Loopring relayer, and we can decide which tokens/pools to list and show users. [Please note: having a single relayer does NOT compromise the self-custodial security of Loopring protocol - that’s the beauty of a zkRollup, misbehavior is mathematically impossible].

But in practice, we want the relayer to have the final ‘review’ over what gets listed, for the simple matter of ‘quality assurance’. We do not want ‘scam tokens’, or other potential harmful assets on our L2 and in the hands of our users. The same way that a lending protocol like Aave does not allow ‘all’ tokens to be used as borrow/lend assets, we want some curation over what assets live on Loopring L2. There is also regulatory consideration: we do not want to list securities, etc. 

All that said, we are adding assets and pools very quickly now. And in the future, I do think we may hand over some of the curation and listing to LRC holders via the LoopringDAO. But at the end of the day, the fundamental truths will remain: we want to have our users’ best interests & protection in mind, and the rollup architecture means the relayer can have a say in this. 

7. In short, how’s Loopring different from other scaling solutions like Polygon(ex. MATIC) or Optimism?

I’ll keep it very short, and then link to a few resources if readers care to go deeper :).

Rollups are ‘true L2s’, with the defining property of inheriting complete Ethereum L1 security. Meaning nothing can prevent a user from exiting a rollup - nothing can separate a user from their assets. They only need to rely on Ethereum existing. No new validators, or anything. (This is why even a single relayer cannot be harmful, as mentioned above). Vitalik on the topic of rollups here.

Polygon is a PoS sidechain - when you use it, you are relying on a different set of validators to reach a consensus. You do NOT have Ethereum security guarantees. If the sidechain validators acted maliciously, your assets can be gone. Most Ethereum researchers agree on the terminology: sidechains are not L2. 

The technical difference between optimistic rollups and zkRollups is in how the state transitions happen/are verified. In zkRollups, you are relying on validity proofs - aka cryptography and math that everything happened as it should. In optimistic rollups, you are relying on fraud proofs - aka cryptoeconomic ‘games’ and rationality.

The tradeoff is basically: ZKRs have stronger security guarantees, with less ‘human level’ assumptions. ORs are able to do more/arbitrary things, they are generalizable, as opposed to ZKRs which are still a bit restrained in what they can do (for example Loopring can do specific functions like AMM exchanges, orderbook exchanges, payments).

It is generally understood though that the ZK cryptography is advancing enough that ‘soon’, ZKRs will be able to be generalizable as well. 

From a business or strategy POV, there’s quite a few meaningful differences in what Loopring is focusing on, vs Optimism, Polygon, and others. Basically: we are building across the whole stack: zkRollup protocol, zkRollup relayer, products (exchange and mobile smart wallet).

We are increasingly becoming a user-facing project. We want 100 million users. We do not target other projects/protocols to build on us really, we are building the user-facing products ourselves (although other projects can indeed integrate certain functionality via our API).

I’d recommend reading this recent article which describes differences between Loopring and other scaling solutions on the vision side of things.

8. Loopring now scratches $200M in TVL. Would you say the DeFi space finally realized the importance of eth scaling solutions or are we still far from the average $ETH holder knowing what layer 2 even is?

I’d definitely say the DeFi space has realized the importance. They had to - it whacked them over the head with massive gas fees. On days where you cannot move due to 500+ gwei, it is honestly scary! Now, many Ethereum users are very familiar with L2, at least at a high level. And many have indeed been using it.

Speaking from Loopring’s POV, we’ve had a tailwind due to prohibitively expensive gas fees on L1, and have experienced some nice growth. As you say, ~$200m TVL, over 18,000 users on Loopring L2, etc, over 1 billion transactions processed, etc.

We were the only rollup in town for a while, and the Ethereum community really got behind us, since we showed that 100% Ethereum-secure scaling is possible. Now, there are more and more rollups coming online - which as an Etherean, is great to see.

I think all ETH holders are very excited for some other rollups to come online, which can allow other functionality. A lot of people still say, ‘when L2’? But the fact is, it’s here. Loopring has existed in the wild for 15 months now. This stuff works. Ethereum will scale with L2 (specifically rollups). This ‘L2 themed podcast’ I did with some other rollup implementers last month is quite a good listen on the topic.

9. Any spicy things coming to Loopring anytime soon that you can share with us?

There is lots going on at Loopring. As usual, we are building and building :). But this time, with the end-user squarely in mind, and with lots of data of which behaviours we should optimize for. 

At the protocol level, we are working on things that will make Loopring L2 much more interoperable with other L2s, and with L1 itself. These ‘bridges and ports’ are very flexible and powerful.

It can allow, for example, 100 Loopring L2 users to interact with any L1 protocol, and split the cost by 100. So Loopring L2 will become much less of a silo. We also have these flash mints on L2 - like the flash loans some readers may be familiar with on L1, which allow all sorts of things, like large arbitrage trades.

But a big focus, especially over the next two months, will be refining our products: the Loopring Exchange and the Loopring Wallet. There will be a new web UI coming, and the iOS wallet releasing soon. Also, fiat integration into Loopring L2.

As mentioned in the “What Loopring Is and Isn’t” article, our ambition is to become a complete financial services platform built atop Ethereum. Using our expertise of secure scaling, we are making products that are ready for the masses, not just the niche. That means no big UX hurdles.

Indeed, we have already solved many of them: on Loopring L2, there are no long delays, no high fees, and with our smart wallet, there are no scary seed phrases - yet still 100% non-custodial. 

One other spicy thing is that we are currently modifying our mobile smart wallet so it can live on - and interact with - multiple L2s, not just Loopring L2. This means we can onboard users onto the smart wallet without any L1 gas fees. [Right now, creating a Loopring mobile wallet requires an L1 transaction, with this advancement, it would not.]

This is a massive positive for bringing on the next tens of millions of users onto Loopring. We will be competing with incumbent fintech entities, not just for crypto-native users, but for mainstream users.

Thanks for having me for this interview, we are quite fond of the Publish0x community - thanks for the continued support!


For more information on Loopring, check out their various channels here:

Website
Twitter
Discord
Loopring Community

The Publish0x team will publish more interviews with up-and-coming DeFi projects in the weeks to come. Stay tuned for these!

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Abhimanyu Krishnan
Abhimanyu Krishnan

Technophile, cryptocurrency enthusiast and journalist.


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