Cross-chain bridging and layer 2 solutions have become a major topic of conversation in recent weeks, as protocols compete to offer the best solution to the rising costs of transactions on the Ethereum (ETH) network.
While much of the focus at DeFi has focused on creating an expanding multi-chain ecosystem following the recent emergence of the Binance Smart Chain Y Avalanche, those who want to stay on Ethereum have turned to layer 2 solutions like Loopring (LRC) as your preferred escape method.
A recent Delphi Digital report has identified Loopring’s DEX as one of the top Layer 2 contenders, having already cleared $ 590 million of volume in 2021.
As shown above, the decision to launch an Automated Market Maker (AMM) as part of Loopring v3 led to increased engagement on the platform and represents between 60% and 90% of the total volume of Loopring.
Gas prices on the Ethereum network started to rise in late December 2020 and this coincided 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 Loopring layer 2 to escape the high fees on the mainnet.
Analysts at Delphi Digital offered a word of caution, as Loopring’s native LRC token currently accounts for more than 40% of the nearly $ 250 million total locked value (TVL) in Loopring v3.
For comparison, UNI comprises 3.4% of the TVL in Uniswap, while SUSHI represents 6.5% of the TVL in SushiSwap. Although LRC’s dominance in Loopring’s TVL has followed a downward trend, this figure needs to be further lowered to show a healthy amount of liquidity for other tokens.
DEX rates add value to Loopring
ORn area where LRC outperforms UNI and SUSHI is in price-to-sales ratio, as LRC currently has a P / S of approximately 155, while the value is less than 6 for UNI and SUSHI.
Data from Cointelegraph Markets and TradingView show that The LRC price has risen more than 430% since January 2, going from $ 0.165 to a high of $ 0.89 on February 12. The altcoin also hit a new trading volume record, at $ 1.23 billion, on January 5, as incentives for AMM layer 2 liquidity mining began.
Despite the recent hype surrounding cross-chain solutions dating back to the days of the “Ethereum killers”, It would be wise to note that the major DeFi protocols on Ethereum are network-compromised through the adoption of layer two infrastructure like Optimism and ZK Rollups.
Loopring’s decision to focus on scalability rather than attracting users is paying off, as ERC-20 token holders willingly flock to the project’s working solution.
What is yet to be determined is whether a large amount of liquidity will follow suit or wait for layer 1 DEXs like Uniswap to roll out on Optimism as a way to help reduce transaction costs.
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