Loopring to Launch AMM Liquidity Mining on Layer 2

Daniel Wang
Dec 9, 2020 · 8 min read

We recently launched Loopring Exchange v2 (exchange.loopring.io) based on Loopring Protocol 3.6, and it has begun beta operation. We also launched the Loopring Wallet Android app and integrated the AMM swap natively. To encourage the Ethereum community to move to layer-2, we decided that we will initiate multiple mining programs around the end of December 2020, including 1) L2 AMM Liquidity Mining, 2) AMM Swap Tournament, and 3) Orderbook Liquidity Mining. A total of 1.7 million LRC will be distributed within two weeks from program launch.

Update: these incentive programs will launch at 00:00, January 7th 2021, China Standard Time. [11:00 AM EST January 6th]

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AMM Liquidity Mining

  • AMM Liquidity Mining will be in 14-day rounds.
  • We take random snapshots of the relevant AMM pools several times a day, and calculate the size of reward each LP earns based on the average of all snapshot balances in the round.
  • The first batch of mining rewards is all issued in LRC. The mining rewards of each round will be directly distributed to LP’s layer-2 accounts within three days of the end of the round.
  • For pools with liquidity mining, providing liquidity is how you mine. You automatically start mining without any other user action.
  • Mining does not involve locking up your funds, but the LP tokens must stay in your Loopring layer-2 account. If you withdraw LP tokens to the Ethereum mainnet, you cannot get mining rewards, because it will not be recorded in the snapshots. You can transfer part or all of your LP tokens to other accounts on layer-2, but the mining rewards will also follow.

LP tokens are tokens minted by the AMM pool to LPs after adding liquidity to the pool. For example, the LP token for the LRC⇄ETH pool is called LP-LRC-ETH. The relative proportion of LP-LRC-ETH represents your actual ownership of the LRC⇄ETH pool. If you transfer LP tokens to other accounts, it is equivalent to transferring the corresponding assets in the pool to other accounts.

  • The first liquidity mining campaign incentivizes three AMM pools: LRC⇄ETH, ETH⇄USDT, and WBTC⇄ETH. The reward for each pool is 400,000 LRC, for a total of 1.2 million LRC.

The following pools are also enabled for liquidity mining by their corresponding token issuance teams.

- AC/USDT to reward 9,600 AC
- vETH/ETH to reward 100,000 LRC
- WOO/USDT to reward 191,304 WOO and 2,360 LRC
- MCB/ETH to reward 1,050 MCB and 2,360 LRC

  • Going forward, we will announce which pools will begin or continue liquidity mining, and the reward token and amount of each pool. Again, in 14-day rounds.

If you have an Android phone, we strongly recommend that you install Loopring Smart Wallet. With Loopring Smart Wallet, you can add/remove liquidity and do swaps with one click. Being an LP through Loopring Wallet will add an additional 5% mining reward to you. (i.e., your share of the liquidity pool is weighted as 1.05x its actual liquidity if you LP through the Loopring mobile wallet.)

1. Why will Loopring do AMM liquidity mining?

Loopring’s AMM liquidity mining is meant to encourage the Ethereum community (and beyond) to adopt zkRollup layer-2 scalability as soon as possible to avoid congestion on Ethereum layer-1. [Good for all Ethereans!] At the same time, of course, by gathering more liquidity on Loopring’s L2, we will provide a better user experience for Loopring Exchange and Wallet.

Recall: we did this on Loopring Exchange v1 for 6 months! Just on orderbooks, not AMMs, and at smaller scale.

2. Will Loopring keep offering AMM liquidity mining?

We will continuously adjust our AMM liquidity mining programs according to the goals of the protocol, business, and community. We also welcome projects to work with us and provide project tokens as a reward for liquidity mining of the project’s token pool, so that their communities can benefit by having deep liquidity on L2.

3. Why should I participate in AMM liquidity mining?

According to our estimation, if the initial three pools meet our internal liquidity targets, the annualized return of each pool can be as high as 40%. If the liquidity does not reach our estimated target, the return will be even higher. Of course, if liquidity exceeds our expectation, that means lower returns, since more capital will compete for it. Besides the rewards, you’ll also look pretty cool being an Ethereum L2 LP — it’s the future!

4. What do I earn by participating in AMM liquidity mining?

The income of an LP consists of two parts.

  • The first part is the 0.15% liquidity fee for the AMM smart contracts. All LPs earn their share of the fees whenever anyone swaps in that pool. These fees accrue to your LP tokens in real-time. Your share of the underlying pool assets increases as people trade.
  • The second part is the LRC mining reward from this liquidity mining program, which will be distributed in proportion to the amount of participation after the round ends.

These two sources of income are dynamic: the former depends on the swap volume, and the latter depends on the pool size (liquidity).

5. What are the differences between Loopring AMM and Uniswap?

Loopring AMM’s liquidity management and swaps all occur on layer-2, and the swap speed and throughput are significantly improved compared to Uniswap. The fee model is also different from other AMMs. The overall fee for swap on Loopring is 0.25% (0.3% for Uniswap). Among them, 0.15% are liquidity fees (earned by all LPs), and 0.1% are trading fees (for the Loopring relayer to run the zkRollup and Loopring’s protocol fees which go to LRC stakers).

Loopring’s AMM also does not have the UX issues commonly seen in many layer-1 AMM solutions. Swaps are completed and confirmed immediately on L2.

6. How does AMM liquidity mining affect LRC staking?

At this time, we recommend our community not to stake more LRC as the expected return of participating in liquidity mining will be higher. If you have already staked LRC, we also recommend that, upon liquidity mining commencement (within a few weeks), you consider foregoing claiming staking rewards (which will otherwise increase the lock-up time) and withdraw LRC to Loopring Wallet, or move it Loopring Exchange, to participate in AMM liquidity mining for the LRC pool. [There are no guarantees of what will be more worth it for LRC holders, this is just our ‘estimate’. No one can force you to unstake from v1 if you don’t want to.]

Based on the results of this AMM liquidity mining, we may redesign LRC’s economic model. We envision that Loopring protocol fees will be used as continuous liquidity mining rewards for LRC-related AMM pools and orderbooks. Stay tuned for more details.

Note: Being an AMM LP is not riskless. Providing liquidity means you are allowing anyone to swap against your tokens in the pool. You earn fees for all of these swaps (and now extra mining rewards), but the ratio of tokens in the pool you own can change. You may end up with a different ratio of tokens than what you put in. This is called impermanent loss, and is basically the difference of what you have after being an LP, vs what you would have had if you just held each token in 50/50 proportion. As an AMM LP, your best case scenario is if lots of trades happen — so you earn fees, but the exchange rate of the two tokens you provided ended up similar to when you started.

AMM Swap Tournament

In addition to AMM liquidity mining, we will also start a two-week AMM Swap Tournament simultaneously. For any users of the Loopring exchange or wallet that swap in the LRC⇄ETH, ETH⇄USDT, and WBTC⇄ETH pools, we will rank the top 25 addresses in terms of volume for each pool, and provide them with 100,000 LRC for each pool, for a total of 300,000 LRC. If you use Loopring Wallet to swap, your volume will be weighted an extra 50% higher. (i.e., your volume is counted as if it is 1.5x the actual volume if you swap through the Loopring mobile wallet.)

Swap Tournament is also enabled for the following pools by their corresponding token issuer:
- HBTC/ETH to reward 50,000LRC
- vETH/ETH to reward 5,000 LRC

The rewards of the top 25 swappers in each pool will be as follows:

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Reward Schedule for AMM Swap Tournament

This may be especially fruitful for arbitrageurs, who can take advantage of mispricings between Loopring AMM and other trading venues (keeping Loopring pricing efficient), and all the while have this activity be rewarded as volume.

The rewards of the AMM Swap Tournament will be distributed together with AMM Liquidity Mining rewards.

Orderbook Liquidity Mining

We will also simultaneously launch USDC/USDT and DAI/USDT stablecoin orderbook liquidity mining, and provide 100,000 LRC rewards for each pair. The specific rules are as follows:

There will be other orderbook liquidity mining campaigns in future as well, just like we did on v1. Now, Loopring Exchange v2 has the L2 AMM and orderbooks, which combined provide users with deeper liquidity, and also are attractive to different sorts of liquidity providers (AMM = passive LPs, orderbooks = active market makers).

Here is the API for programmatic market makers and traders to use: https://docs3.loopring.io/en/

Orderbook liquidity mining rewards will be distributed together with AMM liquidity mining rewards.

I can’t wait to begin mining!…

In that case, we remind you that Loopring’s Withdrawal Mining is still active and has more than half a million LRC still to distribute over the next 16 days.

You only need to download our mobile smart wallet app (Android only, not available on Google Play yet) and deposit ETH or five other tokens to your wallet to earn rewards. There are no liquidity related factors — just holding — so no risks of impermanent loss. Check out https://loopring.io for more details.

This program was created to incentivize Ethereans to withdraw from centralized exchanges and to hold assets in non-custodial wallets.

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Withdrawal Mining on https://Loopring.io

If you have any questions about the upcoming AMM liquidity mining programs, or anything at all, the best place to find us is in our Discord.

About Loopring

Loopring is a protocol for scalable, secure exchanges & payments on Ethereum using zkRollup. You can sign up for our Monthly Update, check out our wallet & exchange at Loopring.io, or learn more at Loopring.org.

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