Liquidity Mining on L2 AMM - the DPI opportunity?

Hey there,

Long time no see :slight_smile:

I’ve been discussing with Matt from the Loopring team on the launch of their Layer 2 ZK-Rollup exchange : https://loopring.io/#/. I must tell you that this is, in my opinion, a game changer for DeFi, so I immediatly thought about an Index Coop / Loopring collaboration !

They are going to start a liquidity mining program by the end of the month to attract LPs - here is the medium post : https://medium.com/loopring-protocol/loopring-to-launch-amm-liquidity-mining-on-layer-2-6cabbcf4801c

They already initiated the creation of a dedicated DPI pool <3 https://exchange.loopring.io/pool

They will reward LRC to LPs on 14 days-cycles. Got few ideas, let me know your thoughts:

  • What about partnering with them and propose to provide 50% of the rewards in $INDEX tokens for a DPI-ETH pool ?
  • What about waiting for the end of the current extended DPI liquidity mining program on Uniswap and continue on Layer 2 ?

I want to see DPI moving at light speed :slight_smile:

Etienne

6 Likes

The idea of DeFi on L2 is no doubt amazing. Here are some concerns/comments:

  1. I like L2 and also the idea of taking advantage of their liquidity mining rewards.
  2. Education - I played around with Loopring new wallet about a week ago and it was relatively confusing. I think that to most people, the concept of porting assets to L2 is not straightforward. If we do L2 liquidity mining, we have to put a lot of effort into education.
  3. What are the mechanics? LPs have to port ETH and DPI to Loopring L2 and stake on their AMM? With rewards in say LRC and INDEX also sitting on L2? Can we build UI for that on Index Coop?

My 2 cents.

2 Likes

I didn’t try their wallet yet since it’s only available on Android phones. I think that there are still few glitches, which explains why they didn’t launch the LM program yet. What I did try was to trade and pool my funds on their AMM directly on their exchange (via web browser), and it was amazing.

The main differences with L1 AMM (via the exchange website) are :

  • You need to deposit funds on L2 first (like a CEX)
  • You don’t need to use your wallet anymore once you’re on L2 :fire:
  • You need to withdraw funds from L2 if you want to use them somewhere else on L1 (like a CEX, but without any fee)
2 Likes

I think with Layer 2, it’s the network effect problem. Is Loopring getting traction? And if not, is it worth INDEX providing scarce tokens to support such a network?

2 Likes

That’s why I would split the rewards with Loopring to make sure we all benefit from this initiative :+1:

Do you have some numbers on what that 50% would cost? Also, will Loopring be minting or buying the DPI to provide liquidity for it on their Layer 2?

According to their latest medium post, they plan to provide 400 000 LRC per pool for each cycle (14 days): https://medium.com/loopring-protocol/loopring-to-launch-amm-liquidity-mining-on-layer-2-6cabbcf4801c

1 INDEX = 27 LRC today.

If we split 50/50, and keep the same incentives (in $$) as Loopring does alone, it could be something like 200K LRC and 7500 INDEX per cycle (14 days). So it’s quite small compared to what we’re doing currently on Uniswap, which might be an issue if both pools are incentivized at the same time. Few LPs might move to Loopring.

1 Like

Hi Etienne,

while I like the idea, here are my thoughts on this:

  • Its still in beta, so there is some additional risk involved
  • the tech is rather new and needs some initial adoption from the educational/technical side

According to this I would expect not all people who stake on L1 would switch to L2.
It would just drain liquidity on L1.

-> Once we meet the liquidity goals on L1 we can consider L2 and other L1

s7rukk

1 Like

Thanks for bringing this up Etienne. And thanks for the comments from others. It is something on our minds as well. I think DPI would do very well on Loopring’s L2. Let me address some of the questions that came up, and a few thoughts of my own.

(This is Matthew from Loopring btw :).

The topic of education, or if there is a learning curve to get aboard. It’s a good question, and one we’ve worked on all year as our rollup’s been live. I’d argue this has been completely solved by Loopring’s L2 in our recent protocol v3.6 upgrade. Actually, especially in terms of being an LP, I believe it is far easier and cheaper than becoming one (or ceasing to be one) on L1.

  • For a brand new user who has never heard of L2, it is actually completely abstracted now. Just a single deposit, which simultaneously ‘activates’ your L2 account. 64k gas.
    Visit exchange [dot] loopring [dot] io, deposit ETH, you are aboard.
    Please check out this 25 second clip to see that live: https://twitter.com/finestonematt/status/1337244285138300929?s=20.

  • Getting further assets (DPI) aboard is indeed just a matter of another deposit transaction. [Or swap your ETH for DPI on L2 (gas-free, instant), and don’t even bother to do another deposit from L1.]

  • Then, becoming an LP is just a single gas-less (free), instant transaction.
    Please see this 50 second clip: https://youtu.be/u_rzR0APENQ.
    First 20 seconds show a swap (also gas-free, instant), then 20 second mark shows me adding liquidity. [Removing liquidity is also a single, free, instant tx].

Even better: ‘staking’ your LP shares is unnecessary. If we were to institute a DPI-ETH liquidity mining campaign, any DPI-ETH LPs would automatically be mining - no extra staking step. This is because the mechanics work just by the relayer taking snapshots of the AMM pool (and LP shares) at certain points. No need to claim either. Everything handled by the relayer on L2. More details in the liquidity mining post Etienne shared.

4 Likes

[Part 2]

Besides all the above, which I hope shows that it has become trivial & cheap to get on L2 - and then an actual improvement to do everything else once on L2 (swap, add/remove liquidity, ‘stake & claim’) - here are the real reasons why I think DPI-ETH is worth Index Coop incentivizing on Loopring’s L2 AMM.

  1. It makes the Index Coop more inclusive. LP’ing, staking, claiming, is often only attractive to whales, or certainly precludes the littlest of us (DeFi participants). Paying $5 to add liquidity, $5 to stake, $5 to claim, $5 to unstake means we (the industry) are not catering to the people who may want/need DeFi the most. [I am making up gas costs here, but as an INDEX miner myself, I do believe that is not a stretch given recent gwei prices]. As you see from the above, besides paying 40k-60k gas to deposit an asset once, you will never preclude gas-conscience (less wealthy) folks from taking any action at all. Adding $1 of DPI, $1 of ETH becomes perfectly reasonable. As does buying $1 of DPI for a newcomer. This is a very nice message for any project, but Index Coop especially.

  2. Loopring is more than just a protocol, and more than just the exchange.loopring.io web app. The Loopring Mobile Wallet has become the core of our product strategy. It is our mobile smart contract wallet with our zkRollup baked in (for gas-free & instant transfers, AMM swaps, etc). It is Android only for now, and downloadable at loopring.io. [iOS hopefully in early 2021]. Having DPI and INDEX feature prominently in a mobile app that several thousand users are checking daily, is a good look, imo. It just puts the project much more top of mind than being on any other AMM.

[verto, I’d invite you to check it out again now please, to see if some of the confusing steps may have been solved. It is only a few weeks old, but going through rapid improvements every day.]

  1. The question of adoption, traction is a good one. But please allow me to say: Loopring is the leading L2, and has nearly 10,000 users aboard. (duneanalytics com / loopring). We were the first rollup on Ethereum, have been running for exactly one year on mainnet, but I’d venture to say, we have really only just got started. The launch of protocol v3.6, the AMM, the new exchange, and especially the wallet - all happened in the past two weeks! I think our current position is very strong, but I expect we hit an inflection point very soon.

  2. Shanghai-based. Most of our team, and many of our users, are in the Chinese market. I believe spreading the Index Coop word there is attractive to many of you/us.

  3. Although I say that L2 has become so easy to get on/off, there is still a sense of it being a different environment. Rightfully so. We fully expect Loopringers to ‘live their DeFi life’ on our L2. There will be fewer and fewer reasons to get off. Users will live on L2 in the future. Having DPI - a broad index - as a super liquid instrument on Loopring’s L2 effectively means it become thee asset to consider for a user’s DeFi exposure. i.e., it is unlikely that all of DPI’s constituent assets will become as liquid on L2 as they are on L1. But if DPI is deeply liquid, it becomes the product of choice for DeFi exposure on L2.

Thanks all. I hope this is somewhat helpful.

As the LM post says, we are waiting until end of December to launch liquidity mining. I believe Index Coop should consider allowing the current extended incentive campaign on Uni to expire (Jan 7th), and kick off an incentivized pool on Loopring’s L2. It is time to let the owl fly.

PS: It only allowed me 2 links, so i turned others into [dot] format.

3 Likes

I am both a DPI/INDEX holder as well as a loopring wallet user - so I really like this idea, and would love to see collaboration that benefits both projects.
Matt mentioned their Loopring mobile wallet as being core of their product strategy - if we want this to be part of the narrative then I would recommend that we wait until the wallet launches on the app store/play store before proceeding. We shouldn’t be encouraging our users to install APKs on their phones.

3 Likes

@Etienne @loc

@verto0912 and @ncitron and I have been pushing this forward over the last couple of weeks and we have secured funding from the Growth working croup to run a trail with 2000 INDEX distributed to LP’s on loopring in the next 14 day phase.

There will also be some LRC incentives for traders on loopring (I’m not sure of the exact details, I’m expecting it to be fully explained in a forth coming looping blog Loopring Protocol – Medium )

IF (big if) our understanding of the market is correct, we’ll expect that the market will settle with ~$1 M liquidity.

I’ve proposed some KPI’s for the experiment (% non incentivised tokens on L2, #number of L2 holders, etc) and once agreed, these will be shared.

The mobile app is still not on google play (no apple app yet), so we will be focusing on the standard web implementation.

We have started a discord channel to discuss all things loopring and coop related

3 Likes

Hey.

This is a great news. I really like the idea of making DPI accessible to anyone at really low cost. This way, small fishes can finally access all their prefered DeFi tokens at really low cost thanks to Loopring tech!

:owl:

Personally, I’m hoping that there will soon be a low cost way to get Fiat onto Looping ($USDC from coinbase? so people can DCA into DPI cost effectively ($20 a week ?)

However, we may see some smaller investors trying to time the market / trade on L2. I wouldn’t reccomend such activity, but better to do it on L2 and gain some education than pay gas.

1 Like

Nice work!
Also seems like the loopring wallet is on google play now, but not ios yet.
Anyway I also had a go with the web exchange and that seemed pretty straightforward to use as well. Somemight prefer it as it doesn’t require creating a new wallet.

2 Likes

OK, The loopring experiment is now running. With 2,000 INDEX provided via the growth working group.

After we agreed the funding I had a few ideas for some KPI’s for the programme as we can judge whether it’s a success or not [Note, these haven’t been discussed with others, but I think they are realistic].

KPI’s

Liquidity: Loopring Exchange (DEX) Initially zero, but ramped upate after the rpogramme was announced.

Primary KPI: Over $1 M USD liquidity on loopring

Secondary KPI to indicate that our understanding of market sentiment for LP mining:

LP APY between 20 and 35% (2000 INDEX @ $7 = $14,000 over 14 days ~ $365,000 per year)

  • 20% APY = $1.85 M AUM
  • 35% APY = $1.04 M AUM

Volume ( a few days ago):

Uniswap Sushiswap Loopring
Liquidity (Thousand USD) 41,000 2,000 60
Volume (Thousand USD) 4,800 108 5.7
Ratio 11.7% 5.4% 9.5%

KPI: Volume ratio should be a higher than sushiswap.

Users:

https://explore.duneanalytics.com/public/dashboards/Ul8ApgbYzAaZt8N9pQzdbZYzvV0Xk2KcycNh92an

Dune shows 12,000 total Accounts on loopring 3.6 (v2)

I’m not aware of a good metric for daily activity.

Uniswap shows 5,631 addresses with DPI on L1 (after 4 months).

KPI (arbitrary): 1,000 L2 addresses with DPI (if we can measure it)

Unincentivised DPI on L2 before the end of the 14 days:
Total DPI in L2 can be found here:

Total in the AMM pools can be found in the loopring AAM summary (divide by 2 then the DPI price)

Initial data ( a few days ago)

DPI $
Total on L2 223 50 k
Liquidity pool 134 30 k (½ of $60)
outside pool 40% 20 k

Primary KPI: over 40% of DPI outside liquidity pool

Secondary KPI: over $ 1 M DPI outside liquidity pool (50% unincentivised vs $1 M liquidity)

Average trade size

I would love to have this info, but I’m not sure how easy it is to get for Uniswap and loopring.

KPI would be more smaller trades on loopring.

I have some information on Uniswap DPI transfers here:

I would welcome any comments on my proposed KPI’s (are they too easy, too hard, impossible to measure) and I’m planning to review the programme once it is finished to compare with the KPI’s.

@reganbozman @LemonadeAlpha I’m not sure we did a formal GWG memo, but I think it would be good for you guys to capture some KPI’s for this experiment.

1 Like

thanks @overanalyser

Matt said Loopring team can provide after the experiment.

Loopring will give us all swaps with the pool during the 14-day LM program.

If we like the outcomes and intend to continue with L2 liquidity mining then we can ask @jdcook and @TenaciousTerrier to fork some Dune queries that have already been set up by Loopring.

2 Likes

OK, there are a few days still to go (and Matt from loopring is asking us to consider another 14 days LM).

Some updates on the KPIS:
Currently liquidity: $3.4 M vs > $1 m – Overshot by a long way.
LP APY: 52% vs 20 to 35%

I think both the liquidity and APY have been exceeded simply due to the INDEX price action.

Users: I don’t have a good measure

Unincentivized DPI on L2: 4,100 DPI in the AMM pool, 5,150 in total on L2, so we have about 20% outside the AMM pool (and paying us streaming fees).

Average Trade size: I don’t have a measure.

Trade volume

Looking at my AMM fees, I get ~13% of my income from the AMM fees and 87% from the INDEX rewards.

1 Like

I’m trying to get Average Trade size and users from Matt.

Just checked volume and last 24hr was $630k. That’s a 17% volume ratio, higher than 14% on Uni and 10% on Sushi. I think at above $3mil, we are reaching some efficiencies when it comes to slippage.

I think the demand on L2 is clearly picking up. We can lower the incentives, but it’s worth continuing for another 2 weeks imo.

2 Likes

I am in favor of extending.