We are excited to announce our participation in the next round of Loopring’s liquidity mining program on Layer 2 (L2). Over the two weeks, starting at 00:00 UTC on January 25th, liquidity providers in the ETH-DPI pool will be able to earn $INDEX incentives for providing liquidity. We have allocated 2,000 $INDEX to the program and Loopring will add further 10% in LRC rewards to the traders who use the ETH-DPI pool for swaps. Also known as the Swap Tournament, LRC rewards will go to the top 25 users with the most swap volumes in a pool. Based on our estimates, we expect liquidity to settle around $1 million, with an APY of about 25% for the liquidity providers.
The importance of L2 scaling is hard to overstate. As transaction costs on the Ethereum network continue to increase, smaller investors are getting priced out of the market. With high gas prices, everything in the ecosystem comes to a halt, and only whales can continue to use the network.
This is why we are excited about partnering with Loopring on this trial. Loopring is an L2 scaling platform that uses ZK rollup technology. If you are unsure about what the rollups are, you can read Vitalik’s recent article covering the subject. Loopring allows users to transact at little to no cost and near-immediate confirmations, while still enjoying self-custody and security of Ethereum. L2s make DeFi and crypto widely accessible to anyone anytime. We, at Index Coop, empathise with that. Our analysis of DPI, the DeFi Pulse Index managed by the Coop, shows that nearly 75% of all addresses holding DPI hold less than 10 tokens, equivalent of roughly $2,500. At the gas prices we have experienced over the last few weeks, doing anything with their tokens could cost these DPI holders anywhere from 1% to 3% of their portfolio. Sometimes, a simple token swap transaction on Uniswap could cost more than $25, not to mention things like liquidity provisioning and staking.
With liquidity mining on L2, only moving assets from L1 to L2 incurs a transaction fee. Depositing ETH to L2, for example, cost me ~$4.4 at 50 gwei. Once on L2, all transactions are free and near-immediate. There are swap fees, of course, but that’s a different story.
Without further ado, here’s your guide to becoming an ETH-DPI liquidity provider on Loopring’s L2 DEX through the web interface.
How-to guide for becoming an ETH-DPI liquidity provider on L2
Step 1: Head over to https://exchange.loopring.io/
Step 2: Connect your MetaMask or a WalletConnect wallet when prompted.
Step 3: Once connected, you need to activate your L2 account. Choose an asset you wish to deposit, click on “Deposit to Activate Layer-2” and confirm transaction in Metamask. It’s worth remembering that this is still an L1 transaction, so you need to pay the transaction fee. For me, at 50 gwei, this cost ~$4.4. It’s also worth noting that at 50 gwei and current ETH price, a simple swap transaction on Uniswap would cost you roughly $10.
Step 4: Sit back and wait for your transaction to confirm. Once it does, the UI will show an ‘Unlock’ button. Click that. You will have to sign twice, first to unlock the wallet and then to create the API key. It’s a signature, not a transaction, and there are no costs involved. This ‘Unlock’ button is like a login; it will appear every time you access your L2 account.
Step 5: After 18 confirmations, your funds are safely on L2, and you can begin your gasless life.
Step 6: From here, the process is pretty similar to swapping and providing liquidity on Uniswap. Only transactions are immediate, and there’s no gas to deal with. Pretty nice! Head over to the “Swap” section, select your pair and click “Swap”. There are no confirmations. Once you click “Swap”, you are done.
Step 7: After that, head over to the “Pool” section, find the pool you want to add liquidity to and click “Add”.
Step 8: Make sure you have both assets in your L2 wallet. Loopring’s liquidity pools, just like Uniswap and Sushiswap, are 50/50 pools, with no one-sided liquidity provisioning. Input the amount of tokens you want to add, click “Add”, and you that’s it.
Step 9: Your share of the pool is represented by LP tokens. They are minted after you add liquidity and are held in your L2 wallet. You can see your LP tokens on the ‘Pool’ page as well as under the ‘Account’ tab. Here, you can also see the history of your deposits, withdrawals, and AMM transactions.
Quick note: every time you lift an asset from L1 to L2, you will have to pay for gas. If you want to deposit a new asset to L2, say DPI, you will first need to approve it. This is similar to having to approve the spending limit for a new token in Uniswap and will have costs associated with it.
For more details, please check out this excellent write-up by Matthew Finestone, Head of Business at Loopring, for Bankless.
How are liquidity mining rewards calculated?
This liquidity mining cycle is set to run for 14 days. Loopring will take random snapshots of the relevant pools several times a day and calculate the rewards based on the average of all snapshot balances during the cycle.
The rewards will be distributed into your L2 wallet, within 3 days from the end of the liquidity mining cycle.
Make sure your LP tokens remain in your L2 wallet. If you withdraw them to L1, they will not be captured in the snapshot, and you will miss out on the liquidity mining rewards.
Welcome to the Gasless Life on L2 with Index Coop and Loopring
We sincerely hope you enjoy the L2 experience and savour the opportunity to get your hands on some DPI, gas-free!
For more information and to get involved please visit our: