What is Loopring?
Loopring is an open-source protocol that can be used to power decentralized crypto exchanges. The technology underpinning the protocol centres around Layer 2 rollups, or solutions that allow for transactions to be executed off the underlying blockchain (Layer 2) while still posting all required data to the main chain (Layer 1, or Ethereum.) This maintains the immutability and security of blockchain transactions while enhancing speed and efficiency. Loopring’s goal is to bring scalability to decentralized exchanges by batch processing transactions off-chain by leveraging rollup and zero-knowledge proof solutions.
Loopring was founded by Daniel Wang and the protocol is still maintained by the core development team, and is structured as a non-profit (The Loopring Foundation.) The team plans to launch a DAO, decentralized autonomous organization, in 2022. The team did an Initial Coin Offering in 2017 and raised Ether in exchange for Loopring’s utility token, LRC, and the protocol was launched on the Ethereum mainnet in 2019. As of early 2022, Loopring is operating on version 3 of its protocol.
What is LRC?
LRC is an ERC-20 token that powers the economic model of the Loopring protocol. Loopring Layer 2 charges a small protocol fee (essentially a subset of the transaction fee) which is paid in LRC and distributed to LRC liquidity providers, node operators, and voting participants. 10% of protocol fees are burned with each transaction which acts as a deflationary measure.
In addition to staking and node operator rewards, LRC holders can vote on community proposals to making changes to the protocol, and will reportedly soon be able to earn rewards by contributing LRC to an insurance pool, and participating in DAO governance.
How does LRC compare to Bitcoin?
First, Bitcoin is a “coin” and LRC is a “token.” Bitcoin powers the Bitcoin blockchain and it is mined by a decentralized network of computers that solve complicated puzzles to verify transactions. By contrast, LRC is a token that runs on the Ethereum blockchain. On Ethereum, ETH is the only coin that can be mined. And miners mine ETH to process LRC transactions. It is what is known as an ERC-20 token, the name applied to the generic token standard for the Ethereum blockchain.
Second, Bitcoin is far larger than the Loopring network, and older, too. While Bitcoin, the largest cryptocurrency by market capitalization, has a market cap of roughly $880 billion, LRC has a market cap of around $1.7 billion (as of January 2022.) And while LRC was created in 2017, Bitcoin has been around for over a decade.
However, it should be noted that although LRC is different from Bitcoin, it is far from independent from it. Bitcoin, the coin with a larger market (by a long shot), can influence the price of all other cryptocurrencies. If Bitcoin crashes, there’s a good chance that LRC will feel the burn too (not directly as they operate entirely distinctly, but through overall market sentiment.) It is not clear, but unlikely, that a significant drop in LRC’s value would have a material impact on Bitcoin.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about Loopring, including an opinion that LRC is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of LRC prior to making it available on Wealthsimple Crypto and has concluded that LRC is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated LRC based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of LRC, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created Loopring;
- The supply, demand, maturity, utility and liquidity of LRC;
- Material technical risks associated with LRC, including any code defects, security breaches and other threats concerning LRC and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and
- Legal and regulatory risks associated with LRC, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of LRC.
Like all other crypto assets, there are some general risks to investing in LRC. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure. LRC still has a reliance on contributions from the core Loopring protocol team and presents higher short history risk.
The Loopring team and community are not under any legal or regulatory obligation to disclose material information to the public regarding their activities. Holders of LRC have no recourse to the Loopring team or Wealthsimple if LRC declines in value for any reason.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading LRC. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc. dated June 18, 2021. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.
Last updated: January 26, 2022