The first stage of Loopring DAO voting begins. LRC voting, powered by Snapshot and The Graph, will take place on vote.loopring.io this coming month. Loopringers will be able to vote with their LRC balances on Ethereum L1 as well as Loopring L2. Those who hold LRC on both layers are covered — Snapshot will capture the sum of Loopring + Ethereum LRC balances.
Voting will take place quarterly and will decide which liquidity providers will be incentivized by Loopring protocol fees.
What are Loopring Protocol Fees?
To know where protocol fees come from, we must first understand L2 network fees.
L2 network fees are normal style fees, i.e. a small percentage fee to trade or swap, or a small flat fee to do a transfer or withdrawal. These fees are paid to the operator of the zkRollup, something we often refer to as the Loopring relayer. The relayer is the entity that makes a zkRollup run.
The relayer shares fee revenue (known as “protocol fees”) with ecosystem participants who collectively act to support and strengthen the Layer-2 network. The protocol fee is set at 20% of the network fee for swaps, trades, and transfers.
Let’s revisit how the protocol fee is broken down for the various transaction types.
The fee for swaps is 0.3%.
- 0.2% is allocated to LPs for the relevant pool as a liquidity fee.
- The remaining 0.1% goes to the Loopring relayer, of which 20% is distributed as the Loopring protocol fee. So, 0.1%*20% protocol percentage = 0.02% (2 bps) protocol fee from AMM swaps.
Since LPs earn the 0.2% liquidity fee, plus a portion of the protocol fees, you can see that LPs actually earn >0.2% of their pools’ L2 volume.
- Taker fees are 0.3% (or lower for VIP tiers). Takers are users who take liquidity from the orderbook (their orders are filled immediately).
- Maker fees are -.0.02%. Makers, similarly to LPs, earn a liquidity fee (0.02% on all orders filled) for adding liquidity to the orderbook.
- On stablecoin vs stablecoin pairs, the taker fee is 0.04%, and the maker fee is still -0.02%.
- Protocol fees are once again 20% of the L2 transaction fee (after removing the liquidity incentive for makers first). So, (0.3%-0.02%)*20% protocol percentage = 0.056% (5.6bps) protocol fee from orderbook trading [and 0.004% (0.4bps) on stablecoin-stablecoin orderbook trading].
Note: In orderbook trading, there are users who have VIP level status. This means they have a lower trading fee (<0.3% to relayer in orderbook). Since VIPs pay less in L2 fees, that means protocol fees (calculated as L2 fees * 20%) would be lower on those trades. In other words, the protocol fee is always calculated from the ‘final figure’, the amount flowing to the relayer.
There’s a small fee for L2 transfers which is dependent on L1 gas fees. At the time of writing the L2 transfer fee is $0.01, while the protocol fee is once again 20% of the amount charged by the relayer, so $.002.
Summary — the current fees earned by the protocol are 0.02% on AMM swaps, 0.056% on orderbook trades, 0.004% on stablecoin-stablecoin trades, and 20% on transfers.
The following are the protocol fees for each transaction type:
When AMM and orderbook transactions are routed through affiliates (referrers or applications that send users & volume to Loopring L2), affiliates earn 10% of the total fee (after the liquidity fee has been paid to makers and LPs). The protocol fee is always 20% of the amount flowing to the relayer, even if affiliate fees are included. The relayer takes its cut after the protocol fee and affiliates have been paid.
NFT Trading is now included in the protocol fee
Loopring LPs, insurers, and the Loopring DAO earn a piece of every NFT trade.
There are three types of NFT trading fees:
- Royalty fees which are paid to the NFT creator.
- NFT marketplace fees which are paid to the NFT marketplace operator.
- Loopring network fees which cover compute power for generating proofs, as well as gas costs for publishing the blocks to Ethereum. 10% of the network fee for NFT trading revenue goes towards the protocol fee.
NFT trades have been collecting protocol fees since the beginning of June. This first batch will be included in September’s distribution.
All protocol fees are disbursed in LRC. Protocol fees accrued in tokens other than LRC are to be sold on our L2 for LRC. LRC will always have a claim on every NFT trade.
How protocol fees are distributed
Fees generated by the protocol are distributed to Liquidity providers, the Loopring insurance fund, and the Loopring DAO.
- 80% towards LPs.
- 10% to the Loopring insurance fund.
- 10% to the Loopring DAO.
Fees generated by the protocol are paid to these participants on a monthly basis. While the insurance fund and DAO have not been initialized, their reserves have been accumulating fees.
So, what are we voting on?
LRC holders will decide which AMM pools are to be incentivized by the protocol fee. Until now, we have rewarded LPs in the following seven pools:
⭐️ ETH / USDT
⭐️ ETH / USDC
⭐️ ETH / DAI
⭐️ LRC / ETH
⭐️ LRC / USDT
⭐️ LRC / WBTC
⭐️ LRC / MASK
Going forward the Loopring DAO will decide which pools are allocated rewards.
How will the voting work?
Three pools will automatically be rewarded each month: LRC/ETH, LRC/USDC, and LRC/USDT. Users will vote on the remaining pools. Any pool that receives a minimum of 10% of the vote will be rewarded for the upcoming month’s fee distribution.
Protocol rewards will be disbursed with equal weight to each pool that is designated to receive them.
How do you vote?
Head to vote.loopring.io and sign in with any L2 supported wallet. Once you’re signed in, look for active proposal(s), select the option that you would like to vote for, tap on ‘Vote’, then sign the message with your wallet provider.
When is the LP vote?
Stay tuned for an upcoming protocol fee vote in the coming days. Join the Loopring Discord for official updates.
Loopring is an Ethereum Layer 2 zkRollup protocol for scalable, secure DeFi and NFT applications. Loopring builds non-custodial, high-performance products atop our L2, including the Loopring Wallet — a mobile Ethereum smart wallet, and the Loopring L2 web app — an L2 orderbook and AMM DEX. To learn more, follow us on Medium or see Loopring.org.