Balancer x Loopring L2

Hi all. This is Matt from Loopring. Some of you may be aware of the discussions that have gone on in the ‘other layers’ chat in the Balancer Discord over the past few months.

TLDR: Loopring’s Balancer implementation on our zkRollup has been live for a few weeks now. Everything is running smoothly, and the zero-gas, instantaneous AMM LPing and swapping is really fun and enjoyable (if I may so so :). In a few weeks, we will kick off our L2 AMM liquidity mining campaigns with LRC rewards for LPs.

Loopring and Balancer could work collaboratively here. Loopring’s AMM is not a Balancer fork, it’s a great (and first) example of Balancer on L2. I made the case that Balancer can incentivize liquidity on certain Loopring L2 pools with BAL rewards, and for that, Loopring can honour an (eventual) protocol fee from Balancer.
I won’t be redundant on more details here, so please do go see the ‘other layers’ Discord channel.

I wish to write a proposal for how BAL rewards and a protocol fee could work.

Our liquidity mining format would be helpful context.

Protocol fee

Let’s assume during the same period, Balancer rewards a pool on L1 and Loopring L2. The amounts of rewards are R1 and R2 respectively, also assume Loopring rewarded the same pool on L2 with a reward R3. Then we can share the following protocol fees that Loopring protocol earns from the same pool with Balancer:

0.33*R2/(R1+R2+R3)

The 0.33 is to apply a 33% cap to the sharing, in the case R1 and R3 are both zeros. We should also ensure R2 cannot be too small, so we have to apply a minimum reward such as 50K USD each cycle.

Now the question is: what’s the base (if the base is X, then Balancer gets X*0.33*R2/(R1+R2+R3) ).

Where X is the total Loopring protocol fees earned during a liquidity incentive window.
There can be two options:

  • We use the protocol fees earned from this pool during the same mining window .
  • We use the protocol fees earned from a future time window, such as the subsequent mining cycle, and perhaps multiple windows, rather than just 1 (this would be preferred if you believe that liquidity lags incentives to some degree).

We are very open to feedback on this.

Pools and incentive amounts

Keeping your current weekly 145k BAL incentives in mind, I propose something like:

ETH-USDT
ETH-DAI
WBTC-ETH
LRC-ETH
BAL-ETH
YFI-ETH

2k BAL per pool (12k BAL total), currently ~$156k per cycle. A Loopring mining cycle is 14 days. [So to put it in Balancer cycles (weekly), that is 1k BAL per pool per cycle.]

Starting with a pilot program of 4 Loopring incentive cycles, aka 2 months, for a total 48k BAL.

We would also be matching/incentivizing with LRC for many of these pools. [As you see in the LM link above, we are starting with 400k LRC per pool for 3 pools in early Jan]. I’d propose we do our first cycle ourselves, and then the Balancer pilot comes in mid/late Jan.

If we were to match the equivalent $ amount with LRC incentives, according to the proposed pilot pools (~$156k), that would be 945,454 LRC total per cycle (157,575 LRC per pool). Again, this lasts 2 months.

We request feedback here as well, please.

I am well aware that the BAL liquidity mining follows more structured rules than just a naive ‘2k per pool’ approach. I just think we can start this pilot in the ‘naive’ way of 2k per pool for 6 pools. We can certainly expand the program, and indeed, inherit your rules for weighting, but for time being, since our pools are pretty plain vanilla right now (same fee, 50/50) the feeFactor, ratioFactor, etc, would not have an effect.

Finally, please note: there is no incremental work for Balancer team here at all in terms of tallying/distributing. The beauty of L2 (and our forthcoming mining framework) means our zkRollup relayer handles it all. We’d just need the BAL rewards. (And all payout information would be perfectly verifiable, since rollups put tx data on-chain).

Thanks all. Looking forward to the community feedback, and potentially a massive initiative for Ethereum - saving everyone from gas heartaches at the next big spike. For you to get a sense of what Balancer looks like on Loopring’s L2 (to see whether this whole thing is worth it), please feel free to check out Loopring Exchange on web, or download the Loopring Wallet (Android only), which has the L2 AMM built in. Both at loopring.io.

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