Investors interested in long-term positions in the supporting infrastructure for the next iteration of the internet, the third generation of the web (Web 3.0 or Web3), are spoilt for choice right now. Applications for the decentralization of the web are making functional strides, but key tools like the Loopring (LRC-USD) have lost 76% of their peak value during a broader market selloff over the past two months.
Perhaps it’s time to buy-the-dips and hold on for dear life (HODL) the protocol’s native token, the LRC-USD before it rebounds on user growth.
Loopring is a blockchain solution that allows for building highly scalable crypto assets exchanges and payments on Ethereum (ETH-USD), hence it’s called a second layer (Layer 2) protocol. It takes transactions off the ETH blockchain to avoid congestion and expensive transaction “gas” fees, and yet retains Ethereum level security.
Loopring: Volatile Price Action, Growing User Base
A rising tide usually lifts all boats. This could be true for the entire cryptocurrency asset class as investors flocked into it in 2021 and most coins and tokens printed all-time highs.
The Loopring token took off in November during a cryptocurrency trading frenzy last year. LRC price soared from $0.37 per token by Oct. 27, 2021, to hit a high of over $3.44 by Nov. 24, 2021 — offering a spectacular 830% return in just over three weeks.
Ranked number 73 cryptocurrency on market capitalization, LRC’s market cap hovered around $1.2 billion at the time of writing. As the market tumbled, LRC has given away most of its recent gains. The token is down 76% from its all-time highs at the time of writing on Feb. 14, 2022.
That said, the protocol is seeing a growing user base (a growing revenue base).
Loopring is growing its user community and making money for LRC holders in the process. This can be witnessed from the growing user count and volume growth it’s the decentralized exchange, the Loopring DEX.
Since its launch in February 2020, the number of users on Loopring’s decentralized exchange has grown to 79,000 who have made 3.24 million trades worth $4.36 billion.
Why I’d Consider Buying-the-Dip on LRC-USD Today
The economic rationale for buying LRC today is quite simple.
While Ethereum remains king in the decentralized applications (dApps) ecosystem, the platform is congested. ETH-USD’s transaction fees are exorbitant as users compete for scarce computing resources on the power-hungry proof-of-stake blockchain.
The Loopring DEX promises to reduce transaction fees to as low as 1/30 to 1/100 of the standard fees on the Ethereum mainnet. Now that’s something awesome.
In a Jan. 7, 2022 announcement on the Loopring Discord channel, and on other social media outlets, officials were “happy to share that Loopring L2 can now Mint an NFT for just $2.50 (@100 gwei).” Gwei is a unit of Ethereum representing 0.0000000001 ETH-USD or a billionth of Ethereum coin. This charge is 100x cheaper than minting directly on Ethereum.
Loopring can process more than 2,000 transactions per second with near-instant finality while offering low fees and Ethereum level security to minted assets. So there is still room for the LRC user base to grow exponentially, if the platform is marketed well.
Investors who buy LRC-USD at its depressed price today can stake the tokens, and share in the monthly distributions of protocol fees. Distributable fees grow as the user base and trading activity increase.
Moreover, it is still possible that LRC could surge in popularity once a potential partnership with videogame retailer GameStop (NYSE:GME) finally gets announced.
Watch Out for a GameStop — Loopring Deal
GameStop has been rumored to be working with Loopring on its non-fungible token (NFT) marketplace that is under development. However, LRC investor hopes were someone shaken when GME announced in February that it has partnered with Loopring’s rival Immutable X (IMX-USD) another L2 protocol based on the Ethereum blockchain in a $100 million deal to fund grants to creators of NFT content and technology. Immutable X can execute up to 9,000 transactions per second faster than LRC’s 2,000.
However, GameStop’s Form 8K filed with the Securities and Exchange Commission (SEC) reveals that “GameStop will use Immutable X as their first layer-2 NFT integration for trading and minting, other than Loopring”, and the company “will not integrate any blockchain protocol, other than Ethereum Layer 1 and Loopring into their NFT marketplace without first having integrated Immutable.”
So Loopring is still in the game with GameStop. GME’s NFT marketplace is expected to launch later this year.
Risks to Consider Before Buying Loopring
The delay on the GME deal is killing speculator enthusiasm, and the general decline in investor sentiment in the cryptocurrency space could require significant bullish announcements for a hive of activity to return to the asset class again.
However, Daily Social Volume, a measure of how much an asset is trending on social media platforms is going down. The daily social volume on LRC has declined significantly and is fast approaching pre-November 2021 levels.
Rising popularity is necessary to lift any cryptocurrency token. This is also true for the entire blockchain-based asset class. If social activity dies away, so could be the speculative value of LRC and other tokens and coins.
Another source of risk to consider is the declining development activity on the LRC protocol.
Development activity has gone down significantly so far in 2022. Developers are no longer as committed to the platform as they used to be back in 2018 when development activity was at its peak. The developer team was committed to launching a functional product back then. Now that the DEX platform is up and functional, perhaps what’s required now is just bug fixes, minor integrations, and maintenance work.
But is that all we can expect from Loopring?
The price of Loopring’s native token LRC could recover with a return of positive sentiment. Investors could even stake their tokens and participate in growing network revenue. However, new functionalities and added features to the core product remain necessary to keep community interest (and token valuation) high.
On the date of publication, Brian Paradza did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Brian Paradza is an investing enthusiast who was awarded the CFA Charter in 2019. A strong believer in fundamentals-based long-term investing, Brian learns from gurus like Warren Buffett but acknowledges human behavioral tendencies that drive short-term “madness”. You may find him inquisitive as he examines tech investing opportunities, cannabis, blockchains, and the new cryptocurrencies asset class.