Why Loopring Is Up Over 620% Since the Start of October

Rumors of a GameStop deal pushed Loopring's price to new highs.

Loopring (LRC) was one of the top crypto performers of November, with a price increase of almost 340% for the month. In fact, according to CoinMarketCap data, it's up over 620% since Oct. 1.

Find out what Loopring does, what's behind the price jump, and what it means for investors.

What is Loopring?

Loopring is a layer-2 platform aimed at decentralized exchanges (DEXs). Essentially developers can use its protocol to build new DEXs with lower fees and improved liquidity. Several of the bigger existing DEXs like SushiSwap or 1inch are built on Ethereum. Depending on how busy the network is and the current price of ETH, each individual transaction can cost $50 or more.

To understand Loopring and layer 2s, we need to first understand the problems faced by crypto megalith Ethereum (ETH). Ethereum was the first programmable crypto, and it hosts a number of applications on its ecosystem. However, until it can complete its upgrade to Eth2, it will struggle with heavy network congestion and high transaction (gas) fees.

Loopring, which is available from most top cryptocurrency exchanges, is one of several cryptos that seek to solve this. It's a layer-2 protocol that sits on top of Ethereum (or other blockchains) and provides faster -- and cheaper -- transactions. Building a layer-2 solution is like building an expressway alongside the basic road system. It diverts some of the traffic so it can quickly circumvent any congested roads.

In contrast, a layer-1 blockchain like Ethereum is the original road network. To continue the analogy, cryptocurrencies like Cardano (ADA) and Solana (SOL) went back to the drawing board and attempted to build better road networks from scratch. These new networks shouldn't need additional layers (or expressways) to move quickly.

Why is Loopring on the up?

There are a few reasons Loopring has seen such dramatic price increases -- even as the rest of the market has fallen. One of them makes sense from a long-term investment perspective, the others are more speculative.

1. Layer-2 protocols are increasingly popular

As users await Ethereum's upgrade, development and trading costs can become prohibitive. As a result, many developers are turning to layer-2 protocols -- of which there are several -- or to layer-1 Ethereum alternatives. Investors who've seen the huge growth of both Solana and layer-2 solution aggregator Polygon (MATIC) are branching out into lesser-known projects like Loopring.

2. There are rumors GameStop might partner with Loopring

November saw a flurry of speculation that GameStop might partner with Loopring. The rumor was sparked by mentions of GameStop in Loopring's source code. People think GameStop might be working on a non-fungible token (NFT) marketplace, and that Loopring might be involved.

3. Other rumors hint that Loopring might get on the metaverse train

A related rumor is that Loopring might play a role in some form of metaverse development, especially if there's any truth to the speculation about a partnership with GameStop. Everything related to the metaverse is hot right now, so it's a case of pouring speculation on speculation.

Bottom line

Cryptocurrencies are highly volatile and risky investments at the best of times -- and even more so when they've just hit an all-time high. This industry is rife with speculation, and that appears to have been a key driver in Loopring's recent growth.

Put simply, it's probably not a great idea to buy on the rumor of a GameStop deal or metaverse action. For a start, those rumors have already pumped the price up considerably. Second, they may not even come to fruition. And third, a number of great metaverse tokens are already delivering. If you want to invest in the metaverse, an existing project may be a better way to go.

However, if you've done your research and believe that Loopring is a good layer-2 solution for the long term or are convinced that its DEX solution could have legs, that's another story. It's still difficult to know whether the current price is realistic, and you need to consider the potential impact of increased regulation on anything connected to decentralized finance. But at least you'd be buying for the right reasons.