Skip to content

What is Loophole

TL;DR

Loophole is an autonomous NFT market making protocol on Ethereum. It runs perpetual trading strategies for each NFT collection that create arbitrage surfaces, driving trading volume and generating swap fees that fund the protocol's operations and reward its participants.

How It Works

Dual Token System

The protocol utilizes a reserve token - $LOOP - and individual "LRTs" (Loophole Run Tokens) for each NFT collection.

  • $LOOP (paired with ETH) funds the buy side.
  • Each collection's LRT (Loophole Run Token, paired with $LOOP) prices the sell side auctions.

This reserve token model performs several important functions in the system.

The Loop

The protocol runs one independent trading strategy - or "loop" - per supported NFT collection.

Every loop runs through four phases:

FUND

Each strategy launches with a presale that raises LOOP deposits to bootstrap the Open Bid which funds NFT acquisitions. After launch acquisitions receive ongoing funding from LRT<>LOOP swap fees.

BUY

The protocol maintains a perpetual standing bid (the Open Bid) for each collection, priced in $LOOP. External marketplaces price in ETH. The fluctuating ETH/LOOP rate creates a currency mismatch and ongoing buy-side arbitrage opportunities.

SELL

Acquired NFTs queue in a vault and auction one at a time via Dutch auction, priced in the collection's LRT. The price decays from the entire circulating LRT supply over one week toward a reserve floor. Buyers evaluate three moving variables (LRT price, LRT/LOOP rate, ETH floor on external markets), creating a sell-side arbitrage surface.

SPLIT

Sale proceeds divide: 30% to the Afterburner, which executes a leveraged buyback and burn of that collection's LRT, and 70% to LOOP reserves, permanently raising LOOP's BLV floor. Swap fees from both conversions refuel the Open Bid and the cycle repeats.

Powered by Baseline

$LOOP and every LRT runs on Baseline's Mercury AMM. Mercury utilizes a novel price curve that accounts for total circulating supply to more effectively price the token across each stage of its growth. Additionally, it utilizes token-owned liquidity to enable the tokens to own their reserves and actively deploy them in their own liquidity pool.

This unlocks numerous benefits for Loophole token holders, including guaranteed exit liquidity, a programmatically enforced minimum floor price, fairer and more lucrative fees and native staking, borrowing and leverage.

Participants

Loophole is designed to reward different participants at different levels of the risk and capability curve. Everybody can find a way to profit from the protocol.

  • Presalers deposit $LOOP in collection presales and receive credit positions earning yield from swap fees.
  • NFT traders capture arbitrage from the currency mismatch (buy side) and the three-variable price spread (sell side).
  • Token traders position around protocol catalysts (Afterburner spikes, new collection launches) using built-in leverage and borrowing.
  • NFT creators earn 1% of their collection's LRT swap fees, tied to trading volume not individual sales.
  • $LOOP stakers earn a share of LOOP↔ETH swap fees and benefit from rising BLV as auction proceeds from every collection deposit into reserves.