Loopring in focus, how does it give you zero gas fees?

By Austras | Crypto in focus | 30 Nov 2021

The more a blockchain is utilized, the more expensive it is to maintain and use. Ethereum is the biggest example as it has the largest DEFI ecosystem but currently the barrier of entry is so high that new adopters would go through a significant risk. Loopring manages to bring down the Ethereum gas fees to just cents, how does it do this and is it safe to use?

Background

Daniel Wang along with a team of engineers (around 20 today) founded Loopring, aiming to bring the centralized ordrer matching system from exchanges to a decentralized market. Daniel had created and headed a centralized exchange by the name of coinport, which laid the foundation for the forestations he aimed to fix with Loopring. The team is based in China, and Wang has held several positions at major tech companies such as Google and JD.com. The first version of Loopring was released onto Ethereum with its beta version in 2019, altho the team felt that it was ready for production as it had been in testing for some time.

During 2020 Loopring was audited twice to verify the security and reliability of its code, both of which were positive. Their wallet had a very big security vulnerability which was addressed, they used 32-bit integers to derive users' keys, this allowed the recreation of keys fairly easily considering that they are meant for a crypto wallet. One of the biggest changes that Loopring saw was when they did their v3 release in 2019 that allowed the computation to take place of chain with just the transactions remaining on-chain, this greatly increased speed and lowered transaction costs.

Network

Low fees and faster transactions on Ethereum? How do they do this and what's the catch? Loopring functions essentially like a order book, where buy and sell orders are matched, grouped together and executed. Users can create a Loopring account and have their private keys stored within one such wallet, Loopring can place buy and sell orders which are later executed once it finds a match. Thei functions essentially like a centralized exchange but users still maintain full control of their keys.

Currently, all the computation takes place off-chain and the blocks for transactions are sent back and executed. The network uses miners known as ring miners, which is very light and can be run using a docker, which makes this network very scalable and cheap. There are fees, very small but still, that are used to reward and maintain the network. 80% are given to liquidity providers, and the last 20% is split evenly to the governance DAO and insurers. All rewards are sent in LRC or ETH, but if a trade requires a fee paid in a different token it will be converted to LRC/ETH before sent as a reward. Any fee paid is done so by the one who runs the protocol, typically the DEX. This makes using the protocol through a DEX very easy.

Loopring uses a governance and staking method to maintain security. Future changes are voted for by the community (except for transactions fees). Any DEX that is built on or using Loopring also need to stake LRC to be able to use the protocol. This functions as an insurance to prevent exchange malpractice. A higher stake can also earn exchanges benefits such as higher rewards or reduction in trading fees, creating a larger incentive for a malpractice collateral.

Use cases

Nearly free ETH and ERC-20 transfers. Considering the almost ridiculously large use and high transactions fees that is that a very sought after feature. Essentially you can treat your crypto like they are in a centralized exchange with the fast transactions and trading, but maintain your private keys and crypto safely. The protocol itself doesn't do any direct trading but offers an easy tool to make use of the zkrollup and cheap trades. Users can also stake and participate in the governance DAO to earn rewards.

DEXes can dramatically reduce the cost and increase the speed of their platform while remaining decentralized. All that is required is to provide collateral in LRC to give the exchange a consequence for their actions. If they increase their stake, they can also reduce the trading fees dramatically.

Loopring today

Loopring has been on a slow burn, in a positive way. It's test-net was launched around 4 years ago and the "full" main-net release happened in 2019. It gained a surge in popularity as Ethereum fees hit an all-time high this year along with Vitalik openly praising the protocol. There is a risk with using Loopring to sign transactions with your private keys, but that risk is considerably lowered compared to keeping your crypto on an exchange. The token has started to decrease in price after it's spike, but I think that Loopring is a token that will stay and play an important part of Ethereum's DEFI ecosystem.