Loopring (LRC) is a pioneering decentralized protocol project that is experiencing a lot of discussion. Here I'll write all about it. You can also check out my other guides, such as Hydro (HYDRO), Basic Attention Token (BAT) and OmiseGO (OMG).
Decentralized exchange is often seen as the future of cryptocurrency trading. Unlike centralized exchanges where everything is fully controlled by centralized company, decentralized exchanges or in other words: DEX-es allow people to trade crypto assets without the need to trust each other.
What’s even better about DEX-es is that they don’t have a single point of failure as the company behind a DEX doesn't hold any sensitive information, such as private keys of its users. However, DEX has its own disadvantages compared to centralized exchange. Pure DEX typically cannot trade assets across different blockchains and this is why they are far from being popular.
And then, there’s Loopring, a DEX protocol which is also an automated execution system that aids its users to easily trade crypto assets across various exchanges. To make it clear, Loopring itself is not a DEX but it enables decentralized transaction through order matching and ring-sharing.
This article will explain in detail the history of Loopring, how it works, and why its technology matters.
Purpose of Loopring
The benefits of Loopring technology
The whole vision of Loopring is to be used as an open protocol for scalable, non-custodial exchanges. Loopring wants people to see that DEX-es can be as efficient as centralized exchanges. It provides an automated trade execution system for traders across different crypto exchanges, protecting them from counterparty risks while at the same time reducing their costs for each trade.
This project wants to become the “middle bridge” between different blockchain ecosystems and the exchanges while they also want to give traders the custody of their own funds.
It’s an Ethereum-based execution protocol that wants to become the default middle-resources over trades in different DEXes and blockchain platforms. Thanks to its ring-sharing feature, this vision could become reality when more traders start to use the tech in the future.
The History of Loopring
Daniel Wang is the brain behind Loopring
Loopring was founded in China by Daniel Wang and Jay Zhou. The idea of this project is to be able to create a secure, high transaction speed, and low cost exchange atop of Ethereum, and it can be done with the protocol. It is more B2B oriented so to speak, rather than B2C, and also to enable worldwide liquidity on distributed exchanges. They believed that too much dependency on centralized exchanges would not be good for the crypto trading space itself and there had to be a solution to help DEX to compete with them.
Loopring version 1.0 was started in June 2017, where it introduced the concept of Ring-Matching to the public. Ring-Matching is a feature where two or more crypto assets can be swapped circularly in rings. This concept maximizes price discovery and increases trading volume.
It is claimed that the first version of Loopring enabled trades to be executed off the chain. Loopring’s smart contracts can verify trading prices, order signatures, and they can help to settle token exchanges for every order.
According to ICOMarks, Loopring initiated an Initial Coin Offering (ICO) that was started on August 1st, 2017, and it ended on August 16th of the same year. The ICO itself successfully raised $45 million with $0.06 as its ICO price.
The enthusiasm for Loopring ICO was high although we need to keep in mind that many other ICOs (at the same time period) also successfully raised huge amounts of funds. 2017 was considered the golden age of ICOs, after all.
Anyway, after the success of its ICO, Loopring team did not take a lot of time before it developed and introduced Loopring 1.5. With version 1.5, there was a new feature that was introduced to the public. This feature is called Dual Authoring where every order generated a random Dual Author key-pair.
With Dual Author key-pair, the private key could be transferred to the relayer and the relayer could sign rings where you can find the order, while the public key itself is already part of the order. The Dual Authoring feature can help to prevent pending settlements and orders from being stolen by thieves. And if you are wondering why, it’s because only real relayer can get access to the orders in the Dual Author private keys.
And by December 2018, the team successfully expanded Loopring functionalities and they released Loopring version 2.0. So, with the version 2.0, it was stated that traders wouldn’t need to pay LRC tokens to the relayers for the trading fee. With this version, the relayers could tell traders what ERC-20 tokens that they want for the trading fees.
That being said, relayers would use a certain amount of their fee income to buy LRC tokens which would be burned. The idea is that LRC’s total token supply would keep decreasing as more activities take place in the Loopring ecosystem.
And just one year later, by December 2019, the team successfully launched Loopring 3.0 which provided a groundbreaking solution for DEX protocols. It was claimed that Loopring 3.0 successfully mixed zero-knowledge cryptography with the blockchain technology to significantly upgrade throughput for DEX-es to be able to finally compete against centralized exchanges.
How Loopring Works
Crypto trading with Loopring technology is better - image source
With Loopring, the traders wouldn’t need to deposit any fund into the exchange. This is a big deal because many popular DEX-es still require you to upload some funds into your account with their platforms.
For example, IDex, Fork Delta, or Bitshares all require you to transfer your tokens into their platform before you can make a new trade. However, with Loopring technology, funds will be able to stay within your own wallets and won’t need to be locked by any kind of order.
By having this privilege, you have full control over your funds while at the same time you can still perform your trades. Loopring is the only one who managed to achieve this.
There’s also this key technology of Loopring called zKRollup DEX on Ethereum. The main advantage of zkRollup is how you can group transactions together, instead of handling each of them one by one. There are DEX-es that would benefit significantly from implementing this technology.
Let’s use Loopring.io as an example of zkRollup technology. With almost 400,000 trades completed at a cost of 9.2 ETH for the gas fees, you can see the cost efficiency with this technology is quite significant.
On average, at the moment Loopring’s zKRollup only costs $0.000042 each trade. (source)
There are some processes in the Loopring’s protocol that we need to learn more from the Loopring ecosystem:
With Loopring, you can submit an order through the wallet and sign it off with your private key. After you do this, the transaction would be transferred to the Loopring’s smart contracts and a bunch of off-the-chain relay nodes. Thanks to the utilization of the smart contracts, the funds could be traded, and the relays would maintain an order book as well as broadcast the transactions to the ring-miners
The goal of ring miners is to ensure that your orders can be completed in the form of order rings until all parties can complete all of the trades. Ring miners (just like miners in standard blockchain ecosystem) are incentivized and their rewards come in the form of LRC token.
After the order ring is confirmed by the ring miners, the smart contract system here would evaluate the orders. Trade settlements by the smart contract are processed directly from wallet to wallet.
The heart of the Loopring ecosystem is the crypto token LRC. There are a lot of different use cases of LRC token. First of all, LRC token holders can stake and earn 70% of the protocol fees. The fees come from all exchanges that are maintained on top of Loopring.
If you choose to stake your LRC tokens, these tokens would be locked up for at least 90 days. The stakers can also earn more LRC tokens from these exchanges through spin-up costs and through slashes from mis behaviour.
Secondly, LRC tokens are also enforced to DEX owners who choose to implement Loopring technology. The idea here is that the DEX-es must stake a certain amount of LRC tokens to secure and build their reputation. Through this mechanism, the more LRC tokens one DEX has, the more trustable it becomes.
Also, the entire ecosystem ensures that the settlement cost for the DEX-es would be lowered when there are more LRC tokens that get staked into the network. A lower protocol fee for a DEX means trading fees would be cheaper as well. According to the Loopring website, the current protocol fee is just 0.04% for Takers and 0.02% for Makers.
Where To Buy LRC
Loopring has been doing quite well in the crypto space. With the groundbreaking Loopring 3.0 and the implementation of first DEX on its technology, Loopring has successfully differentiate itself from its competitors. There are still a lot of challenges moving forward, but so far, they have proven themselves to be different and one step ahead of everybody else in the same market.
March 2020 would be an interesting month for Loopring. Loopring Exchange is already live and zkRollup decentralized exchanges on Ethereum are already here as well.