Loopring's CEO Decentralized Confession

By Brawnd0 | CryptoLetter | 16 Apr 2020

It's been a tough few months for everybody, and I've been putting my head down and focusing on the market, looking for news that gives some insight into what the next big development in the market might be.

Turns out that a pretty big development was happening right here on Publish0x, as Loopring and Publish0x have integrated. I began looking up some info on them, and discovered an interview which was conducted on April 14.

Loopring CEO Daniel Wang was interviewed by Camila Russo for The Defiant, a news platform that tracks developments in the Decentralized Finance (DeFi) space. The conversation touched on a variety of subjects, including the motivation behind the design and development of Loopring, technical underpinnings that power it and the overall vision of the team. 

I’ve summarized the highlights of the interview, which I think has some great nuggets of information. You can listen to or read the transcript of the interview here.

1. Ethereum Won’t “magically solve” All Scalability Solutions

A large swathe of the market is concentrating on developing scalability solutions and there are a myriad approaches that are under review. Wang frequently mentioned the importance of security and also emphasized the use of Layer-2 solutions (examples of such solutions include Plasma, zk-Rollups and zk-Sync) to improve the overall efficiency and capabilities of networks.

2. Loopring will Launch a Smart Wallet for the Chinese Market

Loopring has had a tough time in China - Wang mentions the reimbursement of Ether following China’s ICO ban - but he also sees the potential for growth in the world’s fastest-growing economy. Digital wallets, which are already widely used in China, provide access to an enormous number of users - and Wang said that Loopring will build a smart wallet that offers Chinese citizens access to Ethereum DApps and consequently spark adoption.

3. Loopring’s Priority is Engineering and Equity Fundraising Might be Coming Soon

In 2017, Loopring conducted its ICO, raising about 120,000 ETH. However, just a week after the ICO, Chinese authorities passed stringent laws regarding ICO fundraising that required funds to be returned - and Wang and the Loopring team had to return the majority of the funds.

Despite this setback, the team stayed focused on their objective, narrowing their attention to engineering priorities, as opposed to marketing. Not wanting to market a half-baked product, the team took two and a half years to build the protocol. 

Wang also says that the company is "good to raise another round" - but through equity fundraising. 

4. Loopring is Tackling Scalability Head On With Zero-Knowledge Proofs

Arguing that the best outcome will rely on Loopring merging its own solution with Ethereum’s scalability efforts, Wang says that the amount of time and effort that Ethereum 2.0 will require necessitates more immediate solutions:

...even if Ethereum can scale by like 1,000 factor, then there will be more developers looking for Ethereum resources, so probably the cost is going to be at the same level, stay at the same level. I was  right in this judgment because it is quite a challenge for Ethereum to scale even now, although there are great minds behind Ethereum. I'm not saying I'm not optimistic about Ethereum, but it will take time to develop. 

Wang calls zero-knowledge proofs the future and went all in on the Layer 2 solution. This led to the development of zk-Rollups, which was recently implemented on Loopring and greatly improved throughput and reduced transaction costs. 

Wang describes how the multi-layer solutions works:

With zero-knowledge proofs you need to make sure you prove what you have done off chain to the on-chain smart contract so that the off chain part will have to follow whatever you have designed as a protocol. That means we are using Ethereum as a data layer, as a proof verification layer, but not as a computation layer.

5. More a Non-custodial Exchange Than a DEX

While Loopring is often termed as a decentralized exchange (DEX), Wang says otherwise - labelling it a non-custodial exchange that operates on a DEX protocol. He freely admits that data is processed off-chain and several servers are managed by the team. 

However, that doesn’t mean there may not be solutions going forward. Wang hints at the possible use of a relayer or DEX on the backend. He reiterates the focus on other priorities:

Solving the decentralized problem of the relayer is not our priority but going forward and maybe there's a solution like the 0x mesh or something like that.

6. Security First

Wang makes it clear that decentralization is not so much of a problem, and that security is key:

While part of it is centralized, the assets that people deposit into the exchange or any exchange on top of Loopring cannot be taken away by the operator because the operator doesn't really take custody of the user asset.

He says that security is the best thing that Loopring can offer - including immunizing the platform against hacks, and more indirect risks like pump and dump behaviour and misinformation. The latter two, he says, will involve regulators, and compliance is something Loopring is addressing.

7. Loopring vs. Centralized Exchanges

Often incorrectly thought of as a DEX, what the team has built is more akin to a decentralized exchange protocol that other exchanges or parties can make use of. What this means is that any relevant entity can take Loopring’s solutions and establish more decentralized services that are built on a strong foundation of strong.

Being more of a non-custodial exchange, Loopring considers centralized exchanges as its competitors,

We place ourselves into the subcategory called order-book based. So we are competing with centralized exchanges. We are not competing with Uniswap or Kyber or auction-based solutions.

8. The Performance and Cost Numbers are Impressive

Currently, the Loopring protocol can settle up to 2000 trades per second on Ethereum - but the performance is capped by relayers. Current relayer implementations see 200 traders per second for each exchange. For comparison, Binance does about 1000 trades per second. 

Just as impressive is the fact that Loopring can settle one million transactions for about $125 - that’s about $0.0001 per trade. Wang says,

The cost is low enough, that it is not going to be a problem at all. So the challenge for both of us for Loopring and StarkWare is not cost or performance, it's user experience.

9. Zk-Snarks and Starks

Wang explains the technical elements of Loopring -  zk-Rollups, zk-Starks, zk-Snarks - as follows,

The ZK-Rollup idea is not a technical specification. As long as you use zero-knowledge long as you post the data on-chain to make sure you can reconstruct your off-chain world state, then you are using ZK-Rollup. Stark is a new version of zero-knowledge proof technology. It has some pros and cons. The reason we use ZK Snark is because it has been there for like 10 years...there are some usable implementations already.

10. The End Goal is Not Just Decentralization

Concluding with a desire to share his understanding of blockchain technology, Wang says the real goal is security,

I think decentralization is not the goal. It is one of the means with which we can achieve our real goal, which is seems currently, security can be more easily achieved by decentralization...For Loopring, we want to have a good user friendly product with security guarantees based on a mix of decentralization and centralization.

In a space that is already showing immense growth, Loopring stands as a distinctly unique project that is contributing towards the development of decentralized financial services. The past few months have seen the team bring its years of engineering effort to fruition, which times nicely with the growth of DeFi services.

Featured image taken from here.

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