Why Loopring's zkRollup is Such a Big Deal? 

Why Loopring's zkRollup is Such a Big Deal? 

By DrBreakThru | PayAttention | 13 Nov 2020


On December 4, 2019, Loopring (LRC) – a zkRollup-powered decentralized exchange and payment protocol – deployed its Loopring 3.0 protocol on Ethereum mainnet.

Shortly after, WeDEX and Loopring Exchange became the first live zkRollup DEX protocols’ on Ethereum mainnet, making them the most powerful, high-throughput, non-custodial, orderbook-based exchanges on Ethereum.

The deployment and implementation of Loopring 3.0 on decentralized exchanges marked a significant milestone for Loopring, and for Ethereum at large. 

Why?

Because it marked the first implementation of Ethereum’s most important layer-2 scaling solution – zkRollups – which dramatically increases throughput (~15 TPS to ~2000 TPS) and decreases gas costs (just $0.003 per trade) on the Loopring Exchange.

That said, scaling on Ethereum is already here with Loopring’s zkRollups.

The Problem With Ethereum

Ethereum is far from perfect. It's slow. It clogs up, and fees go incredibly high during increased activity.

During the DeFi craze in August and September of this year, Ethereum became so clogged up and slow that only transactions with exorbitant fees were being processed by miners. 

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(Source)

On September 17, 2020, miners gathered a total of 42,763 ether ($16.5 million) in transaction fees in just one day! This was caused by the launch of Uniswap’s $UNI token and for quite a while there, miners were profiting more from transaction fees than they were from block fees. 

During times of high network activity, the median transaction fee on Ethereum can often increase to more than $5.00 per transaction and take hours to get confirmed in a block. Some transactions don’t even go through and get canceled in times like these.

At its peak, Ethereum gas prices reached levels as high as 700 gwei and according to Etherscan’s gas tracker, the average gas price runs around 167 gwei, while prices above 241 gwei are considered to be high.

Moreover, Changpeng Zhao “CZ”, CEO of Binance previously proclaimed that Ethereum’s high network gas fees were causing problems for most exchanges, running with $10-20 loss on each withdrawal:

Replying to the tweet above, Ethereum creator Vitalik Buterin suggested Binance support deposits/withdrawals with 2nd-layers scaling solutions like Loopring’s zkRollups to speed up transactions and significantly reduce gas fees:

It’s no secret that Vitalik himself knew Ethereum wouldn’t scale from the very beginning. He knew that Ethereum would have to undergo major upgrades and implement layer-2 scaling solutions. 

In fact, Vitalik was the one who proposed zkRollups as a viable layer-2 scaling solution back in 2018 and has been a big proponent for zkRollups ever since. 

How Loopring Scales Ethereum with zKRollup  

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Loopring (LRC) logo

Loopring was founded on June 22, 2017, by Daniel Wang with the mission of scaling Ethereum from the very beginning.

It was created to provide an alternative to centralized exchanges by building an open protocol and underlying infrastructure in which anyone can use to build high-throughput, non-custodial, orderbook-based exchanges on Ethereum.

To accomplish this, Loopring began leveraging Zero-Knowledge Proofs called zk-SNARKS, which verifies data without revealing its underlying information and enables a scalable service while maintaining security on the underlying blockchain. 

And with the release of Loopring 3.0, the Loopring team created the best-in-class orderbook-based DEX protocol on Ethereum by using a cutting-edge construction called zkRollup. 

What is zkRollup?

zkRollups is a “layer 2” scaling solution that increases the number of transactions per second/throughput of the Ethereum blockchain network while reducing network fees.

The way it works is:

zkRollups bundles thousands of transfers into a single transaction where a Rollup smart contract then deconstructs and verifies all of the transfers held in a single transaction. It does this by using succinct Zero-Knowledge Proofs (SNARKs), which mass-validate the transactions by publicly recording the validity of the block on the Ethereum blockchain.

In doing this, zkRollups can boost Ethereum’s current transactions per second (TPS) from ~15 to ~2000 and can boost TPS past 100k if implemented in tandem with Sharding, which is coming with ETH 2.0. 

Vitalik Buterin himself confirmed this in response to a tweet asking if this was possible:

As for Loopring 3.0 powered DEXes right now, they can already settle up to 2,025 trades per second while slashing transaction costs to just $0.003, as seen on the Loopring Exchange. 

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Loopring Exchange interface

But what about security?

Loopring’s zkRollups scales Ethereum while guaranteeing the same level of security as the underlying Ethereum blockchain. There are no tradeoffs. 

The ability to scale Ethereum without compromising security is exactly why zkRollups implemented on Loopring DEXes is such a big deal.

How Investors & Community Reacted? 

When Loopring 3.0 went live on the Ethereum mainnet on Dec 4, 2019, no one was really paying attention to it.

As seen in Loopring’s LRC price chart below, when Loopring 3.0 launched, the price of LRC experienced a swift and significant price rise only to quickly fall back down to where it was before the launch. 

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Loopring (LRC) price chart. Red box marks when Loopring 3.0 launched

However, things started to change when Loopring launched their own Loopring.io Exchange based on zkRollup technology in late February. 

In anticipation of its launch, the price of LRC experienced significant growth going from $0.21 up to $0.56 in just 1 month. After that, the coronavirus pandemic stopped the party for a moment:

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Loopring (LRC) price chart. The red box marks coronavirus disrupting the party

The pandemic, however, could not stop the significance of Loopring 3.0 and its use of zkRollups. The coronavirus crash became peanuts in comparison to what was coming for LRC in the coming months:

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Loopring (LRC) price chart. Red boxes mark coronavirus crash and volatility

Moreover, despite all of LRC’s ups and downs, Vitalik kept cheering Loopring on and encouraged the Ethereum community to look into their scaling solutions:

Fast forward a few months after the coronavirus crash and things really started to roll when Loopring added a PAY feature to their exchange, allowing anyone to send ERC-20 transactions at near 0 cost.

It was such a big deal that media outlets started calling them PayPal for Ethereum:

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And again with Vitalik, he continues to urge people to use Loopring’s zkRollup technology to reduce transaction fees and scale the Ethereum network:

All in all, it took months for the community to finally grasp the potential of Loopring’s zkRollup scaling solutions. They realized it right when the community needed it most during the recent DeFi boom.

Now that Loopring 3.0 and its zkRollup technology is widely known and understood, it may very well be time for Loopring (LRC) to shine.


DrBreakThru
DrBreakThru

I'm a simple guy, I see a crypto breakthrough, I talk about it


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