A review of the Loopring Protocol, its background and history, values and objective, the Loopring DEX and pay systems, the latest version of the Loopring Protocol v3.0, the LRC token, and many more.
Generally, every blockchain protocol has resource constraints and limitations. These systems have the inherent property of immutability and censorship-resistance, however, they have a few “Achilles heels”. One of which is the limited block space available on the network.
At present, blockchains are slowly being used in the real world, and thus, have garnered high demand in the last couple of years. But the limited blockspace results in slower settlement times and rising fees. And just like any major metropolis, when the space is less on the ground, we start building up. Or in the case of blockchains, add more chains.
This is what Loopring is built for.
Table of Contents
Background And History
The project is run by the Loopring Foundation, founded in 2017. The project’s founder and CEO is Mr. Daniel Wang. The other core team members are Jay Zhou and Johnston Chen. The Loopring project raised funds through an Initial Coin Offering (ICO), which totaled around $45M.
Loopring’s team members come from some of the finest tech companies in the world. The idea, according to the Loopring’s CEO, was inspired by the inherent limitations of centralized exchanges. Until now, four major versions of the protocol have been launched.
Values And Objective
Before DeFi even had an ounce of meaning, the Loopring core team had already envisioned the decentralization of financial assets. The Loopring protocol is based on the principles of non-custodial, censorship-resistant, and real ownership of assets.
It is the foundation’s belief that cryptocurrency and blockchain are the next logical evolution of finance. Hence, they seek to work for the technology’s adoption and usage.
Their objective is to design the best performing cross-compatible DEX exchange. It aims to provide a platform where people can trade and transmit value, securely and safely.
Loopring protocol is a chain-agnostic layer 2 scaling solution, which is particularly designed to facilitate decentralized exchanges (DEXes) and payment systems. Currently, it works with Ethereum, NEO, and Qtum blockchains. With that in mind, it is one of the vital infrastructures that support the DeFi web.
Technically, it’s an open-source automatic token exchange protocol. Furthermore, it runs on a high-throughput, non-custodial, decentralized, and secure protocol system. The Loopring design further ensures protection against front-running, Sybil attacks, distributed attacks, and other forms of fraud.
LRC is the native token of the Loopring protocol. It is traded across multiple centralized and decentralized exchanges. Loopring’s LRC tokens have a maximum supply of 1.3 billion LRC. Starting with v3.0, there is a deflationary mechanism, which will cause the circulating supply to reduce over time with usage.
Its usage includes payment for activity on the network, as well as LRC deposited in Loopring smart contracts for incentivizing order-makers. They can also be staked for earning protocol-generated fees.
Furthermore, LRC tokens can be stored on MyEtherWallet, Metamask, Coinomi, imToken, Trust Wallet, Ledger Nano S/X, Trezor, etc. The team also plans to release its own native Loopring wallet in the near future.
The Loopring DEX isn’t a uniform single entity, but rather, a group of orderbook-based DEXes, sourcing liquidity and matching orders with each other. It is intended to make DApps with exchange functionality inter-operable.
DEXes differs from centralized exchanges since it is permissionless doesn’t hold user funds. However, the Loopring DEX has an edge over other DEXes by virtue of its high order-processing speed and lower fees. Typical decentralized exchanges at present are slow and inefficient.
Loopring-enabled DEXes also have all the basic and core functionalities of the traditional exchanges while giving the users full control of their funds. Furthermore, Loopring DEX’s UI/UX is similar to common orderbook-based exchanges and can work with any blockchain platform, which supports smart contracts.
The Loopring Protocol also supports off-chain payments, though its Loopring Pay system, which went live on June 6, 2020, and is powered by Rollups technology. Through the system, users can pay and transfer tokens on the Ethereum blockchain.
The front end has also gone online to support the functionality. However, users must complete an onboarding process by sending a simple transaction across networks. It allows for registering the Ethereum-based address to the off-chain system.
It’s the perfect candidate for the layer 2 system to finally integrate with mainstream wallets. Once that happens, users will be able to enjoy the functionality seamlessly.
The latest version of the protocol is Loopring 3.0, which focuses on providing high performance without making compromises on security. Moreover, it ensures that users are able to withdraw their balance to the mainnet, under all circumstances.
Most of the computations are performed on-chain, reducing costs and increasing order execution speeds. No central party needs to be trusted to withdraw funds, even in worst case scenarios. The user account balances and transactions are stored off-chain in a Quad-Merkle tree.
To save on transaction fees and keep balanced traffic on mainnet, Loopring 3.0 batches and processes transactions, during final settlement. It can settle over 2000+ trades per second while providing the same security guarantee as the Ethereum base layer itself. This brings DEXes on parity with centralized exchanges.
Layer 2 Scaling Solutions
Besides Loopring, other layer 2 scaling solutions include Bitcoin’s lightning network and Plasma.
The Layer 2 solutions are protocols designed to provide “additional blockspace” to a blockchain, by shifting some of the processing from the mainnet to their own chain. They still abide by the security guarantees and parameters of the base layer.
Eventually, the final balances are settled on-chain, after a predetermined time, a change in network state, or a user’s request. They prevent the network from congestion, ensuring that transactions go faster and fees are kept in balance.
In a way, they allow the underlying blockchain to expand it’s capacity and utility, without any hard forks. Hence, This allows for hassle free upgrades without any modification to the base layer.
The Loopring protocol is a major step in bringing Layer 2 scaling solutions mainstream. It is based on the mature promising technologies of zero-knowledge proofs and Rollups. It expands the transaction processing capability of the Ethereum mainnet by 100x, via the shifting or processes to an off-chain layer.
Since payments and trading are two principal and resource-intensive activities. It is likely that the Loopring protocol will see integrations with major exchanges and wallets in the coming days, owing to the high Ethereum traffic/rising demand, and thus, the need for additional blockspace.