Digital currencies have been booming on the international scale at an exponential rate. With more and more digital currencies coming into the market, more people are getting involved in this game. One of the essential feature that users demand in this market is a stable, secure and transparent protocol for performing cryptocurrency exchanges. Currently, this task is done with the help of centralized exchanges across the crypto space. But centralization is antithetical to the vision that blockchain technology provides to the world. In order to tackle the exact issue of centralized-nature of the crypto exchanges, Loopring has sprung up in the arena.
Loopring is an open protocol which aims at providing the ability to build decentralized exchanges in the crypto world. In order to perform official settlements and trades on the network, smart contracts are used. Led by Danial Wang (Senior Director & Blockchain Researcher of Zhongan Technology.), the Chinese company Loopring aims at providing the users with a platform to develop decentralized applications (dApps) that have the ability to perform exchange operations. Trustless and anonymous trading takes place on the network ensuring complete security for the users. Partial unfairness currently prevalent in the centralized exchange framework is also cancelled out through this platform. It is basically blockchain agnostic and can be deployed on any blockchain with smart contract functionality.
Up till now, most of the exchanges performed by the users of the crypto tokens are done on centralized exchanges. The involvement of a third party to cancel out the possibility of double-spending comes into place in the centralized framework. The transfer of tokens must take place through trusted, gated and centralized exchanges. But, there are a plethora of shortcomings associated with centralized exchanges. Following are the advantages provided by the Loopring protocol.
With the involvement of a third party, the critical issue of privacy breach occurs. In the currently employed centralized framework, users have to hand over their private keys (funds) to a centralized exchange. This makes cryptocurrency exchanges the center of attack by the hackers. As the servers of the exchanges have millions of dollars of user funds, an attack by hackers can cause catastrophic consequences for the users. The framework provided by Loopring cancels this out and provides a complete security fabric for the users of the network.
As per the current framework employed at the exchanges, users have to send their tokens to the exchanges, which in turn hand them an IOU. The custody of user’s tokens is taken by the exchange. The trade between users is then done by using IOUs. For withdrawal, the IOU is redeemed by the user with the exchanges and tokens are transferred back to the user’s external wallet address. This process creates a lack of transparency. The exchange can go bankrupt or can freeze your account. There are so many negative possibilities that can happen through this flow of things. Higher trading fees, regulatory risks and delays at peak demand are also associated with such a work flow.. Loopring eliminates this lack of transparency by giving the users full control of their own tokens. No more IOUs to snatch tokens away from the users.
Loopring solves the issue of lack of liquidity that is prevalent on the centralized exchange market. The difficulty faced by newcomers in building the initial liquidity is solved by the protocol provided by Loopring. It is stated in its white paper:
From the point of view of exchange operators, fragmented liquidity inhibits entry by new exchanges because of two winner-takes-all scenarios. First, the exchange with the greatest number of trading pairs wins, because users find it desirable to conduct all their trades on one exchange. Second, the exchange with the largest order book wins, because of favorable bid-ask spreads for each trading pair. This discourages competition from newcomers because it is difficult for them to build up initial liquidity. As a result, many exchanges command a high market share despite user complaints and even major hacking incidents. It’s worth noting that as centralized exchanges win market share, they become an ever-larger hacking target.
Loopring is not DEX
In a decentralized exchange (DEX) framework, users keep their private keys to themselves and perform trade directly on the underlying blockchain network. By relying on the blockchain technology, trustless and anonymous trade network is established and hence, most of the security issues are resolved. But as DEX framework is based on blockchain technology, it faces the same issues that blockchain technology faces as a whole. Scalability is one biggest issue that the blockchain framework is currently facing and hence, the possibilities for trading on a macro level get limited in the DEX framework. Delays are often faced by the users of such a network.
Loopring aims at providing a hybird solution by allowing both on-chain and off-chain transactions while maintaining the quality.
…blockchain-based exchanges have limitations that make them uncompetitive with centralized exchanges. There is a tradeoff between on-chain inherent trustlessness, and centralized exchange speed and order exibility. Protocols such as Loopring and 0x extend a solution of on-chain settlement with off-chain order management. These solutions revolve around open smart contracts, but navigate scalability limitations by performing several functions off-chain and giving nodes exibility in fullling critical roles for the network.
Regarding Loopring’s ring-matching framework, it is stated on its official website that, “Loopring provides higher liquidity and price improvement by matching orders in the form of order-rings. Each ring may consist of 2 to 16 orders, and tokens are transferred atomically in a circular manner during ring settlement. Loopring is designed to provide matching-as-a-service, and its orders are unidirectional and do not differentiate takers and makers. Loopring’s order-rings generalize trading pairs and enable a built-in mechanism for performing arbitrage.”
All in all, Loopring is a modular protocol for building distributed exchanges on multiple blockchains. It implies the protocol of order sharing at its core. User has full control of its tokens and always has the custody. The entire protocol is explained in the following steps on Loopring’s website.
- Orders can be created by the users using their own non-custodial wallets. These orders are signed with the user’s private key and assets are not held captive. This does not demands token deposits as well.
- Orders are then sent to one or more relayers, or shared in a liquidity sharing network, to build customizable order books and to identify tradable order-rings.
- Order-ring settlements are completed on-chain using Loopring protocol smart contracts, which guarantees risk-free atomic transfers of tokens.
Orders are executed automatically and the funds remain under the control of the user in a decentralized smart contract. The order is split into many pieces and in order to optimize the trading results, game theoretic logic is applied. Best exchanges and the best time to perform trades are identified by the Loopring protocol as well.
Loopring is not a DEX, but a modular protocol for building DEXs on multiple blockchains. We disassemble the component parts of a traditional exchange and offer a set of public 2 smart contracts and decentralized actors in its place. The roles in the network include wallets, relays, liquidity-sharing consortium blockchains, order book browsers, Ring-Miners, and asset tokenization services.
LRC Token ICO
The initial coin offering (ICO) for the LRC token used on the ethereum network was done from 1st August 2017 to 16th August 2017. The token was priced at 0.0600 USD. An approximate amount of 45,000,000 USD was raised as a result of the tokens sold in the initial coin offering.
LRx is the generalized notation for the tokens that Loopring possesses across different frameworks. On Ethereum, LRC is used. LRQ and LRN are used on the Qtum and NEO networks respectively. More LRx tokens are expected to be deployed across different public blockchains in the future.
Goals for Loopring
The roadmap for 2018 concerning Loopring was released on 31st December, 2017. Following goals were listed by Loopring for 2018:
- Incorporate Support for ERC223 and Hybird Trading
- Enhance the Trading Experience on the Platform.
- Support Ecological Partners
- Implement Decentralized Governance
- Implement the Loopring Protocol on NEO and Qtum
- Issuance and Distrubution of LRx
- Explore Possible Integration with Zero-Knowledge Proof
- Improve the Relay Infrastructure
- Refine the Ring-Mining Algorithm
- Support ICO Projects and Make their Token Listing Effortless
- Offer Developments Tools for Integration with Loopring
- Setup LEAF Fund
- Share the Smart Contract Development Experience and Lessons Learned