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Loopring (LRC) is an Ethereum token that describes itself as “an open-source, audited, and non-custodial exchange protocol.” The protocol aims to allow anyone to build non-custodial, decentralized exchanges on top of it by leveraging zero-knowledge proofs (ZKPs), a popular means of enhancing privacy in cryptocurrency. ZKPs ensure that assets are always in the control of users.
The majority of crypto trading takes place on centralized cryptocurrency exchanges, which are online platforms run by private corporations that hold users’ funds and match trading orders. However, as indicated in the whitepaper, these platforms come with a variety of risks. The three main risks of centralized exchanges include lack of security, lack of transparency, and lack of liquidity. As a result, a new type of exchange called decentralized exchange has evolved to address these issues. These exchanges are different from centralized exchanges because users keep control of their private keys by trading directly on the underlying blockchain. However, decentralized exchanges are not completely free from flaws. Performance and structural constraints continue to be a problem.
Hence, Loopring’s stated purpose is to create a hybrid platform that combines prominent features of both centralized and decentralized exchanges. The protocol aims to maintain the benefits of decentralized exchanges while lowering or eliminating their inefficiencies through hybrid solutions. Loopring intends to improve order execution efficiency and DEX liquidity by managing the orders in a centralized manner but settling the trade on blockchain.
Another prominent feature that Loopring seeks to offer is the low transaction cost. Loopring aims to execute the majority of operations, such as trade and transfer settlement, off the Ethereum blockchain. This considerably reduces the gas usage and overall transaction cost to a fraction of what it would be on-chain.
Who Are The Founders Of Loopring?
The founder and current CEO of Loopring Foundation, which manages the development of Loopring protocol, is Daniel Wang, a software engineer and entrepreneur based in Shanghai, China.
Wang has a bachelor’s degree in computer science from the University of Science and Technology of China, as well as a master’s degree in the same field from Arizona State University.
Prior to starting work on Loopring, Wang has held multiple managerial and executive positions in major tech companies: he was a lead software engineer at the medical device manufacturer Boston Scientific, the senior director of engineering, search, recommendation and ads system at the Chinese e-commerce giant JD.com, as well as a tech lead and senior software engineer at Google.
Wang has also co-founded several companies: Yunrang (Beijing) Information Technology Ltd. and the cryptocurrency services firm Coinport Technology Ltd.
How Does Loopring Work?
Loopring’s key value proposition is the cutting-edge cryptography it integrates on its platform.
As such, it’s important to note zkRollups are just one proposed way of making the Ethereum blockchain more suitable for DeFi applications. Competing cryptographic proposals include xDai, Matic, Optimistic Rollups and Plasma.
ZkRollups are considered promising by some advocates, as they take advantage of a known form of cryptography called zero-knowledge proofs, a technique that lets a computer program make a claim about data without actually sharing the data.
As an example, a zero-knowledge proof might enable a government agency to verify that you are above the age required to access a website, without revealing your exact birthdate.
Using this same technique, zkRollups bundle hundreds of transfers into a single transaction, which allows fast and cheap trades to first occur outside the Ethereum blockchain.
These transactions are then settled on the blockchain, where zero-knowledge proofs are used to confirm that off-chain transactions are accurate.
zkRollups on Loopring
In order to begin trading on a Loopring exchange, users must first send their funds to a smart contract managed by the Loopring protocol.
From there, Loopring exchanges move the computation necessary to complete trades off of the main Ethereum blockchain. This includes information such as a user’s account balances and order histories.
Loopring then settles transactions on the Ethereum blockchain to finalize trades between users that were first matched off-chain. These trades are batched to reduce cost and increase speed. Loopring claims it can perform over 2,000 trades per second with this technique.
Each batch of transactions is then added to the Ethereum blockchain with zero-knowledge proofs that allow anyone to reconstruct the transactions that took place off-chain.
This allows users to be confident that the transactions are genuine and that they have not been tampered with by any unwanted parties.
What Are The Fees Incurred From Using Loopring DEX?
There is a 0.25% fee for swaps done on Loopring’s L2 AMM, including the gas fee.
- 0.15% of this fee goes to liquidity providers (LPs) for the relevant pool. These are the people who provide the assets in the pool for users to swap.
- 0.1% is the L2 transaction fee, paid to the Loopring relayer so the zkRollup can run.
It is from this L2 fee of 0.1% that the protocol fee is paid. So, 0.1% * 20% protocol percentage = 0.02% protocol fee from AMM swaps.
Trading fees on the orderbook follow a maker-taker model.
- Taker fees are 0.25% (or lower for VIP tiers). Takers are users who take liquidity from the orderbook (they are filled immediately).
- Maker fees are -0.02% (negative 2 bps). Makers are users who add liquidity to the orderbook (their orders rest on the book for some time). Makers earn rebates for their service of providing liquidity, just like LPs earn in the AMM pools. Makers earn 2 bps (0.02%) on all of their filled orders.
- On stablecoin vs stablecoin pairs, the taker fee is 0.04%, and the maker fee is still -0.02%.
Protocol fees are once again 20% of the L2 fee (removing the liquidity incentive for makers first). So, protocol percentage = (0.25% – 0.02%) * 20% = 0.046% protocol fee from orderbook trading and 0.004% on stablecoin-stablecoin orderbook trading.
There are small fixed fees for L2 transfers for users, currently $0.05. The protocol fee is once again 20% of the relayer’s fee, so $0.01.
Summary — the current fees earned by the protocol are
- 0.020% on AMM swaps
- 0.046% on orderbook trades
- 0.004% on stablecoin-stablecoin trades
- $0.01 on transfers
Protocol fees are paid to 3 types of participants:
a) Liquidity Providers (liquidity mining incentives) – 80%
b) Insurers – 10%
c) Loopring DAO – 10%
Protocol fees accrued in tokens other than LRC and ETH will be sold for and distributed in LRC or ETH monthly.
What Makes Loopring Unique?
The main idea behind Loopring is to combine elements of centralized and decentralized cryptocurrency exchanges to create a protocol that will enjoy their unique advantages and eliminate inefficiencies.
Centralized exchanges are currently the main mode of operation for crypto trading services. While highly popular and convenient, using a centralized exchange carries a number of risks, the chief of which is their custodial nature. Because these exchanges hold users’ funds for them between the points of depositing and withdrawing, those funds come under the risk of being partially or fully lost due to potential hacker attacks, malicious actors inside the exchange or regulatory intervention.
Another major problem for centralized exchanges is the lack of transparency: the fact that trades are not settled on the blockchain, but rather stored in the exchange’s internal records makes possible price manipulation by the exchange and allows it to use user funds for unauthorized purposes while in custody.
In order to eliminate these problems, a new type of trading service has emerged in recent years: a decentralized crypto exchange (DEX). Instead of holding user funds in custody and processing trades internally, it helps buy and sell orders connect directly with each other and settle trades on a public blockchain.
While removing the custodial and transparency risks, DEXs introduce disadvantages of their own: mainly, lower efficiency (when compared to centralized alternatives) associated with the limited capabilities of the underlying blockchains and fragmented liquidity.
Loopring protocol seeks to keep the advantages of decentralized exchanges while reducing or eliminating their inefficiencies via innovative hybrid solutions. Through managing orders in a centralized manner but settling the trades on-blockchain, and combining up to 16 orders into circular trades instead of allowing strictly one vs. one trading pairs, Loopring expects to increase the efficiency of order execution, as well as enhance the liquidity of DEXs.
How Are New LRC Tokens Created?
The Loopring protocol token LRC is an ERC-20 compliant and a stakeable token. Staking is a process of earning rewards by holding certain cryptocurrencies. Using this method, cryptocurrencies verify their transactions and allow users to earn rewards for their holdings. LRC can be used in three types of staking:
- Anyone can stake LRC to get a share of the 70% protocol fees collected by all Loopring-based exchanges. The Loopring DAO receives 20% of the funds, while the remaining 10% are sent to the unusable wallet to remove them from circulation, which is called “burning.” The Loopring DAO is the community of members (LRC holders) deciding how these funds should be spent.
- For economic security and reputation, an exchange owner can stake LRC.
- An exchange owner, high-frequency traders, and market makers can stake LRC to reduce protocol fees on a specific exchange.
Why Does LRC Have Value?
The Loopring cryptocurrency, LRC, is necessary for key operations on the protocol.
For instance, anyone who wishes to operate a decentralized exchange on Loopring must lock up at least 250,000 LRC, which enables the operator to run an exchange that uses its on-chain data proofs. An operator must stake 1 million LRC to run an exchange without this feature.
Further, LRC helps incentivize the proper use of the Loopring network. Exchange operators who deposit LRC could even have deposits confiscated by the protocol if they operate exchanges poorly. These confiscated funds would then be distributed to users who choose to lock up LRC.
Elsewhere, any user can stake LRC to earn a portion of trading fees paid to the protocol.
Some 70% of fees are distributed to users who stake LRC. A further 20% is allocated to the Loopring Decentralized Autonomous Organization (DAO), which is designed to allow a pool of funds to be spent at the discretion of Loopring users in future.
Finally, 10% of fees are burned. This means the total supply of LRC will decrease over time, putting pressure on its price. The total supply of LRC is capped at 1.375 billion tokens.
Key Features Of Loopring
Loopring accomplishes its high throughput and low cost through something called zkRollups. Let’s break that down.
Zk stands for “zero-knowledge,” which itself is short for “zero-knowledge proofs.” This is a method of processing transactions privately. It allows one party to prove to another party that something is true without providing any extraneous information about the transaction itself.
A zero-knowledge proof could let you know that it is raining today without having to look out the window, or prove to a border control agent that you are eligible to enter the country without telling your name and address. Zero-knowledge proofs are important for cryptocurrency protocols that don’t want to leak excess information to third parties or trust a central organization in case something goes wrong.
Rollups are a type of scaling system that collects batches of transactions, then “rolls” them up into a single transaction and processes it on a base layer blockchain like Ethereum. Rollups are a way of cutting costs and increasing speeds because multiple transactions can be processed at once and split the cost of a single transaction.
ZkRollups combine both of these technologies. Looping describes it as “the most secure scaling mechanism the industry knows of, whereby users can access their assets in all circumstances.” It’s suitable for applications that require trustlessness, like decentralized exchanges or lenders.
Loopring’s Order Ring And Order Sharing Technologies
To make this process run smoothly, it was necessary for the Loopring team to implement two important technologies that run in the background:
- Order Rings. The ring matching process involves grouping transactions into “rings” which enable instant transactions between multiple users of the Loopring protocol and the currencies they use. Order rings are mainly dedicated to managing the matching process in the most satisfying manner for all parties involved. This is what separates Loopring from regular exchanges, as the number of parties involved in the order matching “ring” is not limited to two. Order rings also handle the grouping of otherwise unrelated orders in the manner which is helpful for their simultaneous execution. After a miner gets the job done with an order ring, the smart contract system checks if the orders can be executed to the benefit of both parties and the traded coins are transferred wallet-to-wallet as part of the atomic swap.
- Order Sharing. If the order matching process on the Loopring platform can be said to resemble the production line, order sharing can be compared to a work procedure that is supposed to increase its efficiency. As the orders are placed down the production line, the miners can attempt to fill them all by themselves as part of a single trade – if that is not possible, the order sharing allows them to “break” the order into smaller units and pass it further down the line until it is ultimately filled. This means that they will be simply assigned to the next order ring until they are fully processed.
The fact that Loopring is blockchain-agnostic means that each chain it integrates with leads to the creation of new tokens. Their existence is supposed to ease the handling of decentralized trading operations between tokens on various blockchains. The platform sometimes uses the designation of “LRx” for these new tokens, with “x” denoting the blockchain which actually hosts them. Loopring tokens used on this platform are the following:
- LRC is the ERC-20 token running on Ethereum. It is the main token on the platform which was initially distributed as part of an ICO which took place in August 2017. The offering managed to raise some $45,000,0000 worth of ETH, a portion of which was given back to the investors from the project’s native China. Mining LRC is done in the manner similar to Proof-of-Work approach in which the verification and processing of trades carry rewards in form of LRC-based fees or split-margins. As of January 2018, there were 788,984,491 LRC tokens in circulation out of the planned supply of 1,374,955,752 units. In the same month, the currency’s market cap stood at just above USD 60 million. Its historic high was reached in January 2018, when it had the market cap of more than USD 1 billion. LRC tokens are readily available for trade on cryptocurrency exchanges such as Binance and Bittrex and others. Acquired tokens can be stored in any ERC20-compatible wallet in addition to the official one. In order to improve the value of LRC and increase its scarcity on the Loopring network, the team recently introduced the LRC Burn Rate mechanism which ensures that wallets and miners who earn fees by completing tasks on the platform will have a portion of their fees converted into LRC (if they are not LRC already) and burned. The token also went live on Wanchain in December 2018.
- LRN is the Loopring token residing on NEO blockchain. It was distributed to LRC owners as part of several airdrops taking place between July and November 2018.
- LRQ is the planned Loopring token to be hosted on Qtum.
How Many Loopring (LRC) Coins Are There In Circulation?
Loopring (LRC) currently has a circulating supply of 1,245,991,469 and a max supply of 1,374,513,896 LRC. Over 20 million LRC have been burned since the launch of the Loopring protocol and any LRC that has been locked up for operating exchanges is currently off the market.
10% of all fees go to the Loopring DAO, which votes on how to spend those funds. Options include grants, impermanent loss protection, further liquidity incentives, and buying back LRC to burn. Any LRC the DAO votes to burn, along with any that is confiscated from exchange operators not acting in good faith, decreases the circulating supply of LRC.
Other Technical Data
The Loopring protocol can settle up to 2,025 trades per second with each trade costing roughly 450 to 800 GAS on the Layer-1 blockchain. These statistics are bound to increase in efficiency regularly as the Loopring Foundation continues to develop the core Loopring Protocol.
The current iteration of Loopring is known as Loopring 3.0.
How To Use Loopring
In addition to locking up LRC to operate an exchange, those with less LRC can also participate in the network. 80% of the protocol fees go to liquidity providers in AMM pools and makers on orderbook pairs, with at least half of this amount going to LRC-related trading pools and trading pairs.
To protect against the risk of unforeseen bugs, the Loopring insurance fund was created. Anyone can deposit LRC into this fund and earn a proportional share of 10% of fees.
With the launch of the Loopring DAO, users will be able to stake their LRC through the token voting tool Snapshot to govern parameters such as the fee percentage, fee distribution proportions and insurance fund covered event triggers.
How To Choose A Loopring Wallet
Loopring launched a beta version of their own mobile smart contract wallet for Android, with an iOS version expected soon. It’s self-custodial and provides the ability to swap on the AMM.
There are also plenty of other places you could store your Loopring and the wallet you choose will likely depend on what you want to use it for and how much you need to store.
Hardware wallets or cold wallets like Ledger or Trezor provide the most secure option for storing cryptocurrencies with offline storage and backup. However, they can involve a bigger learning curve and are a more expensive option. As such, they may be better suited to storing larger amounts of LRC for more experienced users.
Software wallets provide another option and are free and easy to use. They are available to download as smartphone or desktop apps and can be custodial or non-custodial. With custodial wallets, the private keys are managed and backed up on your behalf by the service provider. Non-custodial wallets make use of secure elements on your device to store the private keys. While convenient, they are seen as less secure than hardware wallets and may be better suited to smaller amounts of LRC or more novice users.
Online wallets or web wallets are also free and easy to use, and accessible from multiple devices using a web browser. They are, however, considered hot wallets and can be less secure than hardware or software alternatives. As you are likely trusting the platform to manage your LRC, you should select a reputable service with a track record in security and custody. As such, they are most suited for holding smaller amounts of cryptocurrencies or for those making more frequent trades.
Kriptomat offers a secure storage solution, allowing you to both store and trade your LRC tokens without hassle. Storing your Loopring with Kriptomat provides you with enterprise-grade security and user-friendly functionality.
Buying and selling LRC, or trading it for any other cryptocurrency, is done in mere moments when you choose our secure platform as your storage solution.
Operating a DEX requires a stake of at least 250,000 LRC, which can be penalized for submitting transaction histories to the Ethereum blockchain that are faulty or late, or not executing user withdrawals quickly enough. The entire stake can be lost if any outstanding user funds are not returned before the DEX is shut down.
DEX operators, or anyone else who wants to, can also stake Loopring to lower fees on that decentralized exchange. 2.5 million LRC is required to lower the taker fee from 0.05% to 0.025% and an additional 1 million LRC is needed to lower the maker fee from 0.025% to 0%.
Loopring 3.0 allowed users to stake any amount of LRC to earn a proportion of 70% of all protocol fees. This came to an end at the start of 2021, with the fees now going instead to liquidity providers (80%), insurance fund depositors (10%) and the DAO (10%).