Blockchain technology may be decentralizing the world, but there is one element of the distributed ledger technology ecosystem that is in dire need of urgent decentralization — cryptocurrency exchanges.
Loopring is a decentralized exchange (DEX) protocol that can be deployed by cryptocurrency and other digital asset exchanges. Rather than locking assets in an exchange wallet or smart contract, they remain in the user’s wallet. Trade orders from multiple exchanges are pooled into smart contracts, which are then matched by Loopring’s ring miners.
If you want a quick intro, please checkout our video:
The Loopring project has captured a significant amount of attention since launch in August last year, trading up to an all-time high market cap of $1.2 billion at the beginning of 2018 and forging significant partnerships.
Technical Advantages
Loopring makes sure nobody can misappropriate users’ crypto-assets deposited to an exchange. Even under extreme circumstances, such as an exchange’s UI stopped functioning, or the exchange’s operators are out of reach, users can still claim their rightful assets by providing valid Merkle proofs that are derivable from data on Ethereum.
Loopring does not guarantee the efficiency and fairness of off-chain order-matching. Order-matching is a job for the relayer system, which is a centralized piece of the overall DEX solution. Different exchanges built on the same Loopring protocol can adopt very different relayer solutions and thus provide various quality of services. The Loopring protocol does guarantee that relayers must follow specific rules for trade settlement. As of now, it offers a throughput of 200 trades per second.
Overall Architecture
The overall architecture of Loopring Exchange is shown below:
Some key points you need to know:
- Loopring Exchange provides API to handle user offchain requests, namely order submission and cancellation, and withdrawals. Other user requests, including account registration, password reset, and deposits, must be submitted using Ethereum transactions. These requests are called on-chain requests.
- Loopring offers a high-performance trading experience similar to centralized exchanges, which mainly benefits from the batch processing capability of the underlying Loopring protocol. Loopring uses Ethereum as a data availability layer and a ZKP verification layer; Loopring does not perform trading related computations on Ethereum.
How Loopring Decentralizes Cryptocurrency Exchanges
Unlike other exchange technology, decentralized or not, Loopring’s protocol doesn’t require a funds deposit. In this manner, it works more like a debit transaction from your bank account, in which funds are technically only authorized until the transaction is finalized and settled later.
Binding your wallet address to Loopring requires the use of your private wallet key. There’s a lot of confusion in online forums regarding this, and it’s important to understand that binding your address to the Loopring network through MEW doesn’t lock or transfer your funds.
It simply acts as another interface to interact with your wallet funds, like a mobile app and website view into your bank account. The funds don’t leave your bank account when you view your balance on different platforms, and Loopring binding is the same.
You then initiate trades through the new UI, which creates a smart contract on the mainnet (Ethereum, NEO, Qtum, etc.) and Order Rings on off-chain relay nodes on the Loopring network. Orders are then matched either in-full or partially, verified, and settled when the smart contract executes the funds exchange.
Ring Nodes are run by miners processing Order Rings for rewards described in the above section. Setting up a Ring Node requires a high level of technical ability, familiarity with GitHub, and a lot of SSD space and CPU cores to process as the network grows.
The Foundation also patented a Dual Authoring solution to prevent front-running in early 2018. And it announced Zero-Knowledge Proofs integration to allow up to 450 trades per second in April 2019.
Not only is Loopring a solid technical project, but the team is actively working on partnerships. It also has a blockchain incubator and fund in the form of the Loopring Ecosystem Advancement Fund (LEAF).
Loopring partners include PricewaterhouseCoopers Hong Kong, DeFi, and Berkeley.
Loopring Summary
Loopring isn’t a decentralized cryptocurrency exchange itself, but the Loopring Foundation is developing and maintaining a decentralized exchange platform. Loopring connects other blockchains to initiate P2P exchanges without any middlemen. The project’s success hinges on these key features.
- Loopring currently has three cryptocurrency tokens: LRC (Ethereum), LRN (NEO), and LRQ (Qtum). Each is used to enable trades without locking cryptocurrency balances.
- Ring Miners match, verify, and settle trades via Order Rings stored on smart contracts. LRx tokens are used in the backend as intermediaries to make the trades technically possible.
- Loopring pulls trade data from as many exchanges as possible to match buy and sell orders and enable faster, cheaper peer-to-peer trades.
With these pieces in place, Loopring is well-positioned for cryptocurrency success. Of course, it all hinges on global governments easing restrictions on decentralized exchanges. Even if they don’t, the underlying technology could be utilized by authorized exchanges, giving Loopring a lot of room to spread its wings.
As a developer you can use the loopring protocol to build your own decentralized exchange, Payment app and NFT marketplace.
The easiest way is to build a custom frontend that connects to the orderbook of Loopring.
And for this you can use the official javascript SDK of Loopring which supports both HTTP and Websocket Endpoints.
So that’s it for this introduction to Loopring.
As I mentioned before, Loopring uses ZK rollups.
That;s one of the scaling solution for Ethereum, but there are others
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