The idea of blockchain was to empower people to have real ownership and control over their finances. However, that’s not what we have today – at least when you consider a powerful player in the crypto space – exchanges.
The biggest crypto exchanges in the space are centralized – which means users do not have explicit ownership of their funds, and they have to rely on intermediaries such as banks to exchange, transfer and send crypto.
But centralized exchanges (CEXs) are beset with security and lack of transparency – factors that result in the loss of users’ funds. On the other hand, we have decentralized exchanges (DEXs), which are not perfect either. From scalability problems to liquidity issues, they also come up short.
Loopring is an exchange protocol that seeks to unite exchanges in a way that people can make trades in a secure, scalable, and decentralized environment. Trades on Loopring happen off-chain, meaning they are not affected by shortcoming for the blockchain, such as low scalability.
This article takes a closer look at how the Loopring network works. We’ll also check how the Loopring token (LRC) is doing in the market.
Loopring is a decentralized exchange protocol based on Ethereum that allows traders to transfer crypto-assets across different exchanges. Loopring is not an exchange per se but rather a protocol that facilitates the decentralized exchange of cryptocurrencies.
At its core, Loopring works this way: the protocol pools all orders sent through it and then matches these orders through the order box of other multiple decentralized exchanges. Loopring supports both decentralized and centralized exchanges, and it’s also blockchain-agnostic, meaning it can be deployed on any blockchain that supports smart contracts. That means blockchains like Ethereum, Qtum, Neo, and others are in play.
The Qtum team believes that “crypto-assets trading should be and will be risk-free and worry-free in terms of custody. Traders should have strong cryptographic guarantees that the assets cannot be wrongfully taken from the platforms where they trade – not by hackers, not by exchange owners, and not even by state-level adversaries.”
The Problem with Centralized Exchanges
Centralized exchanges are one of the biggest gaps in the race to full decentralization. The primary risks of CEXes are lack of guaranteed security, lack of transparency, and lack of liquidity.
#1. Lack of security
Lack of security is underscored by the fact that users typically surrender control of their private keys – and hence funds – to the exchange. This exposes users to potential security breaches – and there have been many – which could cause loss of funds. There’s also the issue of honest mistakes, whereby CEX developers make accidental, loss-causing errors in the protocol.
#2. Lack of transparency
Users can simply not explicitly trust exchange operators’ intentions. This means they cannot know whether the entity is acting unfairly or dishonestly for whatever reason. Exchanges can be compelled by authorities to shut down or freeze your account. They can also go bankrupt or pull an exit scam.
#3. Lack of liquidity
The CEXs landscape is characterized by fragmented liquidity. It’s usually a winner-take-all scenario, where the exchange with the biggest volume or most trading pairs wins as most users prefer to use one exchange. This creates a barrier for new exchanges, which find it difficult to build up liquidity. The result is an unfair and fragmented landscape where the big exchanges have all the power, a situation that resembles the legacy financial system.
The Problem With Decentralized Exchanges
Decentralized exchanges mainly differ from centralized ones in that in the former, users have complete control over their private keys and can perform peer-to-peer exchanges.
However, DEXs grapple with the problem of low performance, liquidity issues, and infrastructural limitations. Low performance is a result of low scalability, which in turn is caused by structural constraints such as caps on the number of transactions that can be held in one block at a time. Liquidity issues arise when users have to search across disparate blockchains for matching orders.
How Loopring Works
On Loopring, users do not deposit funds into an exchange to start trading. The trader’s funds remain in their wallet throughout. This affords them complete autonomy over their money during the whole process – meaning they can modify the order at any point if necessary.
Placing an Order
Placing an order happens entirely on the loopring.io wallet. After you clear the order to go through (via your private key), it is relayed to smart contracts on the Loopring network and a series of relay nodes outside the blockchain. Smart contracts facilitate the exchange of the money for the desired currency, while the relay nodes maintain order books and broadcast trade requests to ring-miners.
Ring mining is a feature of relay nodes. Relay nodes with this feature are known as ‘ring-miners,’ and they create order-rings by stringing together orders from disparate blockchains. This happens until all orders are filled. In return, ring-miners are compensated with Loopring (LRC) tokens. Relay nodes can communicate with each other, build order books, and mine order-rings the way they choose.
When an order passes through, smart contracts evaluate them to verify their authenticity. If everything is in order, the desired currency is transferred to the right recipient. This procedure happens on a wallet-to-wallet basis.
Participants in the Loopring Ecosystem
The Loopring ecosystem is kept alive by a number of participants who jointly contribute to its running. Let’s get a look at them:
This is a common wallet interface through which users can access tokens and relay orders to Loopring. The network incentivizes wallet owners to create orders by rewarding them with LRC, just like with ring-miners.
#2. Consortium Liquidity Sharing Blockchain
This is a network that facilitates the sharing of orders and liquidity. Nodes can join an existing network through the relay software, creating a system for order and liquidity sharing. This all happens on a consortium blockchain designed for near real-time ordering and getting rid of old history to keep the network light and scalable. Relays do not have to join a network; they can work alone or create their own sharing network.
Relays are nodes in charge of broadcasting orders to the network, as well as maintaining order books. They also stitch together orders from different blockchains so that they can be filled.
#4. Loopring Protocol Smart Contracts (LPSC)
These are public and free smart contracts that receive and evaluate orders, transfer and settle them in a trustless manner, and incentivize ring-miners and wallets with Loopring token rewards.
#5. Asset Tokenization Services (ATS)
This is a bridge that connects assets that cannot be exchanged via Loopring. ATS is run by centralized companies that have been vetted by the Loopring team.
The Loopring team argues for a case of security, scalability, and low costs as to why users should adopt it. According to the website, the Loopring network is:
- Secure – Loopring is an open-source and decentralized exchange protocol – meaning users do not have to trust each other. It’s also noncustodial, meaning users have complete control over their money.
- High throughput – Loopring can support highly scalable DEXs by processing massive volumes of orders off-chain. The problems of the underlying blockchain network are no longer a concern.
- Low cost – Since the majority of operations are conducted off-chain, gas fees are dramatically reduced.
Key Metrics of Loopring
As of Oct 10, 2020, the Loopring token traded at $0.207983, with a market cap of $237,920,359 and a market rank of #59. The 24-hour volume of the token was $79,890,576, while it had a circulating and total supply of 1,143,941,524 and 1,374,513,897, respectively. The atoken has an all-time high of $2.59 (Jan 09, 2018), and an all-time low was $0.019861 (Dec 18, 2019).
Where to Buy and Store LRC
LRC is currently listed on a handful of exchanges. You’ll find the token on Coinbase Pro, Binance, Bilaxy, OKEx, MXC, HBTC, BitHumb, Coinsbit, Hoo, Bitvavo, ProBit Exchange, Gate.io, Huobi Global, Folgory, KuCoin, 1inch Exchange, and of course the Loopring exchange.
Loopring distinguishes itself from other exchanges, both centralized and decentralized – by not being a competitor but bringing them together. If the network succeeds, it has the potential to increase liquidity across markets and help push cryptocurrency closer to the mainstream.