As the world quickly becomes tokenized, and thousands of new tokens are introduced, there is a growing need for a more efficient and secure means of digital asset transfer. Currently, the go-to for investors is centralized exchanges. These are prone to security breaches, fraud, and government regulation that could result in investors losing a significant portion, if not all, of their assets. Ultimately, as these risks become more and more apparent, investors will look to decentralized exchanges (DEXs) as the next generation of asset transfer platforms.
While there are a number of projects working on developing the next premier decentralized exchange, a few others are actively building out what is called decentralized exchange protocols. These protocols bring the benefits of decentralized exchanges, with a few additional perks, including the creation of larger global pools of liquidity and significantly lowering the friction related to running a decentralized application.
One such project is Loopring, which is developing both a DEX protocol and a decentralized automated execution system that works to trade across multiple crypto-token exchanges. This system, which currently supports Ethereum and will soon support NEO and Qtum public blockchains, ultimately shields investors from counterparty risk and reduces trading costs. What’s more, Loopring’s protocol is free, extensible and serves as a standardized building block for decentralized applications (DApps) that incorporate exchange functionality.
Interested in Loopring? Here’s a quick rundown of the project:
Platform & Development
In short, Loopring is developing an open, modular protocol that enables the creation of decentralized exchanges on multiple blockchains. Loopring is made up of multiple components: wallets, relays, liquidity-sharing consortium blockchains, order book browsers, Ring-Miners, and asset tokenization services.
Loopring leverages what are is called a Unidirectional Order Model, which expresses orders
as token exchange requests, amountS/amountB, (amount to sell/buy) instead of bids and asks. This enables a far more expansive set of trading pairs (up to 16 at a time) for a single order, thereby providing a dramatic increase in liquidity and potential for price improvement.
Integral to this system are the ring miners (relays) that work to produce these who order-rings by stitching together disparate orders. While not all relays need to become ring miners, these relays receive token rewards per transaction and are free in how they choose to communicate with one another, how they build their order books and how they mine order-rings (mining algorithms). It’s important to note, that with other protocols like 0x, users need to have some capital to become a relay, otherwise they cannot submit orders of your own to provide liquidity. With Loopring, relays don’t have to submit orders, they just need to find matchable orders.
Loopring also improves liquidity through the use of order sharing, which splits orders into smaller suborders, enabling the best possible price of the coin from different exchanges, further shielding traders from counterparty risk. Additionally, Loopring’s protocol will be able to host tokens from multiple blockchains. Together, these components work to build a platform that allows for trades to be conducted between exchanges built across different blockchains
The process of conducting a trade with Loopring detailed by founder Daniel Wang:
- A user uses his wallet to submit the order for a trade. The user also attaches LRC tokens as a reward for miners once the order is processed.
- The wallet authorizes Loopring Smart Contracts to access the amount and type of tokens determined in Step 1. The tokens remain in the user’s wallet while the order is being processed and the user maintains complete control over the funds.
- The order is then sent out to the network with a unique digital signature. The wallet then relays the order to nodes across the network.
- Relays update their public order book and broadcasts it to other relays and ring-miners so as to initiate the order processing.
- Ring-miners then try to fulfill either a part or a whole order at the given exchange rate, or at a better one, by ring-matching the order with multiple other orders.
- Finally, smart contracts make multiple checks of the data supplied by the miner, and settle the trade either completely or partially (depending on the amount of tokens in the user’s wallet) by self-executing simultaneously. Once the order is completed, the ring-miner either takes a margin or the LRC fee as compensation.
An important element of the Loopring protocol is that there free, public smart contracts that enable any DApp to build or interact with the protocol. This allows DApps to leverage a much more expansive liquidity pool, further driving interoperability among these applications.
The Loopring token (LRC) has two major use cases:
- As a gas fee, or transaction fee, that powers smart contracts.
- For users to put into their smart contracts as a reward for miners.
The China-based Loopring management team has a pedigree filled with major tech companies, including PayPal and Google, and they actively lead a team of around 10 developers.
Loopring (LRC) currently has a market cap of ~$360 million with a circulating supply of 572,074,043 LRC and a total supply of 1,374,956,262 LRC.
Loopring is one of a few high-valued projects developing an open protocol for a decentralized exchange. With competitors like 0x and Kyber Network, Loopring will need to continue to expand upon their innovative ring mining platform to further build out solutions for traders and DApps.
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Disclaimer: The author(s) of this article may have a position in one or more of the securities mentioned above. This article is for informational purposes only and should not be taken as investment advice. Always conduct your own due diligence before making investments.