Loopring is an interoperable decentralized exchange protocol that aims to prevent front-running while improving transaction speed and anonymity.
Loopring was formed to reduce user dependence on centralized exchanges, prevent front-running, and improve anonymity. Loopring’s Ethereum-based LRC token was launched on August 1st, 2017 and raised $45 million. The project completed its second phase of funding through a NEO-based LRN SAFT (although the LRN token is yet to become functional).
Loopring combines on-chain and off-chain mechanisms to build a fast, anonymous and secure decentralized exchange (DEX) protocol. The on-chain mechanisms are used for trade and settlement while off-chain mechanisms are used for collecting and communicating orders. Loopring collects orders off-chain and broadcasts to Relayers (order collectors), who match the orders and pass them on to Loopring Protocol Smart Contracts (LPSC). LPSC then verifies and settles the orders on-chain between the accounts. Given that high levels of liquidity exist on Loopring, the likely platform users are cost-conscious traders and investors, due to lower long-run costs that DEXs offer compared to centralized exchanges. Further, existing exchanges may elect to integrate with Loopring to reduce their own infrastructure costs. Loopring’s self-purported ability to counter front-running differentiates the protocol from other DEX protocols, such as 0x. Front-running is when a market participant gains an unfair advantage by trading on information that is gleaned from orders that are already in process. Though other DEX protocols have mechanisms to prevent front-running, it is still possible to beat the system if the Relayer goes rogue or if a attacker pays a higher gas price to get their order mined before. In Loopring, however, the order is dual-authored: checked before mining and settlement. Each order is hashed and sent along to miners with its corresponding auth key. Miners check the auth key before it gets mined and settled, so a frontrunner cannot replace the addresses of an order with a higher price as the authentication key will not match. This is an effective way to counter front-running once the order is in the system.
Loopring tries to solve the liquidity problem through two different mechanisms. First, the Relayer in Loopring is forced to share the order with other Relayers in the network if they cannot fill the order. Second, Loopring has the ability to mix and match orders of different pairs to improve liquidity. At one point, Loopring sought to differentiate itself with other decentralized exchange protocols through interoperability with a plan to integrate with NEO and QTUM, in addition to Ethereum, however, these additional integrations never occurred due to technical incompatibility with the emergence of Loopring’s zk-Rollup-based V3 protocol.
Loopring’s latest design, V3, uses zero-knowledge proof (ZKP) technology in the form of zk-Rollups and on-chain data availability (OCDA) to provide high capacity, low fee trading, allowing it to execute trades at an average cost of $0.005 and process up to 2,025 trades per second, while this can be increased to 16,400 if OCDA is disabled, albeit with notably weaker security guarantees.
Loopring’ s token, LRC functions as a staking token, allowing token bearers to receive fees from the cumulative fee pool of DEXs that use Loopring (bearers receive 70% of the fee pool), while also being pledged by DEX operators as a guarantee of their advertised services. In addition to the 70% of protocol fees paid to token bearers, a further 20% is directed to the Loopring DAO while the remaining 10% is burnt.