Is Loopring the Future Decentralized Exchange Protocol?
They are a protocol that promotes interoperability among decentralized applications (DAPPs) with exchange functionality by acting as a common building block for open standards. Trades are carried out using an Ethereum smart contract system that is open to the public, free to use, and to which any DApp can connect.
What Is Loopring (LRC)?
Loopring (LRC) is an open-source and audited non-custodial exchange protocol. It aims to enable anyone to build decentralized exchanges on top of it by utilizing zero-knowledge proofs (ZKPs). ZKPs ensure that assets remain under the control of users at all times. Loopring's goal is to improve order execution efficiency and DEX liquidity by centralizing order management and settling trades on the blockchain.
The vast majority of cryptocurrency trading takes place on centralized cryptocurrency exchanges operated by private corporations. The three main risks of centralized exchanges are a lack of security, a lack of transparency, and a lack of liquidity. In order to address these concerns, a new type of exchange known as the decentralized exchange has emerged. Decentralized exchanges, however, are not without flaws. Performance and structural constraints continue to be a problem.
The Loopring (LRC) protocol seeks to create a hybrid platform that combines the best features of both centralized and decentralized exchanges. Users retain control over their private keys by trading directly on the underlying blockchain. In addition, Loopring reduces gas consumption and transaction costs to a fraction of what they would be on-chain.
The Loopring protocol seeks to preserve the benefits of decentralized exchanges while reducing or eliminating their inefficiencies through hybrid solutions. Loopring plans to conduct the vast majority of its operations, such as trade and transfer settlement, on the Ethereum blockchain. An exchange owner, high-frequency traders, and market makers can stake LRC to reduce protocol fees on a specific exchange.
How Are New LRC Tokens Created?
Loopring (LRC) is an ERC-20 token that can be staked. Staking is a method of earning rewards by holding specific cryptocurrencies. Cryptocurrencies use this method to verify transactions and allow users to earn rewards for their holdings.
The Loopring DAO is the community of members (LRC holders) deciding how these funds should be spent. Anyone can stake LRC to get a share of the 70% protocol fees collected by all Loopring-based exchanges. For economic security and reputation, an exchange owner can stake LRC. High-frequency traders, market makers can reduce protocol fees on a specific exchange.
How Does Loopring Work?
Loopring (LRC) has used game theory in the background to automate one of the most difficult problems of decentralized exchanges and protocols. But, in order for you to understand Loopring, I need to explain some of the jargon mentioned in the whitepaper so that you can grasp the entire process.
1. Ring-Matching
The most advanced order-matching technique currently available on the market is ring matching, in which buy and sell orders are simply matched. Ring matchings create a loop of matching because they are inherently connected to liquidity pools and other exchanges.
Assume Ram, Shyam, and Prashant want to trade but have different requirements - they can, however, satisfy each other's needs when arranged in a loop or ring.
2. Order-Sharing
Loopring's order-sharing tech will allow uncompleted orders to be ring-matched again with available parties and vice-versa. Orders can also be broken into smaller parts according to the available liquidity and best prices.
3. Ring Miners
Ring miners are the people who do the ring-matching and order-sharing to properly fulfill the orders at the best possible rates. And for this service of theirs, they are paid in LRC fees.
4. Utility Of LRC Token
LRC is being used as a fee to pay the ring-miners and these miners are paid in two different types. One is a standard fixed fee for the trade while the other is the split-margin fee. The standard flat fee is straightforward. For example, if a trade is successful, the ring-miner will be paid 1-2 percent of the exchange fee.
Overall Workflow Of Loopring
When you place an order on Loopring.io from your wallet, you are actually signing with your keys and sending a command to the Loopring smart contract, which will trade your tokens once the necessary conditions are met.
The order details are also passed on to relayers and ring miners, who perform the background magic of ring-matching and order-sharing, and this option actually allows you to use your funds even after placing an order because they are not locked down in the order.
Loopring’s Team
Daniel Wang, a software engineer and entrepreneur, founded the Loopring Foundation, which oversees the development of the Loopring (LRC) protocol. Wang earned a bachelor's degree in computer science from China's University of Science and Technology. He has also worked for JD.com and Coinport.
The Loopring team appears to be genuine, with real people working behind the scenes. In 2014, the founder also ran a centralized exchange for a short time. My main concern is that they do not have a large number of blockchain experts on their team. They have good advisors and are expanding their workforce in accordance with their plans. It will be fascinating to see how they develop.