Loopring (LRC) is a decentralized exchange protocol that is implemented in the form of a smart contract. It enables users to trade tokens in an anonymous, secure, and trustless way by using their private keys to authorize trade orders directly from their wallet. Loopring’s primary goal is to fix some of the issues that are inherent in the current centralized exchange model.
Current Problems with Centralized Exchanges
Lack of security – Users must first deposit their tokens in the exchange before they can trade them, which carries a lot of risk. There are several scenarios in which users can lose their tokens because of custodial risks like the exchange shutting down, hacking, account suspension, developer mistakes, etc.
Lack of liquidity – Users can only trade within the exchange using the available order pool and supported crypto pairs. If there isn’t enough volume, then they have to trade with another exchange. If the token pair they want isn’t supported, then they have to make indirect trades with other pairs or transfer their funds to another exchange.
Lack of transparency – Centralized exchanges can become insolvent without notice and anything can happen to tokens held in exchange wallets.
How Loopring Solves These Problems
Reduced risk – Loopring doesn’t require users to send tokens to an exchange wallet for custody. Tokens remain in users addresses for the duration of the transaction. Users can even transfer their tokens after submitting an order and the protocol will automatically adjust the trading amount. This protects users from exchange bankruptcies, DDoS attacks, data breaches and hacks.
Order sharing – The Loopring protocol allows orders to be broken into small pieces and then identifies the best exchanges and times to trade those pieces. It optimizes trading results and provides the best prices for trade orders.
Ring matching – Miners can use a process known as “ring matching” to make multi-token transactions and create a trade loop that guarantees the best rate for all participants of a particular loop. Ring matching combined with order sharing generates high levels of liquidity and ensures exchanges will always be solvent.
Fairness – The fees and discount model used by Loopring allows for fairness between all involved parties.
Cross-chain protocol – The protocol is blockchain agnostic and can be implemented on any blockchain with smart contract functionality.
Other Tokens Under the LRx Umbrella
Loopring features several tokens under the “LRx” umbrella. LRC is the token used on Ethereum, while the LRN token works on the Neo platform, and the LRQ token is used on the Qtum platform. Each of these tokens have two different applications: first, they function as the gas (transaction fee) that powers smart contracts. Second, they are used by users to reward miners who fulfill their exchange orders.
The first version of Loopring was deployed on Ethereum and Qtum. The developers are currently working on implementing the protocol on Neo and eventually other blockchains that support smart contract functionality.
How Loopring Works
Loopring’s ecosystem has several components that interact with each other to provide the same core functionality as a centralized exchange:
Wallets – A common wallet that gives users access to their tokens and provides them with an interface for sending trade orders to the network.
Protocol smart contracts – The protocol features a set of smart contracts that perform transfers on behalf of users, update order databases, check ring-matched orders from miners, provide miners with incentives, and emit events. These smart contracts self-execute, which means they will work exactly as written without any chance of human error.
Relays – Relays monitor events that occur on the protocol to keep order books and trade history up to date. They also broadcast new orders to ring miners and other relays.
Ring miners – Ring miners find the most efficient way to fulfill orders through ring matching and create chains of trades with at least two tokens called order rings. Ring mining processes require a lot of computational power and are conducted off-chain.
Asset tokenization services – Loopring is not a cross-chain exchange protocol. It relies on tokenization services provided by trusted centralized companies or organizations to serve as a bridge for assets that can’t be directly traded on the protocol. Asset tokenization services make it possible for ERC20 tokens to be traded with assets on other blockchains as well as physical assets.
How Trading Works on Loopring
When a user wants to make a trade, they use the Loopring wallet to enter the details and submit the order. The user also attaches LRC tokens to compensate the miners who process the order. The wallet forwards the order to the Loopring smart contracts for authorization (i.e. check if a user has sufficient funds, etc.). Once an order is authorized, it is signed with the user’s private key and sent back to the wallet, which sends it to one or more relays across the network.
Relays update public order books and broadcast the information to other relays as well as ring miners in order to process the order as quickly as possible. The ring miners then try to partially or completely fulfill it at the given exchange rate, or a better rate by “ring matching” the order to several other orders in a loop. Ring matching is the reason why Loopring is able to provide high liquidity.
If the exchange rate is better than the rate the user asked for, the savings are shared by all the orders in the ring in a process known as a margin split. Miners can choose to retain the margin split as a processing fee or receive the LRC tokens included in the order by the user.
Finally, the Loopring protocol smart contract receives the ring and performs multiple checks to verify the data supplied by the miners and determine whether the ring can be settled fully or partially. If all checks are successful, the contract transfers the tokens to the user and simultaneously pays the miners the attached LRC fee as compensation. The entire process is atomic and is completed in a matter of seconds.
Loopring vs. Other Cryptocurrencies
Decentralized exchange protocols built on blockchains already exist. One such example of a decentralized exchange platform is 0x (ZRX). Like Loopring, it allows orders to be processed off-chain and trades to get settled on chain, but 0x doesn’t draw from multiple exchanges to maintain liquidity.
Loopring isn’t trying to beat out the competition. It wants to improve existing exchanges (both decentralized and centralized) by connecting them and increasing their liquidity across all markets. The protocol functions as a trade execution system that implements trades across the world’s crypto exchanges.
It essentially intermediates trust between blockchains and exchanges, reducing risk and trade costs. It also has an edge because it has the support of the Chinese government and could potentially capture the growing Asian crypto market.
LRC Pricing, Market Cap and Volume
LRC is Loopring’s current reference token. There is a finite supply of 1,374,956,355 LRC tokens that will ever be released. According to Loopring, the circulating supply has 734,089,390 LRC, or approximately 52.6% of the total supply. The figure includes the number of tokens in the Loopring Ecosystem Advancement Fund (LEAF) as well as the portion that is actually in the market.
The LEAF fund tokens are not listed because they are not actually on the market. The Loopring Foundation plans to use those tokens to support the development of the protocol’s ecosystem and those funds will primarily be distributed to parties that add value to the Loopring Ecosystem as well as the LRC token itself.
LRC is still a fairly new token by cryptocurrency standards, but its market capitalization reached ~$1 billion USD in January 2018. A new token will be created whenever a blockchain adds Loopring support. Approximately 60% of all new LRx tokens will be airdropped to reference token holders (i.e. LRC token holders) whenever a new token is created.
Buying, Storing and Selling Loopring
LRC is listed on a number of both big-name and lesser known exchanges including Binance, CoinExchange, Dragon Exchange, EtherDelta, Gate.io, HitBTC, OKEx, and Yobit. The Loopring team released the Loopring Wallet (Loopr) for storing LRC and performing trades, but it’s still in beta and is currently operating on an “invite only” basis. LRC is an ERC20 token, which means it can also be stored on Ethereum wallets like MyEtherWallet, Mist, Parity, MetaMask, and imToken.
Liquidity of Loopring
LRC has poor market liquidity as of February 2018, largely because it isn’t listed on any of the big exchanges (aside from Binance). With that said, it certainly has a lot of potential to gain liquidity in the future. The Loopring team has released planned updates on schedule and LRC will likely become more liquid once it is adopted by more blockchain platforms.