What is Loopring? (LRC)
Loopring is a software running on Ethereum that aims to incentivize a global network of users to operate a platform that enables the creation of new types of crypto asset exchanges.
One of an emerging number of decentralized finance (DeFi) protocols, Loopring uses multiple cryptocurrencies, including its own LRC cryptocurrency, to together provide for this platform.
Most notably, Loopring claims its platform will allow exchanges built on top of it to sidestep the slow speeds and high costs associated with decentralized exchanges on Ethereum through the use of a newer type of cryptography called zero-knowledge rollups, or zkRollups.
With zkRollups, Loopring asserts its exchanges can offer faster settlements for traders. Rather than settling trades on the Ethereum blockchain directly (as other decentralized exchanges do), zkRollups enable Loopring exchanges to complete key computations elsewhere.
The idea is that this can reduce the number of transactions that a Loopring exchange will need to submit to the Ethereum network, thus increasing speed and reducing costs for traders.
This is in contrast to other decentralized exchanges, where trades require transactions to be confirmed by the Ethereum network, taking minutes instead of seconds or milliseconds.
Who Created Loopring?
Loopring was founded by Daniel Wang, a software engineer based in China who worked at internet companies including Google and JD.com.
In 2017, Loopring conducted an initial coin offering, raising 120,000 in ether worth $45 million. However, a tightening of regulations around such offerings in China at the time later prompted Loopring to return much of their public sale funds.
The team returned about 80% of the funds raised, according to Wang, and the Loopring team continued to develop its exchange with the remainder of the proceeds.
How Does Loopring Work?
Loopring’s key value proposition is the cutting-edge cryptography it integrates on its platform.
As such, it’s important to note zkRollups are just one proposed way of making the Ethereum blockchain more suitable for DeFi applications. Competing cryptographic proposals include xDai, Matic, Optimistic Rollups and Plasma.
ZkRollups are considered promising by some advocates, as they take advantage of a known form of cryptography called zero-knowledge proofs, a technique that lets a computer program make a claim about data without actually sharing the data.
As an example, a zero-knowledge proof might enable a government agency to verify that you are above the age required to access a website, without revealing your exact birthdate.
Using this same technique, zkRollups bundle hundreds of transfers into a single transaction, which allows fast and cheap trades to first occur outside the Ethereum blockchain.
These transactions are then settled on the blockchain, where zero-knowledge proofs are used to confirm that off-chain transactions are accurate.
zkRollups on Loopring
In order to begin trading on a Loopring exchange, users must first send their funds to a smart contract managed by the Loopring protocol.
From there, Loopring exchanges move the computation necessary to complete trades off of the main Ethereum blockchain. This includes information such as a user’s account balances and order histories.
Loopring then settles transactions on the Ethereum blockchain to finalize trades between users that were first matched off-chain. These trades are batched to reduce cost and increase speed. Loopring claims it can perform over 2,000 trades per second with this technique.
Each batch of transactions is then added to the Ethereum blockchain with zero-knowledge proofs that allow anyone to reconstruct the transactions that took place off-chain.
This allows users to be confident that the transactions are genuine and that they have not been tampered with by any unwanted parties.
Why Does LRC Have Value?
The Loopring cryptocurrency, LRC, is necessary for key operations on the protocol.
For instance, anyone who wishes to operate a decentralized exchange on Loopring must lock up at least 250,000 LRC, which enables the operator to run an exchange that uses its on-chain data proofs. An operator must stake 1 million LRC to run an exchange without this feature.
Further, LRC helps incentivize the proper use of the Loopring network. Exchange operators who deposit LRC could even have deposits confiscated by the protocol if they operate exchanges poorly. These confiscated funds would then be distributed to users who choose to lock up LRC.
Elsewhere, any user can stake LRC to earn a portion of trading fees paid to the protocol.
Some 70% of fees are distributed to users who stake LRC. A further 20% is allocated to the Loopring Decentralized Autonomous Organization (DAO), which is designed to allow a pool of funds to be spent at the discretion of Loopring users in future.
Finally, 10% of fees are burned. This means the total supply of LRC will decrease over time, putting pressure on its price. The total supply of LRC is capped at 1.375 billion tokens.
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Why Should I Use LRC?
You should use LRC if you believe traders will continue to use decentralized exchange venues in concert with traditional options, and that Loopring has an advantage over alternatives due to the novel cryptography it uses.
Users may also be interested in the increased trading opportunities decentralized exchanges allow. When used in conjunction with an exchange like Kraken, users may also be able to spot arbitrage opportunities between the wide range of accessible markets.
Further, Loopring may also be of interest to investors who seek to access a wide range of projects built on the Ethereum blockchain, or alternatives to other platforms like Solana or Polygon.
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