Loopring : Using Smart Contracts To Exchange Digital Assets On Any Platform

What is Loopring?

Loopring is an open protocol for building decentralised exchanges. With smart contracts, it can trade digital assets between off-chain operators bringing interoperability to the blockchain space. It enables people to have control over their own crypto-assets during the whole trading process instead of giving their money to centralized platforms.

With all of the digital assets that are being created at an unprecedented rate, there is an obvious fuse case for linking them all together. The problem is  that doing this requires trusting an intermediary or centralised exchange. Philosophically this goes against the spirit of cryptocurrency. Sending copies of your ID to what is essentially a startup is a daunting prospect, and exchanges are continually hacked because to use them users have to surrender their private key. Remember the Mt Gox hack? It is the most spoken about exchange hack, but since then there have been hundreds potentially thousands of other exchanges some small others very large that have suffered the same fate. The Binance phishing scam in early 2018, Bitfinex’s 72 million in missing tokens. Even Coinbase was hacked earlier this year.

Loopring is about more than just making sure you don’t lose your coins in a hacked centralised exchange. Like their Whitepaper says “With the proliferation of blockchain-based assets, the need to exchange these assets amongst counter-parties has significantly increased. As thousands of new tokens are introduced – including the tokenization of traditional assets – this need is magnified. Whether exchanging tokens for speculative trading motivations, or converting to access networks via their native utility tokens, the ability to exchange one crypto asset for another is foundational for the larger ecosystem. Indeed, there is a potential energy in assets and realizing this energy – unlocking capital – requires not only asserting ownership, which blockchains have immutably allowed for, but the ability to freely transfer and transform these assets. As such, the trustless exchange of tokens (value) is a compelling use case for blockchain technology.

I think we can all agree that decentralised exchanges will play an important role in the digital asset ecosystem that is taking shape, but how does Loopring fit into this? Unlike Kyber network, Loopring is not a decentralised exchange. It is instead a modular protocol (a set of tools) for building decentralised exchanges across multiple blockchains. They offer SDK style set of smart contracts and decentralized actors.

Is Loopring A Decentralised Exchange?

Loopring is not a DEX, but a modular protocol for building DEXs on multiple blockchains. We disassemble the component parts of a traditional exchange and offer a set of public smart contracts and decentralized actors in its place. The roles in the network include wallets, relays, liquidity-sharing consortium blockchains, order book browsers, Ring-Miners, and asset tokenization services.

Order Rings are the heart of trading on Loopring. It uses something called a unidirection order model. Rather than filling or partially filling the buy and sell orders on the platform, it mixes and matches multiple order on the platform. Since every order is just a exchange rate between two tokens and order rings can include up to 16 different trades in a singe order ring, there should be better liquidity than there is on most certralised exchanges

This shows how Order Rings can take three different buy / sell orders and create a circular trade that fills all orders. Another interesting consequence of these types of trades is that it doesn’t require an equivalent trading pair. Trading pairs can still be executed, but these Order Ring are a unique way that Loopring can improve on liquidity.

“An order-ring is valid when all component transactions can be executed at an exchange rate equal to or better than the original rate specified implicitly by the user. To verify order-ring validity, Loopring protocol smart contracts must receive order-rings from ring-miners where the product of the original exchange rates of all orders is equal to or greater than 1.” – Whitepaper

This is a mathematical way of expressing the idea that no one can buy tokens for less than someone else is willing to sell them. If the exchange rate (ratio) is less than 1, this can’t logically be the case.

Ring Mining

Relays are nodes that receive orders from wallets and the underlying liquidity building relay mesh. They use this information to maintain public order books, trade history, and broadcast orders to other relay nodes. Ring mining is a feature not a requirement of relays. Ring mining is done completely off-chain, and it is a computational heavy process. Relays 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).

I just want to reiterate at this point that Loopring is more of a tool kit for building decentralised exchanges than it is a decentralised exchange Different exchanges built on the platform are free to choose how consensus is reached and what mining algorithms are used.

Smart Contracts and Asset Tokenization Services

LPSC are A set of public and free smart contracts that checks the order-rings prepared by the ring-miners. Like other smart contracts their purpose is to automate and automatically settle and transfers tokens without user intervention. Actions built into smart contracts can incentivizes ring-miners and wallets with fee and keep order books up to date.

“The Loopring Smart Contracts do not perform exchange rate or amount calculations, but must receive and verify what the ring-miners supply for these values. These calculations are done by ring-miners for two main reasons: the programming language for smart contracts, such as solidity on Ethereum, does not have support for floating point math, especially pow(x, 1/n) (calculating the n-th root of a floating point number), and (2) it is desirable for the computation to be made off-chain to reduce blockchain computation and cost.” The whitepaper.

There are always going to be assets that can’t be traded on Loopring. To integrate these assets with the ecosystem the Asset Tokenizations Services (ATS) act as bridges between assets that cannot be directly traded on Loopring. Users can deposit assets and redeem them for tokens that are tradeable on Loopring.

“Loopring is not a cross-chain exchange protocol (until a suitable solution exists), but ATS enable trading of ERC20 tokens with physical assets as well as assets on other blockchains.”

Should I Invest In Loopring?

I think that along with Kyber Network and OmiseGo, Loopring is one of the most likely solutions for decentralised asset exchange and building interoperability between the various blockchains and ecosystems in the space. 

The LRC token has consistent daily trading volumes around 10 million USD. It is a top 50 altcoin that’s held its value better than most altcoins in the current bear market. It is listed on popular exchanges like Bittrex and Binance. There is an active community, on Reddit and Telegraph, and the team and founder Daniel Wang host frequent AMA sessions. A lot of hype and news worthy events around this cryptocurrency are generated from partnerships with different cryptocurrencies. The team has proven their ability time and time again to from these partnerships. This is a long term hold. What Loopring are trying to do will take years to reach mass adoption. Short term, we have speculative pumps to look forward to.

Team

Loopring is a Chinese cryptocurrency lead by founder Daniel Wang. According to his LinkedIn page, he has previous experience with cryptocurrencies. In March of 2014, he founded a company called Coinport. They offer a bitcoin payment processor that is very popular in China. Prior to this he was worked for a company called JD.com as a high-level engineer.

How to Invest In Loopring?

Coinlist’s complete investor’s guide to Loopring delves deeper into the short and long term prospects of this altcoin before explaining how and where to buy it. Check out the guide for more information on upcoming milestones, events and other newsworthy events here.