Loopring (LRC): A Beginner's Guide

Introduction

Loopring, a blockchain protocol which offers high levels of security in a decentralized format, aims to provide users with security and better performance while offering low fees and high speeds to facilitate trading, swapping, payments and the provision of liquidity. Supposedly, Loopring can perform over 2,000 transactions per second … but is it really worth buying? Read this article to learn more about Loopring and its native token, LRC.

What Is Loopring?

Loopring is built upon the highly secure Ethereum blockchain, AKA the “hub” of the crypto market. The protocol was initially deployed in December 2019 on the Ethereum mainnet. 

Loopring was founded by Daniel Wang, who is currently the CEO of Loopring Foundation. It aims to combine centralized order matching with decentralized on-blockchain order settlement into a hybridized product.

Typically, centralized crypto exchanges have more liquidity to offer, with multiple users buying and selling on-demand assets. Decentralized exchanges, on the other hand, tend to have lower liquidity levels as order matching doesn’t take place as quickly. Loopring combines the best of both worlds.

What Is LRC?

Made available to the public during an initial coin offering (ICO) in August 2017, LRC is the Ethereum-based ERC20-native token of Loopring.

The Loopring platform is described as “open-sourced, audited, and noncustodial.” It offers users the ability to build noncustodial, order book-based exchanges on Ethereum by leveraging zero-knowledge proofs. LRC is necessary for key operations on the protocol, and it also helps to incentivize the correct use of the Loopring network. Exchange operators who deposit LRC can also have deposits confiscated by the protocol if the exchanges are operated poorly. These confiscated funds are then distributed to users who lock up LRC.

How Loopring Works

Loopring is a payment application that’s also known as “the world's first Ethereum smart wallet.” It’s managed by a smart contract, as opposed to a private key powered by zero-knowledge roll-ups (ZK-Rollups). Loopring integrates cutting-edge cryptography into its platform and ZK-Rollups, which are proposed ways to make the Ethereum blockchain more suitable for decentralized finance (DeFi) applications. DeFi applications enable users to engage in crypto trading without using a centralized exchange.

Ethereum, the blockchain Loopring is built upon, is often plagued by slow speeds and high fees. To avoid congestion, Loopring integrates a data link layer (Layer 2, or L2) into its protocol. With L2, users can instantly send Ethereum or ERC20 tokens to any Ethereum address. The data link layer serves as a protocol which transfers data between nodes on a network segment across the physical layer. Loopring also checks their assets' security by choosing their trusted third party as the guardian. While using Loopring Wallet, users pay only 1% of Ethereum Layer 1 fees.

The Loopring protocol is dependent on ring miners to fulfill the given tasks. Ring miners and order rings help execute orders in exchange for rewards. Miners receive rewards in the form of traders’ fees or margins placed for orders.

What Is LRC Used For?

LRC is used to pay fees on L2 zero-knowledge roll-ups (ZK-Rollups) while maintaining the blockchain's security. Apart from supporting both automated market makers (AMMs) and an order book exchange model, it also provides a payment system developed on the Loopring protocol. This trading platform lets users exchange digital assets such as cryptocurrencies.

The Loopring exchange platform authorizes protocols, creates orders, mixes and matches orders (ring mining), verifies orders, and processes settlement. LRC can be earned via ring mining. The protocol can match a maximum of 16 orders for various cryptocurrencies in a circular trade, called an order ring. Ring miners and order rings help execute orders in exchange for rewards. 

Nodes on the Loopring network are rewarded in LRC tokens that combine the individual orders into order rings to maintain public order books and trade history; and, in some cases, to broadcast orders to other relays. The Loopring relayer looks after the off-chain Merkle Tree, creates roll-up blocks, and sends data to the Ethereum network.

What Makes Loopring Unique?

Loopring combines elements from both centralized and decentralized cryptocurrency exchanges to create a protocol with a set of unique advantages that eliminates inefficiencies. It offers a decentralized exchange (DEX) which, instead of holding user funds in custody and processing trades internally, helps buy and sell orders that connect directly with each other and settles the trades on a public blockchain.

Key Features of Loopring Protocol

Loopring, a ZK-Rollup protocol, combines Ethereum smart contracts and zero-knowledge (ZK) circuits to make scalable and secure DEXs and automated market makers (AMMs). The first protocol deployed on the Ethereum network was the ZK-Rollup, marking the beginning of the L2 scaling era. The Loopring protocol lets you build and run its ZK-Rollups and products.

ZK-Rollups have the advantage of operating on a known form of cryptography called zero-knowledge proofs. This technique lets a computer program claim data without sharing any identifying information. ZK-Rollups are also able to bundle hundreds of transfers into a single transaction. This enables fast and inexpensive trades to occur outside the Ethereum blockchain. Subsequently, these transactions are then settled on the blockchain itself, where zero-knowledge proofs are used to confirm the accuracy of off-chain transactions. 

To begin trading on Loopring, you need to send funds to a smart contract managed by the Loopring protocol. Thereafter, the Loopring exchange moves the computation required to complete trades off of the main Ethereum blockchain, including information such as your order history and account balance. Loopring will then settle transactions on the Ethereum blockchain to finalize trades between users first matched off-chain. This technique results in reduced cost and increased speed for Loopring to reputedly perform over 2,000 transactions per second.

Each of these batches of transactions will then be added to the Ethereum blockchain with zero-knowledge proofs to allow anyone to reconstruct the transactions that have happened off-chain. By using this method, the transactions are confirmed as being genuine, and not tampered with by unauthorized parties.

LRC Tokenomics

Source: CoinMarketCap

As of this writing, the price of one LRC token is $1.16, with a 24-hour trading volume of about $1 trillion. LRC has a live market cap of $1.5 trillion, a circulating supply of 1.33 billion LRC and a maximum supply of 1.37 billion LRC. The issuance of LRC tokens is governed by the smart contracts that make up the Loopring protocol.

In November 2021, Loopring’s value increased by over 180%. This rise was perceived as the market's reaction to a rumor of Loopring partnering with GameStop.

Pros and Cons

Pros

Loopring has an advantage over alternative blockchain protocols because of the novel cryptography it uses. This is of interest to investors who look for access to a wide range of projects built on the Ethereum blockchain, because they use decentralization for data management. This use of blockchain technology to theoretically hand control back to the user forms the basis of the Ethereum network. A DEX offers removal of the custodial and transparency risks, and Loopring increases the efficiency of order execution and enhances the liquidity of DEXs.

Cons

DEXs have problems that persist in performance and structural limitations. This can affect the extent to which LRC achieves widespread adoption. The effects of fragmented liquidity can cause issues if DEXs don’t employ consistent standards to interoperate, and if orders aren’t shared/propagated across a wide network. 

Another disadvantage is that since blockchain order books are public, the transaction to place an order is visible by miners as it awaits being mined into the next block and placed into an order book. This could cause delay and expose the user to the risk of being front-run and having the price or execution move against them.

Is Loopring (LRC) a Good Investment? 

Cryptocurrencies can be considered high-risk assets due to their volatility. However, Loopring looks like a promising project because it’s constantly being developed and updated. According to Capital.com, LRC’s price is expected to reach $5.20 by November 2022, $8.19 by November 2025, and $16.47 by November 2028. (Editor’s note: Before investing in LRC, please do your research and familiarize yourself with the risks involved.)

Buying LRC

LRC can be bought via cryptocurrency exchanges such as Bybit. After creating an account on these exchanges, you can buy LRC using payment methods such as credit or debit card. On Bybit, LRC cannot be acquired directly — you will need to purchase USDT, then trade it for LRC in the Spot Markets section.

Mining LRC

Loopring’s price fluctuates tremendously, with the number of miners involved playing a major role in the amount of profit generated. The hardware most suitable for mining LRC is the application-specific integrated circuit (ASIC). An ASIC miner is a hardware device that uses microprocessors for mining digital currency. If mining for LRC is done through a computer, a GPU won't generate a large turnout. Mining difficulty increases with growth in the number of miners, and an increase in demand for a larger hash rate, which refers to the amount of computing power provided for mining new blocks.

Closing Thoughts

Backed by a vast community, the Loopring protocol is constantly evolving and deploying new features. For a crypto space struggling with high transaction fees and low scaling rates, the Loopring protocol has the potential to radically transform the way future DEXs are developed … and we’re here for the ride.