Ethereum 2.0: What is Loopring Protocol?
Work on Ethereum 2.0 is well underway, and many are enjoying the benefits of the updated blockchain software. One of these updates are the many new solutions to dapp building complications, the newest of which is one called Loopring.
Loopring or LRC is a software protocol that can be used to build upon decentralized cryptocurrency exchanges (DEXs) on the Ethereum blockchain. This protocol was built in the hopes that it would able more cryptocurrency users to use decentralized cryptocurrency exchanges rather than centralized ones.
As the Loopring token climbs the chart in terms of price and market cap, you may be wondering if it is worth adding to your cryptocurrency investment portfolio. Keep reading to find out more about this unique protocol and whether or not you should purchase it.
What is Loopring?
Loopring was originally created as a centralized exchange solution back in 2017, but its creators quickly realized that there was more demand and a need that needed to be filled in the DEFI world instead.
Loopring is a software protocol that is built to be compatible with several different exchanges on the Ethereum network. It offers security, transparency, and liquidity — all things which most DEFI exchanges tend to lack. A DEFI exchange that is struggling with the ability to create its own liquidity can use the Loopring protocol in order to increase its liquidity and further facilitate trades. Loopring isn’t just for DEFI exchanges, however. Because its software protocol is so buildable, Loopring can be included in numerous different dapp projects, including CEFI exchanges and dapps that don’t desire to become an exchange but want their users to be able to exchange coins.
Loopring is built on a set of smart contracts that work to match orders with buyers (person-to-person trades) while also monitoring the price and volume of the trades. These trades are maintained on a decentralized ledger also programmed into the protocol. There are also registration contracts which are the smart contracts that allow other exchanges to build upon Loopring and use their protocol. The cool thing is because it is an automated system matching buyers with sellers, it is possible for Loopring to facilitate 4 way (or more) trades to be sure that everyone is able to trade the coin they desire. The system does this by grouping users into rings based on the cryptocurrency they are trying to sell.
This is made possible by an ERC20 token called Loopring token, in which users can pay fees for the validation of their transactions. These fees are kept by the ring miners who work to validate the transactions. But the cool thing is, ring miners also get a portion of the trade they validate. This incentivizes ring miners to help you get the best deal when you make a trade as they will get a larger portion of the trade when they deal is better for you.
Who Invented Loopring?
Loopring was originally founded in 2017 by David Wang, a Chinese software engineer. The ICO was held the same year, and it raised the equivalent of $45 million. Unfortunately, shortly after, China changed its cryptocurrency laws, requiring that Wang and his team return most of the money they made in the ICO. They returned 80% of the $45 million. Development didn’t end, however, and the team continued to work until the project was ready for release in 2020.
How Expensive Are Loopring Fees?
Although Loopring token is an ERC20 token, because of the ring grouping protocol, in which multiple trades are facilitated at once in one large trade, its fees are much cheaper than those on similar protocols run on the Ethereum blockchain.
Of course, the ring miner does also get a portion of the trade, but their portion depends on the deal you get, so if you get a better deal on your trade, they will get a larger cut. This incentivizes them to help you get the best trade possible.
Should You Buy Loopring?
Loopring is a decent auxiliary service. You can use it to trade cryptocurrencies directly, or you may use it through a DEX that is using Loopring to increase its own liquidity without you really noticing it.
The problem is, there is some steep competition in the industry that Loopring is attempting to master. Besides the fact that many DEX’s such as PancakeSwap and UniSwap create and use their own liquidity pools, there are also software protocols like Kyber Network and 0x that currently perform similar functions.
Loopring is different than PancakeSwap and UniSwap because you can use it to exchange almost any token — as you don’t have to rely on liquidity pools and can trade across exchanges. And unlike Kyber, which offers set prices on its trades that happen at a certain time, Loopring offers much more freedom for trades. Therefore the only real competitor is 0x, meaning there is a chance that Loopring could one day dominate the market.
That being said, Loopring is still based in Shanghai, China, which means that in the future, regulations in China could cause problems for the protocol (or the people running it). It is also a newer technology and has not shown whether or not people will use it long term.
As you can see, the downsides are few, so if you believe in the power behind DEX technology, Loopring is probably a decent investment. This is especially true if you plan to use the protocol to facilitate your own cryptocurrency trades — as then you will have Loopring tokens to pay the trade fees.
Overall, Loopring seems like a decent project which is filling in a need in the DEX world. It is still a cryptocurrency though, meaning there will always be a risk when it comes to investing in a project like Loopring. But if you truly believe in the future of DEFI, and investments with no oversight, then there is no reason not to invest your money into Loopring today. Just be aware that investing in cryptocurrency is inherently risky, and there is always a chance you could lose everything.