Loopring was formed to reduce user dependence on centralized exchanges, prevent front-running, and improve anonymity. Loopring’s Ethereum-based LRC token was launched on August 1st, 2017 and raised $45 million. The project completed its second phase of funding through a NEO-based LRN SAFT and is in preparation for a QTUM-based LRQ SAFT. The team is fairly experienced with notable background at Google, PayPal and Ernst & Young. Notable investors include the founders of NEO and Nebulas.
Loopring combines on-chain and off-chain mechanisms to build a fast, anonymous and secure decentralized exchange protocol. The on-chain mechanisms are used for trade and settlement while off-chain mechanisms are used for collecting and communicating orders. Loopring collects orders off-chain and broadcasts to Relayers (order collectors), who match the orders and pass them on to Loopring Protocol Smart Contracts (LPSC). LPSC then verifies and settles the orders on-chain between the accounts. Given that high levels of liquidity exist on Loopring, the likely platform users are cost-conscious traders and investors, due to lower long-run costs that DEXs offer compared to centralized exchanges. Further, existing exchanges may elect to integrate with Loopring to reduce their own infrastructure costs.
Loopring’s self-purported ability to counter front-running differentiates the protocol from other DEX protocols, such as 0x. Front-running is when an market participant gains an unfair advantage by trading on information that is gleaned from orders that are already in process. Though other DEX protocols have mechanisms to prevent front-running, it is still possible to beat the system if the Relayer goes rogue or if a attacker pays a higher gas price to get their order mined before. In Loopring, however, the order is dual-authored: checked before mining and settlement. Each order is hashed and sent along to miners with its corresponding auth key. Miners check the auth key before it gets mined and settled, so a frontrunner can’t replace the addresses of an order with higher price as the auth key won’t match. This is an effective way to counter front-running once the order is in the system.
Another key differentiator of Loopring is its interoperability with Ethereum, NEO, and QTUM-based protocols. This is in contrast to most other DEX protocols, who operate solely on Ethereum as of 2018. This encourages developers to build on the Loopring protocol, as the code can be interoperable amongst platforms. Lastly, Loopring tries to solve the liquidity problem through two different mechanisms. First, the Relayer in Loopring is forced to share the order with other Relayers in the network if they cannot fill the order. Second, Loopring has the ability to mix and match orders of different pairs to improve liquidity.
There are multiple tokens issued for the project, depending on the underlying blockchain (Ethereum: LRC, NEO: LRN, QTUM: LRQ). Other LRx tokens will be sold and released as the protocol is developed for new platforms. One of the primary uses of the token is to pay Relayer transaction fees upon order settlement. There are two ways to pay fees. The first is through LRx’s, if those tokens are held in the wallet, and the second is percentage based, whereby Relayers take a percent of the transaction but pay a portion back to the user in LRx tokens. The user can then use the LRx tokens for future transactions. A secondary use case for the tokens is governance in the form of voting for critical issues such as protocol updates. Loopring is still finalizing aspects of its layered governance model, such as what those layers are and how token holders are chosen for each layer.