LOOPRING'S VISION

Loopring builds protocols, infrastructure, and user-facing products for the future of finance. We believe this future is built on Ethereum, and specifically on layer 2 (zkRollups).

Users of decentralized finance (DeFi) need not choose between security and performance. Loopring's L2 provides a low-fee, high-speed platform for trading, swapping, liquidity providing, and payments - without sacrificing Ethereum security at all.

We envision a digital economy where users are empowered and always in control of their assets. Loopring has succeeded in proving that non-custodial technology can replicate custodial alternatives in speed, cost, and experience. We have made DEXes as performant as CEXes, and will outcompete incumbent fintech.

Loopring's objective is to design and engineer the best-in-class zkRollup exchange and payment protocol on Ethereum, and to operate products that bring it to users across the world.

What is Layer 2 on Ethereum?

Layer 2 is the collective term for a group of crypto projects that have been built as semi-autonomous satellites of the main Ethereum blockchain.

These projects, which include both trading platforms and networks of decentralised applications, solve Ethereum’s well-publicised congestion problem by handling many of its everyday transactions off-chain before posting the records back on-chain in batches, which is extremely efficient.

They also improve the overall user experience, because, unlike the main chain, they can settle transactions instantly and without expensive gas fees.

Layer 2 is still a very new concept, so in this blog post we’re going to give you everything you need to understand it.

What is the purpose of layer 2?

Ok, so first we need to consider the strains on the main Ethereum blockchain, or layer 1.

This blockchain was built in 2015, in the wake of bitcoin. But unlike bitcoin, it has a dual purpose: as well as hosting its own currency, Ethereum provides a framework for developers to build decentralised applications.

The project has gone better than anyone could reasonably have expected.

• Ethereum is now the most popular blockchain on the planet, having surpassed Bitcoin.

• Its flagship currency, Ether, is fast approaching bitcoin’s market cap.

• It now hosts over 3,000 decentralised apps, including games, social networks and trading platforms.

But this is placing huge demand on the main Ethereum network, which isn’t built to handle this level of user activity. Hundreds of thousands of people want to use the network every day to trade, buy NFTs, post messages in forums and loads of other stuff.

If you imagine it like a motorway, Ethereum is now in rush hour, every hour. It was only built to handle 15 transactions per second, whereas in reality it needs to be able to handle several thousand.

This means that Ethereum has to charge users for a slice of its computing power. These dreaded ‘gas fees’ can reach hundreds of dollars for a simple transaction, and penalise smaller traders (who have to bid for the computing space against bigger rivals).

LOOPRING PROTOCOL IS COMPLETELY SECURE

The security and sovereignty of user assets is Loopring's top priority. We deployed the first zkRollup protocol on Ethereum - the most secure scaling mechanism the industry knows of, whereby users can access their assets in all circumstances. On Loopring protocol, exchange and payment applications simply cannot be evil. No person, company, nor state can come between a user and their Ethereum-based assets.

Loopring inherits 100% Ethereum-level security guarantees. Loopring protocol does not rely on any external validators, consensus, or cryptoeconomic assumptions. Only Ethereum and Zero Knowledge cryptography. All actions are correct by construction, or simply cannot happen: exchange operators are constrained to purely protocol-described behaviour.

LOOPRING PROTOCOL IS A BUSINESS'S BEST-FRIEND

Control is a liability. For centralized crypto exchanges, the stress and fear of being hacked is immense. So is the regulatory burden. Loopring protocol ensures that an exchange or payment application simply cannot access or lose user assets. And without control over user assets, exchanges may also shed some regulatory burden. Using an open-sourced, audited, cryptographically sound Ethereum protocol means less time & money spent on security & compliance, and more on growing your business.

If you don't use the Loopring protocol to power your exchange, you can still use it for its payment functionality - as a fast, gas-free lane for users to deposit and withdraw Ethereum-based assets. Augment the experience for users, while dramatically reducing your network (gas) costs. No extra tooling required.

LOOPRING PROTOCOL IS REMARKABLY PERFORMANT

Loopring solves scalability without compromising Ethereum security. Our zkRollup throughput reaches approximately 1000x of Ethereum, or as high as 2,025 trades per second. The cost per transaction is reduced to as little as 1/100th the cost of Ethereum, with trades and transfers costing fractions of a cent. With Loopring, we expect non-custodial exchanges and payment apps to continue outcompeting and displacing centralized ones.

Ethereum has become so popular and heavily used, that it exists in a near-permanent state of congestion, where users face absurdly high fees and long delays. Layer 2 presents a less congested fast lane, where users transact gas-free and without delay, yet completely coupled to Ethereum security. From a user's POV, it just works, with blockchain UX problems abstracted. Loopring's performance is sufficient for algorithmic traders and market makers to deploy legacy-style, HFT strategies on DEXes for the first time.

HIGH THROUGHPUT

Loopring protocol can settle up to 2,025 trades per second while guaranteeing the same level of security as the underlying Ethereum blockchain. This is made possible by using a construction called zkRollup, which aggregates and executes transactions off-chain, in a provably correct manner. For context, prior versions of Loopring (and current versions of some other DEX protocols), can settle only 2 or 3 trades per second. With Loopring's layer 2 scaling, non-custodial exchanges can match the performance of custodial competitors.

LRC Tokenomics

The Loopring protocol token, LRC, has been part of the protocol since our inception over 3 years ago. It's design and usage have remained largely the same over this time, while the protocol and products have made profoundly important progress. It is time the LRC model pulls itself up to keep pace with — and enhance — the Loopring protocol and product suite.

LRC will be used to incentivize behavior that is beneficial for the Loopring ecosystem, have a say in said system, and further ignite the transition to Ethereum L2.

TLDR

• Loopring protocol fees come from transaction volume (economic activities) on Loopring Layer-2 (L2) and are also distributed on L2.

• The initial protocol fee parameter will be set to 20% of the L2 transaction fee. With the current relayer settings, this means 2 bps (0.02%) for AMM swaps, between 0.8 bps to 4.6 bps (0.008% to 0.046%) for orderbook trades, and $0.01 for transfers.

• Protocol fees are paid to 3 types of participants: a) liquidity providers, b) insurers, c) Loopring DAO, in an 80/10/10 proportion, respectively.

• Protocol fees accrued in tokens other than LRC and ETH will be sold on our L2 for LRC and/or ETH; all protocol fees are distributed in LRC and/or ETH.

• Protocol fees will be paid on a monthly basis.

• Changes to parameters in the future will go through a forthcoming Loopring DAO.

Whereas in the prior protocol version protocol fees went to LRC stakers who locked up tokens for a minimum of 90 days, the new token model rewards LRC holders who use their assets productively for the good of the platform. LRC will be used to incentivize behavior that helps the entire protocol.

Protocol fee distribution is configurable by the forthcoming Loopring DAO, but will initially be distributed to participants in the following manner:

1. 80% to liquidity providers (LPs) on Loopring orderbooks and AMM. At least 50% of this portion goes to LRC related liquidity.

2. 10% to insurers — users who put capital into a safety insurance fund.

3. 10% to Loopring DAO — the DAO decides how to spend these funds: buyback and burn, impermanent loss protection, further liquidity incentives, grants, etc.

These Loopring ecosystem participants collectively act to support and strengthen the Layer-2 network, and for their work, they are rewarded.

For the first time on Ethereum, protocol fees are earned and distributed on Layer-2. This represents a significant UX improvement, as it means no wasting money (gas) and time entering staking contracts on L1, nor claiming your rewards. They will be sent to their rightful recipients’ Loopring L2 accounts automatically at the end of every month. [All sub-dollar amounts will not be paid nor accumulated.]

Protocol fees

From the L2 transaction fees comes the protocol fee. The protocol fee is described as 20% of the L2 transaction fee. That is, 20% of the fee that the relayer charges on every trade and transfer go to LRC liquidity providers, insurers, and voters who participate in the success of the Loopring L2.

Tracking Loopring