What Is Loopring and What’s Driving Its Rise?

If you believe the future of finance is on Ethereum, your confidence may have been tested by transaction fees of up to $200 and the blockchain’s limit of 14 transactions per second.
Updated Mar 9, 2022 at 9:04 p.m. UTC
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Robert Stevens is a freelance journalist whose work has appeared in The Guardian, the Associated Press, the New York Times and Decrypt.

“Just wait for Ethereum 2.0,” fellow Ethereans may coo as they help you through your moments of doubt. “Things will get better soon!” But then you may turn to them and ask, plaintively, “But what about now?”

You would not be alone. While Ethereum’s 2.0 upgrade might seem like a long way from being completed, there is help at hand right now. The blockchain-based project Loopring has developed a layer 2, or companion system, technology to help Ethereum scale, or increase capacity, ahead of its upgrade - by as much as 1,000x, according to the former head of business. Not only that, but the improvements in scalability allegedly do not affect the Ethereum protocol’s security.

Investors are so confident in Loopring’s technology the price of its LRC currency rose by 8,250% between May 2020 and the coin’s all-time high of $3.83 in November 2021.

What is the Loopring protocol?

Loopring is a program designed to work on top of Ethereum’s blockchain (a layer 1, or base, blockchain). This means that Loopring seeks to make the experience of using Ethereum faster by processing elements of Ethereum transactions on its own network. You can think of it as creating a side road off the main highway to help ease congestion.

Loopring’s developers claim this helps the protocol reach throughput approximately 1,000 times greater than Ethereum, with peaks of 2,025 transactions a second. Unlike Ethereum’s sky-high fees, transactions on Loopring cost less than a cent.

You may have heard of other blockchains, such as Avalanche and Solana, that also claim to be faster and cheaper than Ethereum. However, unlike Loopring, these are known as layer 1 blockchains. This simply means they are independent blockchains with their own validators, just like Ethereum.

Loopring’s token powers an eponymous decentralized exchange that lets you trade Ethereum tokens, like USDC, AAVE and ETH, at a fraction of the cost of decentralized applications native to the Ethereum blockchain, such as Uniswap. As of Dec. 22, 2021, CoinMarketCap listed Loopring’s daily volume as $13 million; Uniswap, the most popular decentralized exchange (DEX), posted daily volume of $1.3 billion.

Key features of Loopring

Loopring accomplishes its high throughput and low cost through something called zkRollups. Let’s break that down.

Zk stands for “zero-knowledge,” which itself is short for “zero-knowledge proofs.” This is a method of processing transactions privately. It allows one party to prove to another party that something is true without providing any extraneous information about the transaction itself.

A zero-knowledge proof could let you know that it is raining today without having to look out the window, or prove to a border control agent that you are eligible to enter the country without telling your name and address. Zero-knowledge proofs are important for cryptocurrency protocols that don’t want to leak excess information to third parties or trust a central organization in case something goes wrong.

Rollups are a type of scaling system that collects batches of transactions, then “rolls” them up into a single transaction and processes it on a base layer blockchain like Ethereum. Rollups are a way of cutting costs and increasing speeds because multiple transactions can be processed at once and split the cost of a single transaction.

ZkRollups combine both of these technologies. Looping describes it as “the most secure scaling mechanism the industry knows of, whereby users can access their assets in all circumstances.” It’s suitable for applications that require trustlessness, like decentralized exchanges or lenders.

Loopring’s token

The Loopring network is powered by its native utility token called loopring (also known by its ticker, LRC).

LRC launched in 2017 and primarily powers Loopring’s decentralized exchange , which launched in February 2020. When using the DEX, you have to pay in LRC each time you process a trade. Precisely 80% of the money goes to liquidity providers, and the remainder is split between insurers and Loopring’s decentralized autonomous organization (DAO).

What makes LRC price go up and down?

Like any cryptocurrency, LRC is highly volatile. LRC boomed at the end of October 2021, rising from $0.38 to all-time highs of $3.70 within a fortnight. Analysts linked the rising price to rumors that GameStop, the video game retailer that was central to a social media-fueled surge at the beginning of 2021, would use Loopring to create a marketplace for trading non-fungible tokens (NFT) – blockchain-based art. Both parties have yet to confirm or deny any such partnership.

More broadly, some analysts think LRC’s price is pegged to the success of Ethereum and rival scaling systems and layer 1 blockchains. Some people think the need for scaling will dissipate if Ethereum scales itself, while Ethereum’s co-founder, Vitalik Buterin, thinks the two advancements will complement each other.

This article was originally published on Dec 22, 2021 at 5:54 p.m. UTC

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Robert Stevens is a freelance journalist whose work has appeared in The Guardian, the Associated Press, the New York Times and Decrypt.

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Robert Stevens is a freelance journalist whose work has appeared in The Guardian, the Associated Press, the New York Times and Decrypt.

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