It’s safe to say that 2017 has been the biggest year for crypto yet, and the trend shows no signs of slowing down.This past year has been incredible in terms of the growth of cryptocurrency, both in the value and the sheer amount of coins that have emerged. Even if we just shine a light on Bitcoin, it went from being worth about $1,000 USD to just under $10,000 USD.
If we zoom out, the trend continues to intensify with the value of the cryptocurrency market surpassing $200 billion at the beginning of November. The number of tokens created in 2016 versus in 2017 is barely even comparable and the year isn’t even over yet. But despite this growth, we still can’t say that crypto and blockchain have moved into the mainstream.
As interest in crypto grows, the ease in which people acquire and trade is becoming increasingly important. Crypto exchanges have popped up to provide a way for us to buy and sell cryptocurrencies. However, many still see these exchanges as risky, especially with scandals in the past such as Mt. Gox (2014) and Bitfinex (2016).
Loopring, a blockchain startup, has addressed some of the limitations and risks associated with trading that can bring crypto closer to the mainstream. The team at Loopring have developed a trading protocol that works with existing exchanges to make trading more secure and more accessible through improved liquidity.
The features that Loopring have worked into their protocol will facilitate and improve crypto trading in three ways.
By Reducing Risks Associated with Trading
Very few people like taking big risks. We are much more likely to take calculated risks, and based on the speculative nature of crypto many are reserved when it comes to investing. But, by making trading more secure, investors won’t have to worry as much about exchange platforms being hacked or contracts not being upheld.
One of Loopring’s main objectives, when they created their protocol, was to increase the security of trading. In addition to capitalizing on blockchain properties of transparency and decentralization, Loopring has integrated features that greatly reduce the risk of hackings and counterparty risk.
Often, platforms are hacked at their point of weakness. For example, most exchanges require investors to put the amount they want to trade into escrow. Therefore, money is held in a central location, which inherently makes it easy to hack. Exchanges using the Loopring protocol will not have a central point of weakness because users will keep their assets in their wallets until the moment of execution, meaning that users will maintain full control over their funds.
Counterparty risk, or the possibility that the other party in a trade won’t live up to its obligations, is ever-present for all traders. By using Ethereum smart contracts which self-execute, Loopring has greatly reduced this risk. All trades that are entered into will live up to their contractual obligations because it is extremely difficult to default on these. Contracts will always be fulfilled according to the rules outlined in the smart contracts.
By Increasing Flexibility and Adaptability of Trading Platforms
With the speed at which tokens and blockchains are emerging, we need to have exchange platforms that can support multi-token and cross-chain trades. Though ERC-20 provides a standard for Ethereum, not all coins are compliant and we need to be able to easily trade these even if it requires trading across blockchains.
Loopring protocol will allow for all of these types of trades. The importance of exchanges to adapt to users needs and to be flexible across tokens and blockchains is an important factor in increasing the accessibility of cryptocurrency because there needs to be a certain fluidity that will allow users to trade however they want.
People don’t want complicated, they want simple solutions. The more fluidity within the crypto community, the higher the chance of adherence by the lay person. This is compounded by the fact that blockchain and dApps are powered by tokens. If we want to see widespread acceptance of these technologies in everyday life, acquiring and trading tokens has to be safe, fluid, and easy.
By Creating a Network that Best Serves Users
Since Loopring is simply a protocol rather than an exchange platform, it will serve to fill the gaps between existing platforms in order to create a network of exchanges. So, rather than having to fill orders on a single platform, the Loopring protocol will find the best prices across exchange platforms and trade portions of orders, resulting in the overall best prices.
Loopring also allows for multi-token circular trades in which many orders can be filled by linking them together. This combined with the protocol’s ability to fill parts of orders will ensure solvency within the network. No platform that is part of the network will ever be in a situation in which there is not enough of a given currency to fulfill a trade because the gap will be filled by other players in the network.
By creating this network, Loopring has greatly facilitated crypto trading because it no longer faces the same limitations. Users no longer have to worry about things like solvency and filling entire orders at once, further increasing the accessibility of crypto for all.
If we want to see widespread use of crypto, we need exchanges that work for users. We need platforms that have our best interests at heart, and that is exactly what Loopring has created. The network of exchanges creates a safer space for trading that adds fluidity and accessibility that benefits the greatest possible number of people.
Spotted this on Reddit, great article !
After reading all I could find on LRC, my only big concern is their need for widespread acceptance from major exchanges. Yes, exchanges would benefit from any increase in the volume of trading activities on their network through collected fees, but what would stop them from using concurrent technologies (as other teams are working on similar ideas) or even their own? An announcement from a big exchange saying that they plan on implementing or at least beta-test the tech (when ready) would be a great vote of confidence.
Also, another scenario is widespread adoption of non-blockchain tech (i.e. Tangle) that would not be supported by Loopring.
That being said, the project offers great promises, definitely one to watch closely.
Thanks Émie!
Thanks for your feedback Alexandre. I have to agree it is a little bit of a race to who can provide the service first, but also, who can create the safest and efficient protocol to adopt. It’s always important to look at the team behind each project and their experience. Have a look at this interview for a little background on Loopring’s expertise: https://medium.com/@mlgBlockchainConsulting/blockchain-start-ups-meet-the-founder-of-loopring-45eba78edad3
Thanks again for your comment Alexandre!
From what I can gather, it’s not actually 100% necessary for exchanges to join the relay. At least… not in the traditional sense that we define what an “exchange” is. I’ve been increasingly thinking that it might be possible for individuals to join the Loopring ecosystems as “exchanges,” who wouldn’t have anywhere near the liquidity or assets to form a solo, centralized exchange. There are mentions in the whitepaper of reduced trading fees and other benefits for exchanges based on the amount of LRC tokens they are holding — this makes me think that even if no formal exchanges joined the relay (not that I don’t think any will/are willing to join, just speaking hypothetically), that the ecosystem would still function with a pool of individuals who are each offering large amounts of a handful of tokens, and, combined with each other, would be offering a variety of tokens on the scale of a Binance or Bittrex type institution.
I bet that we will see much, much more documentation/general directions for exchanges wishing to join the relay after the beta lands. It would be pretty rad if this stuff proved to be true, though.
As for other teams working on similar ideas: I’m actually *fairly* certain that other projects currently claiming to connect centralized exchanges with one another, in order to offer a single order book for buyers and sellers, are just flat out scams. I haven’t looked into one, yet, that has offered any code or any truly detailed explanations of how they intend to accomplish what they’re proposing, which is concerning because what Loopring is doing is *absurdly* complex. If it weren’t for their GitHub repo, there is no way that I’d believe this team had accomplished a method for doing this, either. So, I certainly can’t buy that anybody is accomplishing this without seeing any good proof of it, and so far nobody’s offered that proof.
**I don’t mean other DEX’s in general (0x, Kyber, and many others certainly have code to show, and even working demos, to prove they’ve got the goods they claim to have), I just mean other protocols that claim to connect *centralized* entities, such as ExchangeUnion, which is absolutely 100% a load of bollocks.**
Once the this protocol is out there and has a decent user base, I really don’t think that it won’t make much sense for others to copy it, or pursue their own protocols, instead of just putting those efforts toward joining the (one, eventually, one of many) Loopring relay. The Loopring team won’t be making money based on the increased adoption of the protocol itself after it’s released, or at least not in any other manner than their own token holdings increasing in value, so they’ll be in the same boats as us in that regard. Where the team *will* make money on the protocol in the future will be by charging companies for services *outside* of the protocol development, in the form of building wallets for third parties, or working on private relays, perhaps, but other devs will be free to charge third parties for the development of their own wallet implementations, too. And Daniel has mentioned that he expects that, in the future, third party relay software will be better than their own relay software, so think there might be *more* room for others to profit from working *with* Loopring, rather than competing *against* it.
Sorry for the novel, I’ve been mulling over your exact concerns in my head for quite a while, lol.