Loopring is an open source, audited, and non-secure exchange protocol, which means that no one in the Loopring ecosystem has to rely on others. Crypto assets are always in the hands of the user, with security guarantees at the level of Ethereum.
Loopring enables highly scalable decentralized exchanges by batch processing thousands of off-chain requests, with ZKPs ensuring accurate execution. The performance of core blockchains is no longer a bottleneck.
Loopring runs the majority of its functions, such as order matching and trade settlement, on the Ethereum blockchain. A setup like this dramatically lowers gas usage and therefore total settlement costs to fractions of a penny.
Most importantly, Loopring promised that their platform would enable exchanges built on it to avoid the poor speeds and high prices associated with decentralized exchanges on Ethereum by utilizing a newer type of encryption known as ZkRollups or zkRollups.
Loopring claims that with zkRollups, exchanges can provide dealers with faster settlements. zkRollups allows Loopring exchanges to terminate critical accounts elsewhere instead of just settling trades on the Ethereum blockchain (as other decentralized exchanges do).
The concept is that by reducing the amount of transactions that the Loopring exchange must send to the Ethereum network, traders will be able to trade faster and at a lower cost.
In contrast, other decentralized exchanges require transactions to be validated by the Ethereum network, which takes minutes instead of seconds or milliseconds.
The sophisticated encryption that Loopring applies to its platform is the platform’s primary value proposition.
As a result, it is necessary to emphasize that zkRollups is only one proposed method for making the Ethereum blockchain more suitable for DeFi applications. xDai, Matic, Optimistic Rollups, and Plasma are among the competing encryption concepts.
Some enthusiasts believe ZkRollups is promising because they use a well-known type of encryption known as zero-knowledge evidence, a method that allows a computer program to make a claim about data without actually revealing the data.
Users must first deposit their funds into a smart contract governed by the Loopring protocol to start trading on the Loopring exchange.
Loopring exchange then offloads the work required to execute transactions from the main Ethereum blockchain. This information includes things like user account balances and order history.
Loopring then settles the transactions on the Ethereum blockchain to complete the transactions initiated off-chain. These deals are processed in batches in order to reduce costs and increase speed. Loopring says that with this technology, it can execute more than 2,000 trades per second.
Each batch of transactions is then put into the Ethereum blockchain using no-knowledge proofs, allowing anyone to recreate the transactions off-chain. This gives users confidence that the transactions are genuine and have not been tampered with by unauthorized parties.