Loopring LRC: A Second Layer For Trading on Ethereum
*obligatory not financial advice*
What is Loopring?
Loopring is a second layer for building advanced decentralized exchanges on Ethereum. Users can send their funds to an address owned by a smart contracts so that they can trade with them on Loopring for much lower gas fees than what would be possible on Ethereum directly. Loopring keeps its fees low and speed high by processing transactions off chain and then collecting them into one single transaction that is added to Ethereum.
Most DEXes work with liquidity pools that automatically set their price based on how much of each asset is supplied. This is not optimal because they only work if a lot of holders keep their tokens in the pools and there is always a risk of price slippage. Such DEXes can also be built on Loopring, but it also makes it possible to create DEXes that work with orderbooks like centralized exchanges do. You can use Loopring to get the same trading experience that centralized exchanges offer but in a decentralized way. There is also a payment feature that lets you send Ethereum assets without Ethereum gas fees.
This is possible by making the DEX operators process the transactions off chain, pool them together and update their state on Ethereum in exchange for a fee. The operator never holds control off your assets and should he become unable to fulfil your trade and doesn't return your funds soon enough, he will be put into "withdraw mode" were he can do nothing else but return his users funds. Should he still be unable to return them, you can get them back manually because the exact amount of which assets you own on Loopring is regularly being bookmarked on ETH. So the DEXes are much safer than any centralized exchange and they don't require KYC.
Cryptocurrencies are all about decentralization, yet we still need centralized exchanges for most of our trading because the gas fees of Uniswap and the like can be a pain in the ass. So there is a lot of demand for infrastructure that lets traders swap their assets in a cheap but also trust less way and Loopring offers exactly that.
There were initially plans of launching Loopring on multiple other smart contract blockchains like NEO or QTUM, but this plans have been dropped long ago.
The LRC Token
LRC is the native token of Loopring and is used to pay for fees, for staking and for governance.
The fees on Loopring are small but there are fees for AMM swaps, orderbook trades and regular transactions. Each type of fee can be broken down differently but they all go to liquidity providers, orderbook operators, and the treasury or is burned. Fees can be paid in the tokens that are used for a swap but that fee will be automatically converted to LRC by the protocol.
The treasury is controlled by the DAO of LRC holders and they can vote on what they want to do with the funds. They can choose to burn it or distribute it however they want.
Operators need to stake a minimum of 250,000 LRC in order to be able to run a DEX. This stake is meant to ensure good behaviour of the operators because if he doesn't process trades like he should he can get his stake slashed. If he stakes at least 1 million tokens, he will get some privileges like not needing to update the state of the assets on Ethereum as often, because he has more to lose if he misbehaves.
LRC has currently a circulating supply of about 1,330,000,000 tokens and is deflationary because a part of the network fees is being burned. 50% of the then total supply was sold in an ICO in August 2017, the remaining supply stayed with the developers.
There is a demand for decentralized trading solutions like Loopring and its token has a real use case and is deflationary. The project has definitely potential and the LRC price could really moon over the next few years. But LRC had a massive pump recently and will likely dip further in the short term. Also the price of becoming a DEX operator on Loopring is very high right now with a 250,000 LRC minimum stake, this could make it hard for its ecosystem to grow because part of the demand for layer 2s is that building on them is usually cheaper than on Ethereum directly.
Nonetheless, LRC has a lot of potential. The most active place to trade it is currently Binance but Uniswap offers it too. The best place to store it is Metamask, which works well with the Loopring app.
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