Loopring Protocol founder, Daniel Wang, hosted a Reddit AMA to answer the community’s questions on Saturday, Jan 26th, 2019. This post sums up the questions and answers.
1. Binance, the world’s largest crypto exchange by daily trading volume, is set to launch a beta version of its decentralized exchange (DEX) by early 2019. Binance has more users, if that happens, how could Loopring compete?
There isn’t much information regarding the design, consensus, and governance of the upcoming Binance Chain. I expected it to be a sidechain with some POS (DPOS)-like consensus with an onchain order book and match engine, which should be similar to EtherDelta.
I like the one-app-per-side-chain idea, but the security of such a side-chain should be evaluated before swapping a large amount of asset from the main-chain to the sidechain. Now, most people have gained the knowledge that blockchain technology itself doesn’t guarantee security, it is the consensus algorithms, the distribution of block-mining power, and the decentralized governance that collectively decides how security it can be. The same blockchain codebase can create very different blockchain ecosystems, one may be very distributed and security and others can be very weak in security guarantees.
We’ll see how Binance distributes the mining power and yield control to others. If this is not done right, such side-chain based DEXs are just another form of CEXs to fool people. I hope Binance can do it well.
Loopring is also working on our side-chain based DEX solution, we will work with Dora team to make sure the chain is sufficiently decentralized. The other major difference from the Binance chain is that our DEX side-chain will apply the same “off-chain order relay and on-chain settlement” principle. As we believe even sidechains can greatly improve throughput and lower gas cost, it cannot sustain if all orders are put onchain.
2. Hey Daniel, Loopring Protocol 2.0 has launched and I really appreciate that Loopring focuses on developing the technology. Now DEX is lack of liquidity and it is hard to use DEX to fill the order. Could you please share your thoughts about the future trends of DEX and how can UP Wallet improve liquidity?
All DEX projects face a common set of challenges, and one of them is the lack of liquidity. This is caused by the following (at least, not limited to): 1) there are still many people who don’t care about security and are quick OK with their CEX of choice. Some told me the volatility of crypto assets is a bigger risk for investors than the security of their exchange platform. If they can live with the volatility of crypto assets they can live with using CEXs. 2) Many people are not comfortable with managing their own keys (private keys). 3) DEX has a terrible user experience. 4) In many countries such as China, most people don’t value privacy and anonymity which are extra benefit you can get from DEX.
Noe of the DEX and protocols we see on the market is going to survive in the long run as none of them is good enough. DEXs must resolve the throughput issue but not relying on the underlying blockchain to scale up first — a public blockchain with well-distributed mining power may never scale up to a level that can support high frequent trading. Some tier-2 approach must be found and taken. With the Loopring Protocol 3 initiative, we are trying different approaches to scale up our DEX protocol and enhance the privacy of trading.
3. It has been a while since LRN tokens have been released however roadmap of LRN slightly foggy. Can you please elaborate on the roadmap for LRN also LRN suffers greatly due to low liquidity is this issue goin to be resolved within the near future?
Later this year, we introduce to the community the Loopring DEX sidechain. A great part of the LRN tokens we hold will be locked in a smart contract and be gradually ‘mined’ by block miners. LRN will also be used as the government token in the sidechain. LRN will no longer be the Loopring fee token on NEO.
4. It’s clear to me that without well vetted stable coins, (Vetted in regard to their auditability and compliance with government regulations.) Dapps will struggle to provide the autonomous utility that I believe is envisioned for a next generation smart economy. The amount of regulatory and IT overhead in the financial space that cryptocurrencies can alleviate is astounding.
Does loopring have plans to use a stable coin to on board enterprise level Dapps? Is this part of the roadmap?
What are the plans to get corporations to integrate a protocol like loopring as token settlement and liquidity solution or is the target a p2p or both?
Stablecoins, especially the local currency (fiat) backed ones, are very essential for crypto assets to be adopted by the mass — most people would feel comfortable to convert their fiat 1-to-1 to a crypto-form, then do the inter-crypto trading.
We have worked with PwC Hong Kong on a stablecoin study and will issue the final paper in about a week (please follow our twitter account: loopringorg for update). Loopring as a protocol supports all ERC20 stablecoins regardless of their issuers. Our protocol no longer requires tokens to be whitelisted by us, relayers in our ecosystem can solely decide which ERC20 tokens they support in terms of token listing. We empower them by giving up the control which makes the Loopring Protocol further decentralized. In 2019, we’ll deliver a new relayer implementation and make it accessible to all partners (including enterprise) to bootstrap adoption, and stablecoin support is definitely a part of it.
5. Governments across the world start to regulate the trading of cryptocurrencies . Does Loopring plan to add the functionality of KYC in your smart contract? If users should do the KYC, is it become more centralized instead of decentralized?
We will not add KYC components to our protocol smart contracts. A DEX operator/relayer should fulfill his KYC duty and whitelist KYC’d addresses off-chain or on-chain (or with a hybrid approach). The KYC process and results should be verifiable by the regulators while DEX protocols don’t need to access that information.
In other words, DEX operators need to be regulated, the protocol which is for verifying matching result and performing settlements should not (the protocol should be audited though).
KYC can be decentralized to a certain degree, but some information (such as driver’s license) was generated by a central party, so to verify that kind of information, the KYC process has to access to the party’s database. Therefore it is quite hard to get KYC fully decentralized.
I don’t expect KYC to be as decentralized as the crypto asset itself. KYC is a transfer of credit from one party to another, regulators need to find someone to blame and fine if something bad happens.
6. Daniel, a large amount of investors prefer to use centralized exchanges to trade now. Loopring is a protocol for DEX and how can you guys do the promotion about the products building on top of Loopring Protocol, e.g., UP Wallet? Do you have any idea about the user education?
It takes time to make disruptive changes. My father still doesn’t know how to make a WeChat video call even though everybody around him is using the app on an hourly basis. I think he will never get used to this new type of communication, WeChat is just not his thing. This is the same in crypto, DEX will seem more natural for younger people. I believe one day when we approach them with the idea of centralized exchanges, they must feel we were such fools to trust those exchange operators who don’t even have a track record.
7. Is Dolomite a part of Loopring? Looking forward to the launch, but it’s not clear if it’s a different company or not?
Dolomite is a US-based startup and their DEX is being built on top of the Loopring Protocol.
8. How’s the collaboration with UpWallet? In their communication the UpWallet team mentioned a few times 0x and Kyber as their (protocol) partners, but they talked never about Loopring…
The UpWallet is developed using Loopring’s opensource, noncustodial wallet app codebase. Currently, the only DEX inside UpWallet is also integrated with our relayer, not 0x or Kyber’s. The company behind UpWallet, Up Blockchain Limited, is a Hong Kong-based company and is one of our strategic partners.
9. Did you guys had already contact with the big wallet companys (Ledger, Trezor, MEW,…) to present the Loopring protocol?
We didn’t eagerly approach them but I think they should have known of us, but they might not have learned the features and advantages of our protocol.
10. Wouldn’t it be good to try (also) to integrate the Loopring protocol to the big CEX companys? So you can try to bridge the gap between CEX and DEX. Loopring could take profit from the liquidity of the CEX and the CEX could have extra trades / volume via the Loopring protocol (win/win?). So by integrating the Loopring protocol the CEX could become a “hybride CEX” :-)
Not sure what they think, but our next relayer implementation will definitely connect to many CEX to source liquidity.
11. Could it be useful to create a “DEX protocol alliance” and work together with for example 0x to create bigger liquidity?
I’m not a fan of the alliance idea as I believe it is still too early. Most DEX protocols and apps are still trying to resolve technical issues, it is not the time to focus on the operation. One year later, you’ll probably find that most products built on top of the current DEX techstack vanished.
12. Is there a connection / collaboration between LRN and NEX (Nash)? At the time LRN was launched, there were rumors the LRN protocol would be used in the NEX system… Will the Loopring protocol / LRN be involved in the NEX exchange?
Not at all. I wonder if NEX is still around. If they are, we should ask them how they bypass those issues caused by NEO’s fee model.
13. What DEX’s and CEX’s are gonna be owning and mining LRC ?
LRC is an ERC20 token and has been fully issued, not minable. But you can purchase it from many exchanges.
14. When can we expect to see a legitimate campaign to bootstrap liquidity?
15. In terms of promotion of the Loopring Protocol, is there any action that allows some traditional large financial institutions to adopt the protocol, is it possible to implement it?
We have not yet started promoting too much to traditional financial institutions. I learned a little bit about this in my past entrepreneurship: making inroads in these types of businesses in China is very time consuming. There are many reasons for this, not to go through them all here.
16. Is the Loopring Protocol active in countries where regulation of digital currency is friendly, such as Singapore, have you considered launching a fiat currency trading pair? In addition, how does the protocol connect the closed-loop transactions between the fiat currency and its own decentralized exchanges, and what actions and plans are there in this regard?
The Loopring Foundation is a non-profit organization, but we will support partners in the ecosystem to provide support for legal, fiat currency transactions, especially for fiat-pegged stablecoin transactions.
17. Although the Loopring Protocol has introduced version 2.0 and has a good idea, the current user traffic of the Upwallet wallet is still insufficient. Is there any way to solve this problem and the future planning in this area?
At present, there is no rush to do traffic, and our focus is on developing better-used protocols. If the protocol is not designed well enough, all the research and development and operations on it may be for naught. One similar example is with virtual currency payment companies: currently, this type of company is very difficult to operate. One of the main factors is that the virtual currency itself is not friendly enough to pay (far less than Alipay and WeChat), so products based on this technology have difficulty succeeding. We hope that in the middle of 2019, our relays may start to have better trading volume.
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