4Rev Coin Analysis: Loopring
Over the years, risk has come to be known as one of the most feared words in the financial industry. The word sends shivers among financial experts who deem it as a ground in which, if they set their foot, may turn into sinking sand, sinking them and their portfolios alike.
With such fear in mind, a characterization and bifurcation of the word has been done with a myriad of studies carried out to ensure that financial managers have an elaborate understanding of what risk entails and how it can either be harnessed or be hedged against – hedging is a financial term used to refer to prevention of risk whereby financial analysts or managers enter different trading positions in a trade/trades so as to ensure that their losses are mitigated in case of a downside in the one of the positions of the trade/trades.
Key in this segment has been market risk – the risk that the market will move adversely and negatively impact the value of a trader’s portfolio – however, other risks have also been seen. One such risk is the counterparty risk – the risk that a counterparty in a transaction will fail to honor their contractual obligations leading to a loss on the books of the trading party. This risk has had its way especially within the derivatives segment of the financial industry – a segment which has been valued at nearly $1.2 quadrillion on the higher end – with transactions within the equities as well as other markets also suffering the same fate.
It is upon this backdrop that developers ventured into creating a solution for their clients leading to the creation of Loopring.
A look at Loopring may make it seem like the entire system is one large exchange in which the players come and exchange a set of tokens of a certain value for other tokens of a certain value. However, the team at Loopring refutes this.
According to them, Loopring is not an exchange per se, rather it is an exchange protocol. It borrows from the fundamental principles on which exchanges are formed and morphs them into a new and well-designed platform from which they can harness this power. A closer look into this then establishes that Loopring has harnessed not only the power of these exchange process but also its synergy with the blockchain elements as well as with smart contracts.
All in all, Loopring has gone above and beyond in shaping how the world views and carries out transactions through the alleviation of some of the risk parameters which have affected us this far. A look into how this has been done can be seen in the next section.
The Architecture and Facts
Loopring brings the smart contract space to the exchange protocol. At its core are tokens – the assets with which the Loopring protocol operates. Using these tokens, individuals and entities alike can carry out trades from which the protocol can then enforce these trades.
For the sake of simplicity, let us break this down for you.
A normal exchange operates by investors placing their money within the exchange from which time traders come into play and match the prices which the investor wanted to buy the asset at with the prices which exist in the market. This may take some time, however, once matching is complete, the trader will then take out their commission – which is mostly represented as a percentage of the value of the asset – from the value of the asset and the trade is deemed to be successfully executed.
Loopring borrows from this, however, adding a touch of finesse to the process. Investors have to first open a wallet with Loopring – similar to a settlement account from which Central Banks can evaluate the gains or losses akin to a specific investor – from which they carry out their trades. Once done, they can then acquire tokens which are used to trade. In addition to this, Loopring brings in the idea of asset tokenization whereby assets which are not traded on Loopring – such as fiat or tokens traded by other entities – can be deposited with Loopring and tokens assigned to them. This is pivotal in ensuring that investors are not left out of trades on the basis of their assets.
These two set the stand for the novel technologies brought to the market: ring matching and order sharing.
Ring matching means that with the help of ring miners – similar to ordinary miners or nodes in other cryptocurrency mining platforms – orders places within the platform are matched to orders on the market. Once an order is placed, it is broadcast to all ring miners on the platform as they are informed to begin executing it immediately. The miners use their computational power to ensure that they can execute the orders at a better price than that given by the investor. The orders can also be broken down into smaller, easily-tradeable orders which allow the system to better trade the tokens and obtain better prices on all the orders. These smaller orders can then be shared among the ring miners – order sharing – to ensure that this is achieved. Once this is achieved, the gains akin to these orders is obtained.
The Loopring architecture stipulates that these gains can either be split between the miners who will then return the tokens they receive from mining or shared among all the orders in the ring. Through this, the entire reward system for individuals in this system is validated, making it a great bet for the trading of tokens. Furthermore, the company has come up with a cancellation option where the orders can be fully or partially canceled with ease.
With all this in mind, the platform will benefit many of its stakeholders greatly. Key among these is that through the ring matching and order sharing framework, the added liquidity to the network will be extremely beneficial to the network. With liquidity being a key driver of investment, players within the network will be granted an ample platform on which they can grow their investment base, all to their benefit.
Are there any shortfalls?
Thus far, there seems to only be one major shortfall. In the case that orders are obtained at a lower price than was requested by management, miners will then be required to make a choice: either receive the token and pay the gains back or receive the gains and forego the token. This is unlike the ordinary centralized system where gains are given to the company rather than back to the investor.
Despite this being a revolution in the system, it may discourage some of the miners from engaging in trades especially in the case that the token value declines while the miners had foregone the gains from the orders. Besides this, however, no further drawbacks have been witnessed.
Conclusion
All in all, a revolution is visible here. The protocol has come to turn the wheels of finance and bring the money back to the people. This being the case, it is clear that Loopring is an amazing technology which will be welcome to the world. Going forward, we expect to hear a lot more from the developers of the platform.
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