What Are Loopring Protocol and ONEROOT Working on Recently After Half-Year Silence?
“DeFi The World” series live AMA, session #2
Topic：【DEX3.0: The breakthrough point of liquidity】
Users of digital currency should have traded on the exchange, and Centralized Exchange (CEX) is still the mainstream, although it is widely criticized.
In contrast, Decentralized Exchange(DEX) does not require KYC, has better anonymity, and is interoperable. It can also dispel the doubts that exchanges embezzle, manipulate the market, or pull the network cable. This solution is also considered to be the inevitable direction of the future. — — Helen
After several years of development, we believe that we have reached the DEX 3.0 stage, and the pursuit of better performance, experience, and better liquidity is the key.
In this session, we were honored to invite Zoe Xiong, the CMO of ONEROOT and Jay, the co-founder and CMO of Loopring to discuss DEX3.0 and share their insights on shared liquidity with us.
1. Diane: Hey Zoe and Jay, could you please introduce yourself and how do you start your career in crypto industry？
Zoe Xiong ：Hello everyone, I am CMO of ONEROOT. I have been a Securities Analyst at Guotai Junan Securities Co. Ltd. and Yintech Investment Hldgs. I joined ONEROOT at the beginning of the project in 2017. ONEROOT is a blockchain technology solution provider focused on the development of underlying technologies, committed to the freedom of digital currency trading.
ONEROOT independently developed R1, a decentralized trading protocol, and helped Bithumb to build a decentralized exchange based on R1.
Jay：I am the co-founder and CMO of Loopring with extensive experience in online payment, risk management, and financial innovation. I also worked at various departments in the cross-border payment company PayPal, Ernst & Young and etc.
I am a member of the Global Shapers Community of the World Economic Forum as well as a tutor of Blockchain Course CS359B at the Stanford University.
From 2013 to 2014, a colleague in Paypal began to mine BTC, and I was brainwashed by him so I began to mine BTC first and then bought BTC directly from the exchange. Before the establishment of the Loopring, our team also made a centralized exchange invested by IDG.
Then I felt that there are many problems with the CEX platform: security, liquidity, and the problem of order transparency cannot be solved very well. However, DEX platforms can address these pain points. So I started to work on Loopring in 2017.
2. Diane: Could you please briefly introduce the project? Including relayer, DEX, wallet, and other ecological architecture.
Zoe Xiong ：R1 Protocol is a practical decentralized token swap protocol based on Ethereum.
The architecture of the R1 protocol consists of 3 parts:
1. As the media of decentralization, R1 Smart Contract is deployed on Ethereum blockchain. It keeps the users’assets and transaction records, so as to achieve the goal of asset decentralization and auditable transaction records.
2. Relayer is the relaying system of order cooperating with R1 Smart Contract, mainly responsible for order matching and submitting. Relayer provides OpenAPI for the outside and allows the third-party exchange to submit orders up to the matching engine.
3. The major duty of the third-party exchange is to collect the users’order data and submit the signed orders to Relayer. Through R1 Contract, different exchanges can be part of the distributed commercial system to share the order data and mobility, providing better trading experience for the users.
With the unique structure of R1 protocol, Bithumb and all future R1-based exchanges are able to share order data and liquidity, providing users with better trading depth and experience, and forming a globally distributed business system.
The above picture makes it easy for everyone to understand our Relayer and DEX order system. Regarding the ecology of wallet, we should first talk about the natural hostility of CEX and wallet.
One thing that CEX and decentralized wallet users are actually doing is to fight for the control of money. CEX conducted various attractive campaigns and events to try to control the money but all frequent traders know how risky CEX is.
However, users often do not have enough security awareness and treat the exchange as a wallet. Their assets are directly stored in the centralized exchange. I won’t go into the details of the problems that have arisen.
Decentralized wallet users control their money in their hands. We reckon our products as a DEX-wallet, a one-stop APP. There is no hacking risk in the DEX as long as users safeguard their private keys.
Jay：Loopring protocol is a bit different regarding this point. We focus on DEX and don’t currently work on the wallet. In addition, our DEX 3.0 is based on zkSNARKs (ZKP as an abbreviation) to conduct some work off-chain.
The Loopring protocol 3.0 is a decentralized transaction matching Protocol based on ZKP technology. It not only has a set of open smart contracts for executing transactions and matching operations, but also a group of participants to match and broadcast orders off-chain.
The Loopring protocol uses decentralized technology to provide a zero-risk token exchange model and allows multiple exchanges to compete to match and settle order off-chain.
Loopring protocol is a protocol that connects projects into ecology instead of a DEX. Loopring protocol integrates various cryptocurrency-related projects through, thus forming a decentralized trading ecosystem.
Relaying is a very important part of the Loopring protocol ecosystem, which combines individual trader orders and then broadcasts successfully paired orders to the blockchain.
3. Diane: Could you please share the latest developments of the project,?Is there any interesting news? Which part of the project do you focus on most now?
Zoe Xiong: We will release a new ecological plan, which is the first time to disclose to the community — R1 Protocol[ “ Preferred Project” Plan] This plan seeks to discover the projects with the highest quality globally. The chosen projects can get the priority to be listed on all R1-based exchanges worldwide, and benefit from the liquidity sharing feature of R1 protocol, thus fundamentally solving the liquidity lack of high-quality projects on DEX.
The first player of R1“Preferred Project” Plan — MakerDao, the leading project in the Decentralized Financial (DeFi) field, which is the issuer of the stable coin Dai. Dai has been listed as one of the base tokens on ONEROOT DEX and will be listed on several R1-based exchanges, including Bithumb DEX.
At present, we are still focusing on the development of business at the blockchain infrastructure level and the further development of technology.
Jay：The codes of contract and ZKP circuit in Loopring 3.0 beta3 have been fully developed. By streamlining the cost model, we optimized from the original four-party settlement to three-party settlement, which greatly improved the speed of ZKP generation.
Based on this optimization, the TPS (the number of transactions per second) increased from 290 to 350 when data availability is turned on; the TPS increased from 5200 to 6150 when data availability is turned off.
Although the throughput may be further optimized, the performance of 3.0 should be close to the Ethereum limit. After upgrading in Ethereum Istanbul, there is no need to change any code.
The throughput of Loopring Protocol 3.0 is automatically improved a lot: the throughput is about 1400 (385 gas per transaction) when data availability is turned on; the throughput is about 9350 (57 gas per transaction)when data availability is turned off.
We focus more on relay development, internal testing, and security audit feedback upgrades. The on-chain data availability means that all the original transaction data will be packaged and uploaded to Ethereum. Users can directly analyze the data of Ethereum TX to get the data. This data can be used to reconstruct the state of the Merkel tree across the exchange.
4. Diane: If the representative of DEX 1.0 is Etherdelta, that of DEX 2.0 is 0x, then what is that of DEX 3.0? What is the overall development trend of DEXX?
Zoe Xiong: For now, DEX indeed have some deficiency in trading requirements like cross-chain transactions, but these problems can be solved through technical iterations. Since 2019, the overall DEX transaction volume has increased 3 times.
What we have to think about is that if DEX is still doing what CEX is doing in the future, then there is no way to overtake the corner. But it is insurmountable for CEX to make users have no absolute control over their assets.
We have to think about the new usage scenarios, more playing methods, which are the things that CEX can’t do.
Jay：From my personal point of view, one of the core subtexts of the development trend of DEX 3.0 is “trusted computing.” In other words, we need to prove that the code logic running off-chain is 100% trustworthy through technology.
This trust is mainly for the corresponding on-chain smart contract. Smart contract transfers only if they trust the off-chain calculation result. If the smart contract trusts the results of the off-chain calculation, then the user should be able to trust the calculation results of the relay, and thus trust the decentralized transaction technology as a whole.
5. Diane: There are three classic modes of DEX, the order book(IDEX, DDEX); liquidity pool (Uniswap, Bancor); and Dutch auction(Dutchx) How do you think about these three different types of DEX? Which one have you been focusing on lately?
Zoe Xiong: These three have their own unique advantages and trade-offs. I still focus more on the order book model.
DEX needs to have the following features: 1. Complete the transaction timely; 2. The price in DEX should be the same as that in CEX; 3. The transaction fee is low, and the assets are completely controlled by users, without any KYC and the registration system. This is already a very convenient product.
Jay：Order book mode: For example, IDEX is the first decentralized smart contract trading platform based on Ethereum to provide real-time trading. IDEX enables users to trade continuously without waiting for processing. It can process multiple trading orders at the same time, and there is no charge for canceling orders.
The liquidity pool mode: For example, Uniswap is actually a model for market makers to provide liquidity, but this market maker is a mathematical algorithm. It automatically calculates the price of each sale through a price curve based on the amount of the market capital pool and the amount of buy and sell. Uniswap’s liquidity and price range depend on the size of the market capital pool. The larger the size, the smaller the price fluctuation.
Dutch auction mode: DutchX is a trading model based on Dutch auctions, which determines the final transaction price through a pre-set price curve and buyer participation.
Compared to Loopring, DutchX guarantees that the transaction will be completed within a certain time, but does not guarantee the specific price of the transaction. On the contrary, Loopring guarantees the price but does not guarantee a certain transaction will be completed in time.
6. Diane: As a DEX, the essence is to provide trading functions for assets. On the asset side, what do you think are good quality assets right now and how can DEX get more liquidity? (cross-chain assets?); From the perspective of trading attributes, what do you think other model innovations, technological innovations, and imaginations regarding “Trading”?
Zoe Xiong: We are integrating our R1 protocol into various DEX for data sharing to gain more liquidity. Now we are also developing DApp versions ourselves and have reached partnerships with a number of excellent wallets sharing liquidity with them.
Jay: Good quality assets: Bitcoin, Ethereum and other mainstream cryptocurrencies, or there will be underlying asset-backed assets in the future. Cross-chain is also a direction we will research. In addition, it seems that the portfolio assets like Set are also a solution.
As for liquidity: for example, Bancor is a self-regulating protocol whose smart tokens automatically maintain liquidity. Bancor has its own internal liquidity mechanism to ensure that any ERC20 tokens can be exchanged with other tokens, without any market makers.
There are several differences between Kyber Network (KNC) and Bancor. Liquidity is provided by physical tokens from fund managers, whales, and teams in Kyber Network.
Therefore, Kyber has market makers and is encouraged by interest margin to provide liquidity to the network. Kyber Network created a free market among reserve providers, resulting in the most attractive exchange rate. Considering innovation, there are several trading models right now: leverage trading, margin trading, futures contracts.
7. Diane: Do you think DEX’s shared liquidity is a false proposition?
Zoe Xiong ：Of course, this is feasible. The market has not yet reached the state of “Might makes right”. Liquidity sharing is also the direction that ONEROOT and Bithumb are working on. The best answer to this question is R1 protocol featuring shared liquidity.
In essence, DEX still serves the transaction, so it is necessary to meet the user’s liquidity needs. We define liquidity as the extent of cashability of assets. DEX should provide users with a good sense of experience and depth. At present, the liquidity of DEX is poor, and the depth will get worse if projects compete with one another for traffic.
Jay：It’s not a false proposition. The user’s order can be matched by multiple relays at the same time, so the liquidity can be decentralized and shared.
8. Diane: What do you think is DEX’s ultimate vision and the biggest dilemma right now?
Zoe Xiong ：Our work and goal is to let everyone know what DEX is, what its usage and how it is used. The biggest dilemma now is that there is no broad audience and public acceptance is low. Products do not match their users.
Jay：There are three possible development directions for DEX technology:
Direction 1: The generalization of DEX 3.0. It provides a universal solution for DApp expansion. To put it more clearly: this technology can be used not only to expand DEX but also to expand almost all types of DApps.
Direction 2: Decentralized transaction protocols supporting cross-chain.
Direction 3: Relay or decentralized Merkle Tree.
The biggest dilemma: DEX needs to increase throughput and reduce transaction costs in order to compete with the most mainstream CEXs.
9. Diane: What does DeFi need to realize large-scale applications? How to achieve it?
Zoe Xiong：According to the date from DeFi .review, DeFi total daily volume is less than $1.2 billion, and the decentralized lending market takes up 1-billion volume, and lending is not as high-frequency as cryptocurrency trading.
At present, DeFi is mainly focused on Ethereum, and there is no new capital in the market. In the early stage of the industry, we need to be patient and build the infrastructure of the industry. We still have a long way to go.
Jay：DeFi is booming, but it is still in the early stage of exploration. From multiple dimensions, there are still a series of problems that need to be solved. Otherwise, it is difficult to have enough real and effective demand to support the market.
For developers and merchants, product development will be constrained by the performance of existing blockchain technologies because the DeFi project is built on the blockchain.
The current DeFi application is still at the expense of the user’s experience in exchange for privacy, asset security and the freedom of asset management.
At this stage, the advantages of DeFi decentralization are not completely revealed. This is similar to the early days of Internet e-commerce, which requires continuous improvement of infrastructure and cognition. However, with the maturity and liquidity of DeFi technology, a very low-cost, transparent, trustworthy liquidity and lending market will come soon.
10. Diane: DeFi projects can be divided into two categories: transactions and assets. The essence of DeFi is smart contracts. What do you think of the interoperability of DeFi?
Zoe Xiong：Now all projects are developing their protocol and API interface based on Ethereum or their public chains. The data format and interface standard have not yet formed an industry standard. In the future, each project can follow the industry standard to develop your own API after industry consolidation. All DEX applications can call these interfaces to meet their application needs.
Imagine if all of these tools and protocols can be connected and run together, creating a huge financial center and overturning existing banks and credit institutions step by step, and achieve cheaper transactions that benefit the public.
Jay：The interoperability of DeFi is one of the most difficult challenges in blockchain technology. Different blockchain networks have different communities, consensus and hashing algorithms, which makes standardization and collaboration tricky.
However, if we can continuously improve the user experience and take advantage of network effects by creating interoperable blockchain solutions, we can only achieve the true value of the blockchain in DeFi.
In an interoperable ecosystem, if another user sends digital assets or tokens to you from a different blockchain network, you should be able to identify, identify, and interact with them without the need for an intermediary.
Unfortunately, blockchain networks are highly decentralized and disconnected. As the industry grows, it becomes an increasingly important issue as each blockchain network has highly specialized and specific functions.
11. Diane: What are the advantages and disadvantages of DeFi developed on Ethereum? Will ETH 2.0 solve its problems? Will there be a better smart contract platform or public chain environment for DeFi?
Zoe Xiong：In the traditional market, the finance could be a fraud. Transparency is the biggest advantage of DeFi.
In fact, I don’t feel that there is a disadvantage in DeFi products based on Ethereum. The lacking of users is just the current status. It’ll be indeed a big improvement in the industry if the capacity Ethereum is not enough one day. At that time, there will definitely be a better public chain environment.
Jay：Advantage: DeFi uses blockchain technology to increase the transparency of transaction data, ensure irreversible transactions and a certain degree of review resistance. DeFi has certain advantages in preventing malicious inflation of the regime.
Disadvantages: DeFi and finance both have shortcomings in terms of user-coverage. In addition, due to the development of the industry, DeFi is also facing technical risks and doubts about application lading.
The advantages of Ethereum: It is currently the most popular and active smart contract platform. Disadvantages: Need to solve the problem of scalability.
ETH 2.0 is not a panacea for solving current problems. There are still many issues to consider (for example, how to reduce the friction of current smart contracts from 1.0 to 2.0 and how they run in shards).
12. Diane: How big do you think DEX and the entire DeFi market are, and how do you do incremental users?
Zoe Xiong：At present, the main user group of DEX is divided into several types: 1. self-managed asset users; 2. DeFi users; 3. Users with anonymous demand.
Overall speaking, DeFi is still in the initial stage. Currently, the decentralized lending market takes up the biggest share of DeFi applications.
Combining smart contract technology with blockchain can better solve the trust problem in financial transactions, serve users, and protect more users.
So if Open Finance is the ultimate goal, blockchain technology is only an important way to achieve it. Good DeFi products allow participating users to meet their own needs while creating greater value.
Jay: I personally think that the high-probability of the killer DeFi app is a DEX with great user experience. This DEX must be clear, intuitive, and solve problems such as user experience and thresholds.
13. Diane: What do you think of DeFi’s killer app?
Zoe Xiong：I am optimistic about the strong demand for CDP, such as in the securities industry. The business that everyone is most familiar with is the securities loaning. Now it is the broker‘s’ business. However, if you use the DeFi financial to achieve it, many individuals can directly participate in loaning securities to obtain interest.
Jay: This is a relay service that guarantees stability.
Diane: You just said that the trusted calculation. Does this refer to the oracle?
Jay: Clustered services = Relay. We use ZKP which is a kind of trusted computing.
Diane: You have stressed the expansion and TPS. Do you think the TPS performance of DEX or the public chain is a big problem? Do you agree with the argument that we do not need to pursue TPS too much?
Jay: TPS will never be enough. Loopring version 3.0’s zkSNAKRs expansion solution and TPS are all designed to solve DEX’s Liquidity problem. This is also a problem with all DeFi products. The higher the TPS, the bigger the imagination. 4G is enough but 5G can do more things.
Diane: I understand that this idea is to supply first and then find demands. 0x is also doing ZKP. Have you communicated about ZKP? Or what is the difference between you two?
Jay: 0x is partner up or Israel’s Starkware invested by them is implementing ZKP. They don’t make it in-house. Starkware will make a StarkwareDEX, which is expected to go online at the end of the year or early next year.
We are exploring zkSNARKs with several projects such as MatterLabs. Https://matter-labs.io/ They took millions of Ethereum wave grants.
About shared liquidity protocol
Community member: Can you talk more about shared liquidity?
Zoe Xiong: https://rex.plus/docs/ The protocol is open source and we welcome anyone to build their own DEX based on our protocol.
Community member: What do you think are the difficulties in linking various liquidity? What methods do you have to deal with? Do you consider using token incentives to motivate market makers to provide liquidity? For example, market-making is mining?
Zoe Xiong: 0x is doing its own mesh liquidity sharing. We feel that this direction is definitely right. The difference between us is that all data is matched more efficiently on our own relay.
When our and Bithumb DEX’s existing users reach a certain benchmark, it is the biggest attraction for external users. We are planning our own token incentive plan, but we are more inclined to build industry infrastructure than to build C-end users.
Thanks to Zoe Xiong and Jay for sharing your thoughts and insights.
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