Loopring’s Matthew Finestone Talks Decentralized Exchange (DEX) Protocol

In an interview with Bitsonline, Matthew Finestone, the Director of Business Development at Loopring, discussed the open source project that allows third parties to build their own DEXs on Ethereum, QTUM, and soon, NEO.

Loopring isn’t a DEX itself but allows for others to build DEXs using its protocol. There are currently DEXs built on Loopring that allow for the trading of ERC20 tokens, and the firm has also integrated the system for QTUM’s mainnet and NEO’s testnet. In some ways, it is similar to 0x, another DEX protocol that can be used for ERC20 token trading, as well as other DEXs like Airswap, the Kyber Network, or Ether Delta.

Given below are highlights of the interview. The full interview can be found here.

Difference between DEX protocol and DEX

Loopring builds open source infrastructure for others to be able to build actual DEXs upon. This infrastructure is basically a bunch of smart contracts and a bunch of “off-chain” software. The smart contracts are all public and handle many different things, but the main thing users are concerned with is the smart contract that trustlessly swaps and settles tokens from one user wallet to another. This is done without ever taking control of funds away from the user. The “off-chain” software is concerned with a few things, but mainly, it describes how messages — or more precisely — orders, are communicated and transmitted between participants in the network.

DEXs, on the other hand, is the output of actually using these tools to build a business or product. It is our goal for anyone — a person, a team, a company — to take these pieces and build their own DEX with it. They can do this for free, and design it, market it, improve upon it, whatever they’d like — but all with the Loopring Protocol “pipes” in the background.

Plans to trade blockchains such as QTUM and NEO

Loopring was deployed on Ethereum in December 2017. So, trading of ERC20 tokens can happen right now and has indeed been happening. What’s relatively unique about us is our blockchain agnosticism. While we view Ethereum as the current undisputed leader in terms of smart contract public blockchains, we are cognizant that there are other platforms that may have thriving token ecosystems on top in the future. So, we modify the Loopring Protocol to have a bespoke version on top of each public blockchain we want to service. We have already done so for QTUM, and we have deployed on top of the NEO testnet, so users will soon be able to trade NEP5 tokens through Loopring on the NEO blockchain as well.

Integrating zero-knowledge proofs into the Loopring Protocol

We are very excited by the possibility of integrating zk-proofs into the protocol for extra privacy-preserving features. That said, this has not been a top priority for us because we want to make sure the protocol is the best functioning token exchange mechanism in the world before we start looking elsewhere. Our protocol and the DEXs on top have some pseudonymity and privacy-preservation by nature, which is a bonus for some users to begin with.

Future of DEX

If you believe in a decentralized future, and a decentralized economy, then decentralized exchange must be a component of that vision. If these assets are going to be tokenized, then they will be traded on the underlying blockchains. We really believe that. However, centralized exchanges aren’t going extinct in the near-term, and there may always be certain use cases for them, such as speed. It is easier to operate a centralized system, keep in mind. But it involves lots of trusts, and thus risk. It’s a trade-off, but one we think will continue to slide the decentralized way.