We designed Loopring with two major objectives in mind: Security and Performance. The protocol ensures that users can withdraw their assets under all circumstances. In the worst-case scenario, users can still withdraw their assets with Merkle proofs that can be generated from the on-chain data if OCDA is enabled. This means users don't need to trust or turn to any central party for help in any circumstance.

To significantly improve throughput and lower settlement cost, Loopring migrates most computations off-chain and uses the underlying blockchain as a data and a ZKP verification layer. User balances and order trading histories are all organized in an off-chain Quad-Merkle tree. User requests, including deposits, withdrawals, transfers, and settlements, are processed in large batches. The state root after each batch will be published on-chain together with other data necessary for re-construction and verification of state roots. The ZK proofs for new state roots are verified to finalize those state updates.

Why Loopring?

• Secure
  Loopring is an open-sourced, audited, and non-custodial exchange protocol, which means nobody in the Loopring ecosystem needs to trust others. Cryptoassets are always under users' own control, with 100% Ethereum-level security guarantees.
  
• High Throughput
  Loopring powers highly scalable decentralized exchanges by batch-processing thousands of requests off-chain, with verifiably correct execution via ZKPs. The performance of underlying blockchains is no longer the bottleneck.
• Low Cost
  Loopring performs most operations, including order-matching and trade settlement, off the Ethereum blockchain. Such a design dramatically reduces gas consumption and thus overall settlement cost to only fractions of a cent.

Remarkable Throughput

Loopring 3.0 can settle up to 2,025 trades per second while guaranteeing the same level of security as the underlying Ethereum blockchain. This is made possible by using a construction called zkRollup, and a feature called On-Chain Data Availability, or OCDA. If OCDA is disabled, Loopring throughput becomes as high as 16,400 trades per second, but security reduces to that of the consortium which maintains said data. For context, prior versions of Loopring (and current versions of some other DEX protocols), can settle only 2 or 3 trades per second. With Loopring 3.0, non-custodial exchanges can match the performance of custodial competitors.

Low Settlement Cost

The average settlement cost for each trade is now as low as $0.005 USD, which covers the gas for Ethereum transactions and the cost of proof generation on cloud computing platforms. DEXes can further lower the settlement cost to about $0.0025 USD by using cheaper servers in the cloud and GPU-based algorithms. To put things in perspective, most brokers' stock trading fees in the US are in the range of $2 to $7 USD per trade.