zkEVM and Loopring Earn: Two Reasons To Remain Bullish on the Loopring (LRC) Coin Through 2022

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Loopring (LRC), a decentralized exchange (DEX) that uses zero-knowledge Rollups or zkRollups, just published its Q1 2022 quarterly update, elaborating on its path forward for the rest of the year.

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The Loopring DEX recorded impressive milestones during the quarter, including $4.6 billion in L2 trading volume from over 65,000 L2 accounts and 30,000 Loopring smart wallets. Crucially, 12,000 smart wallets were added in Q1 alone. The DEX also launched its dynamic NFTS, dubbed Loopheads, allowed minting of NFTs for under $1, and became an official partner of the upcoming GameStop NFT marketplace.

However, in our opinion, two upcoming key developments will play a major role in unlocking enhanced utility and the associated bullish case for the Loopring coin (LRC).

zkEVM: Loopring and the Ethereum L2

Before discussing the specifics of Loopring’s zkEVM solution, let’s go through a quick refresher course on this topic. It is widely known at this point that Ethereum suffers from high transaction costs due to the limited availability of transaction processing power of the Ethereum main chain. To combat this, various Layer 2 or L2 solutions have been gaining ground over the recent past. Basically, an L2 is a separate protocol that is built on top of the Ethereum blockchain, and is divided into two categories: side chains and Rollups. A side chain is an Ethereum-compatible, independent blockchain that employs its own consensus mechanism and block parameters to process transactions efficiently. These side chains are slated to become operational with Ethereum 2.0. Rollups, on the other hand, bundle transactions and move them off-chain to L2, where these batched transactions are processed much more efficiently, thereby reducing the overall transaction costs. Again, there are two types of Rollups: Optimistic Rollup and zkRollup. Optimistic Rollups assume that all transactions were processed correctly. Consequently, these transactions are posted in batches on the L1 without any computation. In order to counter any errors, these solutions introduce a challenge mechanism entailing a time delay, during which any transaction can be challenged.

Source: https://vulcanpost.com/780967/huobi-zkevm-key-efficiency-ethereum-blockchain-platform-malaysia/

This brings us to zkRollups, which use cryptographic proofs as a validation mechanism. While Optimistic Rollups only submit metadata and a root hash to the Ethereum main chain, zkRollups also submit a zero-knowledge cryptographic proof certificate. This certification process precludes the need for a challenge mechanism. It is for this reason that Loopring claims to have a throughput of 2,000 transactions per second (TPS). The snippet below details the functioning of zkRollups:

Source: https://coinyuppie.com/understanding-and-thinking-of-layer2/

Nonetheless, zkRollups, as currently implemented, are not without flaws. For instance, most dApps or smart contracts can’t currently run on zkRollup chains. zkEVMs have been touted as the solution to this dilemma. As a refresher, EVM stands for Ethereum Virtual Machine and allows codes inside these virtual environments to run without access to Ethereum’s network, file system, or other processes. These EVMs are also essential for smart contracts. Here, Solidity-based smart contract code is converted into bytecode and then opcodes for the EVM to interpret and execute.

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Source: https://medium.com/degate/an-article-to-understand-zkevm-the-key-to-ethereum-scaling-ff0d83c417cc

Loopring is working on the first zkEVM solution described in the snippet above by using the Groth16 protocol. This strategy, since it fully supports the existing set of EVM opcodes and uses the same compiler, is fully compatible with the existing ecosystem and development tools and also inherits the complete security of the Ethereum main chain. Loopring believes that zkEVM would unlock transformational utility, allowing smart contracts to be deployed seamlessly via zkRollups. The DEX has termed this step the “the future of Ethereum L2”.

Loopring Earn

Loopring Earn is the next feature that we are eagerly waiting for. As per Loopring’s blog post, LRC users would soon be able to stake their LRC tokens and earn yield in Ethereum and stablecoins via a gas-free, one-click process:

“Earning yield on your ETH and stablecoins (+ more assets in the future) will be gas-free and one-click away, allowing you to earn crypto while you sleep!”

Parting Thoughts

On a valuation basis, Loopring currently has a Market Cap to TVL ratio of 3.6, based on $365.46 million in TVL. This is roughly in line with that of Ethereum, indicating that Loopring is fairly priced currently. However, once zkEVM and Loopring Earn go live, it is likely that the LRC token will undergo substantial price appreciation.