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Block Trade is a significant tool in crypto trading, designed to reduce ‘slippage,’ a common issue where large trades impact the asset’s price. It allows sizable transactions outside the public order book, preserving market stability. In a recent announcement, Loopring has introduced Block Trade to its platform, providing layer 2 users with self-custodial access to various liquidity sources, mitigating slippage, and fostering a more efficient, competitive decentralized finance (DeFi) landscape.
Loopring Allows Users To Access Leading Liquidity
Loopring is set to launch a novel feature that empowers users to effortlessly exchange specified token pairs by drawing on the liquidity of centralized exchanges (CEX). This means any user can now tap into premier liquidity and minimal slippage across the crypto spectrum, all while maintaining the security of their self-custodial wallet.
Loopring introduces the “Block Trade” feature to harness the power of its underlying protocol. It brings together multiple liquidity sources, especially CEX liquidity, to serve users who retain control over their assets. These swap transactions are executed directly between specific entities, leaving the existing DEX liquidity and prices for other users unaffected.
Small to medium-sized decentralized exchanges (DEXs) often face a significant hurdle – a scarcity of liquidity or market depth, which is particularly challenging for larger traders. Large swaps may exhaust the automated market maker (AMM) pool, resulting in a notable price impact. Loopring’s latest feature is designed to tackle this issue.
This mechanism mirrors block trading systems used in traditional stock markets, where substantial transactions negotiated privately are conducted outside the open market via private purchase agreements.
How Does Loopring’s Block Trade Feature Work?
Let’s examine how this game-changer operates by envisioning a scenario involving a Loopring user (A) and a Market Maker (B), both having accounts on Loopring Layer 2 (L2) and a centralized exchange (CEX).
Assume user A desires to exchange Loopring Coin (LRC) tokens for USDC. Here’s how the transaction proceeds:
Upon completion of the trade, user A ends up with USDC, while Market Maker B receives LRC. As B has already transacted an identical amount of LRC on the CEX, their assets remain balanced across both accounts (Loopring L2 and CEX), enabling B to promptly satisfy A’s trading request.
In reality, the process can present more complexities. For instance, B’s L2 asset balance might fall short of the trade. In such cases, user A has two choices: trading as much as possible at the desired price, potentially waiting for B’s account to rebalance before receiving all tokens, or trading immediately at the desired price but only trading the amount currently available in L2 to receive the tokens instantly.
It’s crucial to understand the potential risks involved with Loopring’s innovative Block Trade solution. While it offers two options for swapping tokens, providing flexibility, it also presents different risk scenarios that users should be cognizant of.
In the first option, users may need to wait for the market maker to rebalance their L2 liquidity, potentially locking tokens for up to 24 hours. While this allows maximum swap amounts, users cannot access, use, or withdraw their locked tokens during this period. In extreme cases, if the market maker fails to provide the necessary liquidity within 24 hours, users may have to wait indefinitely for services to be back online for the swap to execute.
The second option allows immediate trading on L2, operating like a regular swap. The benefits of this scenario include near-immediate execution, CEX-level liquidity, low slippage, and potentially better execution than other options directly on L2.
Final Thought
Loopring’s introduction of Block Trade marks a significant milestone in crypto trading, underscoring its commitment to creating a user-centric trading environment. With Loopring’s L2, a zkRollup Layer 2 architecture built on Ethereum, users always maintain self-custody of their funds, reducing trust requirements and enhancing security.
By understanding the potential risks and safeguards in place, users can make informed decisions when using Loopring’s token swaps, ultimately reaping the benefits of its innovation and flexibility.