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Taiko x Loopring [L2 x L3] explained (and the future of Ethereum)

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Taiko x Loopring [L2 x L3] explained (and the future of Ethereum)

A semi-simplified explanation of the recent news:

Taiko is a type-1 (equivalent/fully compatible with Layer 1 Ethereum) zero-knowledge Ethereum Virtual Machine (zkEVM) using zkRollups to scale L1 with trustless verification on Layer 2.

Loopring was the first true L2 and also uses zkRollups, but requires a decentralised Application (dApp) to be specifically built for its protocol. Meanwhile, Taiko zkEVM can be integrated to work with any dApp already existing on L1 just by changing a URL in one line of code - unlocking 1/100th+ cheaper gas fees, instant transactions, and inherited Ethereum L1 security by bundling via zkRollups.

Upon release, a switch to zkEVMs should be unanimous for current Ethereum dApps, as having various L2 solutions is a key aspect for scaling in the grand-scale Ethereum roadmap.

Leading dApps that don't switch risk losing users/creators to the competition that will because increased L1 usage will only continue to worsen the current $5+ fees, and 10-20 minutes wait for final settlement. With zkEVMs, you don't even have to risk fund custody problems that come with sidechains trying to solve this scalability issue... so why wouldn't you?

Taiko is a general-use neutral entity separated from Loopring and GameStop branding (despite Daniel Wang and Matt Finestone being Co-Founders). Type-1 zkEVMs are the hardest to develop, but also the most simple for converting L1 dApps. The success potential from having first-move advantage on something of this magnitude should directly benefit the integrated and highly optimised Loopring protocol, which acts as an extra amplifier running on top of Taiko L2 as L3:

  • Taiko (L2/zkEVM) retrieves the current state of Ethereum (L1) instantly due to being equivalent (type-1) and uses zkRollups to validate and bundle transactions made within the 'trustless middleman' Taiko service, in advance to them actually being fully settled later on the 'main' Ethereum L1 blockchain.
    • Before this happens, dApps built on the 'trustless middleman' Loopring (L3) protocol can independently use zkRollups to validate bundling thousands+ of concurrent transactions from the Loopring protocol into one block, and then pass it onto Taiko (L2) to validate and bundle it as a 'single transaction' alongside other concurrent Taiko transactions into one block (intended for final settlement on Ethereum L1).
    • Alternatively, dApps running on Taiko L2 but not further optimised on Loopring L3 would cause single transactions to consume way more space within each Taiko block.
      • Rollups unclog the Ethereum network, making it cheaper and faster as everyone switches to L2 for commercial use; imagine if the only form of transport went from cars to buses, but with L3, a skyscraper bullet train transfer service happens prior to the bus - which compresses all of the arriving passengers into a single bus seat, and the bus is actually another skyscraper bullet train.
      • Increased Loopring protocol usage by dApps -> APR returns for staked LRC go up / more transactions to bundle = cheaper + faster protocol -> more user incentive to stay within the Loopring protocol (internally existing DEX + dApps + L3 compatibility with prominent general Taiko zkEVM) -> performance gained from increased adoption attracts more users -> returns for staked LRC go up / more transactions to bundle [...] and so on
      • The LRC token grants DAO privileges, and will provide higher APR on LRC staking when we see start seeing Loopring dApps with high frequent volume. Paired with the cost of operating an exchange on the protocol being 250k+ LRC (and any future utility implementation), we should expect a rise in the token's value likely after zkRollups benefits are realised across Ethereum via zkEVMs like Taiko (Q1 2024) - when new Loopring L3 dApps inevitably follow.

This feedback loop of the more adoption, the better the service, is like an inverse death spiral. Eventually the transaction fees are essentially free, with instant settlement, and no security compromise (apart from the centralised relayers for Loopring L3, which I'd imagine will become more distributed to prevent targeted DDoS attacks - and regardless, would only prevent further transactions from being made via L3 because only trustless verification happens off-chain and settlement is always on Ethereum L1).

Compression of transactions from dApps moving to L2/L3 creates a mutually beneficial relationship with L1 due to a decreased amount of settlement requests in the queue for L1 verification - reducing load on the max 30 transaction/sec limit - making it even cheaper for L2 + L3 to settle on L1.

Other L2/L3s like 'Immutable X' and 'Polygon' NFT gaming zkEVMs will also enjoy better performance = more appeal for potential new users and creators, while holding a monopoly on NFT gaming market share % with this partnership.

Where will items from these games likely be traded?

The existing GameStop (x Loopring & Immutable X) NFT Marketplace!

...further improving the Loopring protocol - you get it?

The increased number of users as a result of this upgraded system also attracts more validators, creating a more populated and decentralised L1 more resilient to potential attacks: reducing impact that hypothetical L2/L3 downtime would have on access to the underlying system - and rather only the cheaper fees + speed they provide.

The entire Ethereum ecosystem benefits as one from these advancements; efficient bridges everywhere

Endless hype from Byron (late 2021) did lead to some holders expecting immediate results with some sort of nuclear triple AAA partnership announcement - but the proof is in the pudding. The functionality we now have within the Loopring protocol: non-custodial counterfactual wallet(s), GameStop Marketplace, NFT minting, staking, on/off-ramp, dual investment, DEX with CEX liquidity (!!!) etc. is looking like a Michelin 3-star banana pudding.

Taiko zkEVM mainnet release + proto-danksharding on L1 within the next ~6 months is going to make Ethereum a very efficient backend for a variety of systems, with Loopring primed to become the most optimised transaction service for the 2nd biggest blockchain.

The moon spiral catalyst moment that comes with true mass adoption is soon.

Banks: Entrust strangers to hold your fiat in a black-box system, who force you to wait several days to complete transfers etc. (+ any bank holidays/weekend delays), and use Visa/MasterCard for purchases which incurs another 1.5%+ in fees for merchants.

Loopring: Personally hold stablecoins/ETH/wBTC in your non-custodial wallet in a trustless white-box service, 24/7 ability to send assets instantly and for free to anyone else using Ethereum (or small fee to quickly exchange to nearly any other blockchain), still partake in TradFi via non-custodial cryptocards w/ vIBAN - and your wallet is a passport/inventory for interacting with the growing Web3 space.


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