The evolution of order book DEX: What changes have taken place in the past decade?

Loopring: The first ZK Rollup to go online, focusing on differentiation factors

With the advent of the DeFi craze, the transaction throughput problem of the first layer network began to emerge, and DEX also began to explore expansion to Layer2. Loopring was launched at the end of 2019. It is the first Ethereum ecosystem DEX protocol built on ZKRollup, using ZKP technology to achieve high throughput and non-custodial transactions. Loopring has gone through many iterations. The initial version only supported thin order transactions. The second version strengthened privacy and security by introducing ZKP technology, and the third version added support for the AMM model, making DEX more liquid.

You can see that Loopring combines the two narratives of DEX and ZK. In terms of performance, Loopring uses ZKP technology to complete all matching logic off-chain and submit it to the chain by generating proofs, which not only ensures the efficiency of the transaction, but also ensures its security and effectiveness. In addition, Loopring has also launched an order sharing mode. When the smart contract cannot execute the entire order in a single transaction, this function will split the order into smaller parts for trading until the original order amount is completed. Specifically, Loopring's on-chain transaction ring matching technology aggregates multiple separate orders into an order ring. After the smart contract verifies the order, each participant will exchange assets according to the rules of the order ring. The order sharing system will continue to run until all partial orders are fully executed. For example, if investor A wants to sell A tokens, investor B wants to buy A and sell B tokens, and investor C wants to buy B and sell C tokens, this trading cycle will continue until investor A gets the required currency. This trading cycle can guarantee the best price for all trading participants and obtain a higher level of liquidity.

In terms of security, Loopring uses ZKP technology to ensure that every off-chain match will generate a proof and submit it to the chain to prove that its results are correct. In addition, even in the extreme case of an exchange outage, users can still declare the legitimacy of their assets by providing valid Merkle proofs, which can be obtained from data on Ethereum. However, Loopring's current security level on L2Beat is still STAGE 0, mainly due to the lack of an exit window. The Loopring team also stated in a conference call that it is currently working to create a security committee and is committed to improving its security level on L2Beat. It plans to make some updates this year to provide users with more layers of security protection.

Compared with other DEXs, Loopring pays more attention to differentiation factors, so it has launched many new features and products to bring users a unique experience. For example, built-in support for the Loopring ZKRollup solution in smart wallet products; open up fiat currency channels so that users can easily recharge through credit cards and bank cards; launch block trading functions similar to those in traditional stock markets and provide a complete set of second-layer NFT solutions, including open casting, pending orders and transfers. In addition, it is worth noting that Loopring founder Wang Dong and former Loopring chief architect Brecht Devo also co-founded the EVM-equivalent ZK Rollup project Taiko in 2022, and completed a $15 million Series A financing in March this year, led by Lightspeed Faction, Hashed, Generative Ventures, and Token Bay Capital. At present, Taiko has completed a total of $37 million in financing through three rounds of financing.

dYdX: Focus on the derivatives market and strive to achieve full decentralization

Another DEX that has switched to the second layer network in response to the throughput problem of the first layer network is dYdX. Unlike Loopring, dYdX focuses on the derivatives market and chooses to build on the StarkEX L2 solution provided by StarkWare. Initially, dYdX was deployed on the Ethereum mainnet and was just a margin trading protocol. However, as Ethereum gas fees soared, dYdX could not afford the gas fees of users, so it decided to migrate to Layer2 and built an order book-based trading system.

The reason for choosing StarkWare's StarkEX L2 solution is that it better meets the needs of dYdX. This solution is not only able to process transactions in batches, but also compatible with various smart contracts. Although developing applications on Starkware requires learning its unique language Cairo, the advantages it brings are more attractive than other advantages, including significantly reduced gas and transaction fees, traders can use a single margin account to trade multiple perpetual contracts, thereby improving capital efficiency when trading multiple token pairs, cross-margin and higher scalability, allowing real-time liquidation, etc.

With the help of StarkWare's infrastructure, dYdX has established its unique position in the decentralized exchange market. However, dYdX hopes to achieve a fully decentralized operating model, so it decided to launch a dedicated chain based on the Cosmos SDK to manage business such as order books in a fully decentralized manner. dYdX V4 is designed to be fully decentralized end-to-end, with the front end run by the dYdX Operations SubDAO, and the order book and matching engine managed by active validators around the world.