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Description

Loopring's zkRollup L2 solution aims to offer the same security guarantees as Ethereum mainnet, with a big scalability boost: throughput increased by 1000x, and cost reduced to just 0.1% of L1.

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Risk summary

Technology

Validity proofs ensure state correctness

Each update to the system state must be accompanied by a ZK Proof that ensures that the new state was derived by correctly applying a series of valid user transactions to the previous state. Once the proof is processed on the Ethereum blockchain the L2 block is instantly finalized.

    1. Operators - Loopring design doc

    Zero knowledge SNARK cryptography is used

    Despite their production use ZK-SNARKs are still new and experimental cryptography. Cryptography has made a lot of advancements in the recent years but all cryptographic solutions rely on time to prove their security. In addition ZK-SNARKs require a trusted setup to operate.

    • Funds can be stolen if the cryptography is broken or implemented incorrectly.
    1. Operators - Loopring design doc

    All data required for proofs is published on chain

    All the data that is used to construct the system state is published on chain in the form of cheap calldata. This ensures that it will always be available when needed.

      1. Introduction - Loopring design doc

      Operator

      The system has a centralized operator

      The operator is the only entity that can propose blocks. A live and trustworthy operator is vital to the health of the system.

      • MEV can be extracted if the operator exploits their centralized position and frontruns user transactions.
      1. ExchangeV3.sol#L315-L322 - Loopring source code
      2. LoopringIOExchangeOwner.sol#L123-L126 - Loopring source code

      Users can force exit the system

      Force exit allows the users to escape censorship by withdrawing their funds. The system allows users to force the withdrawal of funds by submitting a request directly to the contract on-chain. The request must be served within a defined time period. If this does not happen, the system will halt regular operation and permit trustless withdrawal of funds.

      • Users can be censored if the operator refuses to include their transactions. They can still exit the system.
      1. Forced Withdrawals - Loopring design doc
      2. Forced Request Handling - Loopring design doc

      Withdrawals

      Regular exit

      The user initiates the withdrawal by submitting a transaction on L2. When the block containing that transaction is proven the funds become available for withdrawal on L1. Finally the user submits an L1 transaction to claim the funds. This transaction does not require a merkle proof.

        1. Withdraw - Loopring design doc

        Forced exit

        If the user experiences censorship from the operator with regular exit they can submit their withdrawal requests directly on L1. The system is then obliged to service this request. Once the force operation is submitted if the request is serviced the operation follows the flow of a regular exit.

          1. Forced Request Handling - Loopring design doc

          Emergency exit

          If enough time passes and the forced exit is still ignored the user can put the system into Withdrawal Mode, disallowing further state updates. In that case everybody can withdraw by submitting a merkle proof of their funds with their L1 transaction.

            1. Forced Request Handling - Loopring design doc

            Permissioned Addresses

            The system uses the following set of permissioned addresses:

            Smart Contracts

            A diagram of the smart contract architecture
            A diagram of the smart contract architecture

            The system consists of the following smart contracts:

            • Main ExchangeV3 contract.
            • LoopringIOExchangeOwner 0x153C…8512
              Contract used by the Prover to submit exchange blocks with zkSNARK proofs that are later processed and verified by the BlockVerifier contract.
            • DefaultDepositContract 0x674b…Bd3f
              ERC 20 token basic deposit contract. Handles user deposits and withdrawals. This contract can store any token
            • LoopringV3 0xe56D…0C71
              Contract managinging LRC staking for exchanges (One Loopring contract can manage many exchanges).
            • BlockVerifier 0x6150…01ef
              zkSNARK Verifier based on ethsnarks library.
            • AgentRegistry 0x39B9…ea14
              Agent rergistery that is used by all other Loopring contracts. Currently used are FastWithdrawalAgent, ForcedWithdrawalAgent, DestroyableWalletAgent and a number of LoopringAmmPool contracts.

            The current deployment carries some associated risks:

            • Funds can be stolen if a contract receives a malicious code upgrade. There is no delay on code upgrades (CRITICAL).