Introducing the Lossless Protocol — Product Development Update #1
Over the last couple of months, we’ve been working hard on protocol development and have finally achieved one of the major milestones in our roadmap.
By now, everyone in the crypto space is pretty familiar with ERC20 — the Ethereum token standard. The reason that ERC20 is so popular is that it simply gets the job done- the interface is minimal, but it has everything that a token needs. Because of the blockchain’s decentralized nature, most ERC20 tokens are fully permissionless and can be transferred from one wallet to another without any interceptions.
This permissionless nature is a revolutionary way of conducting monetary transactions and one of the main reasons why cryptocurrencies became popular. However, the lack of checks comes at a cost. No one can be stopped from making transfers, even if they obtained the tokens illegally. Additionally, nobody has the ability to freeze hacked funds either and stuck funds are forever lost.
In order to solve this issue, we’ve created a new standard — introducing the LERC20.
This new standard serves as an extension to the current ERC20 standard by adding a way to intercept token method calls. For LERC20, each standard ERC20 method is overylayed by Lossless code. Inside this Lossless code, there are simple method calls to the Lossless Controller. These method calls simply forward the parameters that were provided to the original method call. For example, in case of a transfer method call, it would include the sender, the recipient, and the amount of tokens to be transferred. These parameters are forwarded to the Lossless Controller before and after the standard ERC20 method code is executed.
This approach of forwarding the method call data allows the Lossless Controller to perform all necessary checks on these parameters and revert a transaction in the event a check fails. This is how LERC20 achieves freezing and reverting transactions, as well as blacklisting wallets in case a hack is underway.
Please see below for a simplified diagram of how an LERC20 token and the Lossless Controller smart contract interact with one another:
This novel architecture enables the Lossless protocol to become the “middleware” that ensures the safety of funds. A hacker who gets their hands on a Lossless protected token has no way of bypassing these safety checks.
The best part is that no updates are required, as the Lossless protocol continuously evolves and changes -tokens protected by the Lossless protocol are always up to date with the newest improvements. All of this is made possible because the protocol is standardized and compatible with the same interface as ERC20.
This architecture also allows for token creators to plug the Lossless protocol into their token code without any permissions from the Lossless team. In a way, the Lossless protocol becomes a publicly available security layer for ERC20 tokens.
Although it lacks full functionality, the Lossless Controller is already live on the Ethereum Mainnet, and Lossless Token will be the first one that implements this architecture. The architecture will allow the Lossless token to support the new staking and hack resolution mechanisms that will be introduced soon.
Until next time,