First (formally) proposed through a whitepaper published on February 21st, 2017, the 0x (ZRX) protocol outlines the specifications for a decentralized cryptoasset exchange built on the Ethereum blockchain.
The whitepaper‘s abstract notes that the 0x (ZRX) protocol aims to “facilitate low friction peer-to-peer (P2P) exchange” of ERC-20 compliant tokens on the Ethereum network. Authored by Amir Bandeali (a University of Illinois Finance graduate and the CTO at 0x) and Will Warren (a University of California, San Diego Mechanical Engineering graduate and technical advisor for Basic Attention Token), the platform’s whitepaper explains:
“[The 0x protocol] serves as an open standard … driving interoperability among decentralized applications (dApps) that incorporate exchange functionality. Trades are executed by a system of Ethereum smart contracts that are publicly accessible, free to use and that any dApp can hook into.”
DApps developed using the 0x protocol have access to “public liquidity pools” and they can also create their own liquidity pool. DApp developers can also charge usage fees on “resulting volume.”
0x (ZRX), A Secure, Seamless, Free-Of-Cost Protocol
According to its founders, the 0x protocol has been built in a manner that does not “impose costs on its users” or “arbitrarily extract value” from certain users in order to benefit another group of network participants.
Decentralized governance is used on the 0x network to “continuously and securely integrate updates into the base protocol without disrupting dApps or end users.” What makes the 0x protocol different, and arguably better, than its competitors, Etherdelta and IDEX (both decentralized exchanges), is that the 0x platform offers off-chain order books. Meanwhile, IDEX and Etherdelta place their order books on the Ethereum blockchain.
When you run your DEX on Ethereum, then you also have to pay gas fees for changing or cancelling trades.
Using Relayers, Broadcasting Order Books Off-Chain
The 0x network uses relayers, which are exchanges that run on the platform and broadcast order books off-chain. These orders are then picked up by the network’s users and once a transaction has been confirmed (buyer fills sell order), then the finalized transaction is recorded on 0x’s blockchain.
The 0x network uses a native crypto token called ZRX to process fees that dApps built on the platform (and relayers) may charge. The ZRX token may also be used to vote for protocol improvements and upgrades. Users who are large stakeholders (own a large amount of ZRX) may have more voting power.
ZRX Token Distribution
Launched on August 15th, 2017, the maximum supply of ZRX tokens has been fixed at one billion. 50% of the tokens had been released at the launch, while 15% had been retained by the 0x development team. 15% of the total ZRX supply was allocated for the protocol’s ongoing development, 10% went to 0x founders, and 10% were reserved for the project’s advisors and early investors.
The tokens which have been set aside for the 0x founders, advisors and staff members are to be gradually released over a four year time period. Investors who acquired ZRX tokens when the public token sale first began are able to access and liquidate their investments immediately.
Over 30 Projects Launched On 0x Network
There are currently more than 30 different dApps and relayers that have been launched on the 0x platform. These include:
- Aragon, an Ethereum-based project for “building unstoppable organizations”;
- Augur, the decentralized prediction markets platform;
- dy/dx, a protocol for decentralized margin trading and derivatives;
- Dharma, a platform for issuing tokenized debt agreements.
Some notable relayers that are using the 0x protocol:
- Ethfinex, a “digital tokens trading and discussing” network;
- Paradex, a non-custodial decentralized trading platform;
- OpenRelay, a relayer built specifically for 0x developers.
0x Over-the-Counter (OTC) Trades
There’s also a 0x over-the-counter (OTC) trading service which allows for the person-to-person exchange of ERC-20 tokens without requiring a relayer to complete the transaction. To conduct OTC trades on 0x, users must send a link to their counterparty which is then used to create and send the order. Network users are able to send the order through email, their social media accounts, or even by using pencil and paper.
ZRX Listed On Coinbase Pro & Consumer
In early October 2018, US-based digital asset exchange’s professional trading platform, Coinbase Pro, added support for the ZRX token. A week later the ZRX cryptocurrency was also listed on “Coinbase Consumer.” As mentioned, decentralized exchange Paradex uses the 0x protocol and it was acquired by Coinbase in May 2018. At the time of acquisition, Coinbase’s management team had said they would be integrating Paradex into Coinbase Pro.
Commenting on the advantages and use cases for Paradex, Linda Xie, the managing director and co-founder of Scalar Capital, remarked:
“0x was co-founded by Will Warren and Amir Bandeali in October 2016. They envision a world in which every asset can be represented as a token on the Ethereum blockchain including fiat currencies, stocks, gold and digital game items. This tokenization will lead to thousands of tokens that need a method of trustless exchange.”
The 0x protocol could become one of the most useful platforms in the world if all real-world assets and transaction systems become tokenized in the future. While some have completely dismissed this idea by calling it ridiculous, including crypto’s most well-known critic Dr. Nouriel Roubini, there are many prominent industry players who believe in the “tokenization of everything.”
Notably, Jeremy Allaire and Sean Neville, the founders of Goldman Sachs-backed Circle Internet Financial, are among many other prominent members of the crypto community who believe that an increasing number of assets could be tokenized in the future digital economy.
Largest DEX Using 0x Protocol To Fork Off, Not Use ZRX Token
DDEX, the largest DEX that uses the 0x protocol, decided and announced last year in December that it would fork the original ox protocol to develop Hydro. This new forked version would not support the ZRX token, according to a blog post by DDEX’s CEO, Tian Li. As detailed by Li in his post, Hydro will feature a “new order schema” and an “engine capable of true matching, robust market orders, and a fundamentally different liquidity sharing model.”
Li further noted that his motivation for developing Hydro was that the exchange system created by the 0x protocol and the ZRX token was still “plagued by rudimentary problems such as order collision, front-running, and poor liquidity.” After “rewriting a large portion of the [0x] codebase” to remove the “unnecessary friction”, the Hydro protocol will allow for the development of a better exchange platform, according to Li.
CryptoInsider will be keeping a close watch on the latest updates and developments related to the 0x protocol. Important business activities involving the 0x (ZRX) platform will also be covered.