The developers of the 0x protocol, an open-source standard and specification for “facilitating low friction peer-to-peer (P2P) exchange” of crypto tokens on the Ethereum blockchain, have released a draft for ZEIP-31.
According to ZEIP-31’s Github page, it’s a proposal which suggests introducing “a stake-based liquidity incentive” to the 0x protocol. The document’s draft mentions that ZEIP-31 aims to “incentivize liquidity providers to invest in the long-term success of the protocol.”
ZEIP-31: Leveling The Playing Field Across All Asset Types
ZEIP-31 has been proposed in order to “create a level playing field across all types of assets and classes market makers.” Additionally, the proposal’s authors intend to “minimize overhead and cost, both in terms of gas and effort to participate.”
As outlined in its specification document, the codebase modifications associated with ZEIP-31 will allow users to “participate in governance and liquidity incentive programs” by staking ZRX, the native crypto token of the 0x protocol chain. Other notable suggested changes to the current 0x protocol in the new proposal include:
- “Delegate stake to liquidity providers,”
- “Funding self-sustaining development with protocol fees,”
- “Earn liquidity rewards on trading,”
These recommended modifications may be activated after users have voted for them. ZEIP-31 also specifies a “scheduling process for claiming rewards” and a process for “setting up liquidity rewards for market makers.”
Utilizing “New ZRX Economics”
According to a blog post published on April 11th, 2019 by 0x project co-founder Will Warren, the suggested changes to the protocol aim to “utilize new ZRX economics.” Under ZEIP-31, “takers pay a small protocol fee on each 0x trade.” Meanwhile, market makers (MM) can earn liquidity rewards which are calculated based on “protocol fees generated from their orders” and “their stake of ZRX tokens.”
MMs who may not “own sufficient ZRX” to “collect liquidity rewards” will have the option to set up a ZRX staking pool for “third-party delegators.” Prior to finalizing the implementation details of the changes proposed for the 0x protocol, there will be a community discussion which may help “gauge sentiment.” Moreover, smart contracts required for activating or using modifications associated with ZEIP-31 must be developed and audited.
Token holders are also required to either approve or reject integration of proposed changes into the “live 0x pipeline via token vote.”
The team supporting ZEIP-31 is planning to activate changes in the proposal, called 0x protocol v3.0, at some point during Q3 2019.
Ensuring 0x Protocol Remains Compatible With “Next Generation Of Blockchains”
As mentioned in Warren’s blog, the “next generation of blockchains,” including the upgraded Ethereum 2.0 blockchain, will be implemented by using sophisticated “cryptographic proof systems, WebAssembly virtual machines, and cross-blockchain communication” (blockchain interoperability).
In order to ensure that the 0x protocol is compatible with new technologies and algorithms, its developer community aims to “absorb new research innovations” and “community standards” as they are developed. According to the 0x project co-founder’s blog:
“Evolution requires governance and effective governance requires decision makers to be aligned in their incentives, vision, and values.”
In order to achieve these objectives, ZEIP-31 has been created to help improve the existing 0x ecosystem and help it move towards a path that “becomes community owned and operated.” As distributed ledger technology (DLT)-based systems continue to evolve, this “early community of users and supporters may be the single thread that links our current system of Ethereum smart contracts to whatever system or network we end up calling 0x in the future,” Warren noted.
To learn more about the 0x protocol, click here.