0x ($ZRX) is an open protocol for developers to build their own decentralised cryptocurrency exchanges on the Ethereum blockchain. 0x came about as an answer to the problems inherent in centralised exchanges (CEX) and decentralised exchanges (DEX). For CEXs, approximately USD $1.1 billion has already been lost through security breaches on these platforms. Thus cryptocurrency enthusiasts have become wary for fear of losing their funds. Decentralised exchanges were meant to be an answer to this, but they have also issues of increased friction and increasing transaction costs. In this guide, we will explore what 0x is already offering in today’s market, and take a look at their recently released version 3 of the protocol.
0x is a brainchild of its CTO, Amir Bandeali, and its CEO, Will Warren. Other key individuals behind the project include their blockchain engineers, product designers, researchers, and business strategists. They also have a strong list of advisors including Fred Ehrsam, Co-founder of Coinbase and David Sacks, former COO of PayPal.
What is 0x?
0x is a protocol built on the Ethereum blockchain to create and power decentralized exchanges. Its aim is to be interfaced with other systems to power high-end decentralized applications (dapps).
The protocol seeks to inspire the movement of assets across the financial sector by eliminating third parties that have been making the process complicated and costly. The presence of smart contracts has also helped push third parties further to oblivion.
The advent of DEXs comes to safeguard users’ funds and prevent government censorship. These exchanges place the security of users’ funds onto the users themselves instead of trusting centralized platforms, which are prone to hacks.
Due to the Bitcoin blockchain scalability issues and lack of smart contract flexibility, dapp developers have flocked to Ethereum to build decentralized solutions such as exchanges. Unfortunately, with everyone looking to build a specialized dapp, Ethereum has been flooded with applications that cannot communicate well with each other.
Furthermore, these applications have varying degrees of security and quality. 0x came to solve this user fragmentation issue, as well as reduce the cost of using dapps.
How does 0x work?
Although it is built on top of Ethereum, its orders are dealt with off-chain as relayers are used to match the orders. The orders are only uploaded on the Ethereum blockchain after the process is complete. Off-chain signing reduces the amount of gas used in a particular transaction while also reducing the load on the main chain.
A relayer on the platform can be thought of as a decentralized exchange that has both public and private order books. Orders are broadcasted through these order books to make a suitable match.
Apart from reducing the gas fees involved, this approach also allows users to have control over their funds. An important feature of a relayer is that it only facilitates but does not conduct trades.
To allow this, the relayer needs to be supplied with the order maker’s signature, which is then delivered to the DEX’s smart contract. Relayers are rewarded using the protocol’s native token, ZRX, though this has been changed along with several other features in version 3 of 0x.
0x version 3: A new protocol with enhanced features
In August 2020, the decentralized protocol released a new version 3 that enables users to develop a more interconnected DeFi ecosystem. There are 3 major upgrades in this new version: staking ZRX tokens, liquidity bridges and flexible fees.
0x staking features
Version 3 of 0x introduced a staking mechanism which allows trading fees to be accepted in any token. Market makers that provide liquidity are seen as crucial for 0x’s long-term growth since they bring in liquidity. Hence a new staking feature was introduced whereby market makers on 0x are given monetary rewards. This means that any ZRX holder can join a market maker’s staking pool and be entitled to a share of the liquidity rewards. Meanwhile, it is in the best interests of the market maker to entice stakers to join their pool because it increases their potential liquidity rewards payouts and their voting power on governance issues since stakers are required to delegate half their voting power to the market maker.
Liquidity bridges is an exciting upgrade for decentralised finance (DeFi) developers who are building dapps that will benefit from accessing more liquidity. This is because the feature will enable them to source liquidity not only from the 0x network itself, but other DEXs such as UniSwap or Kyber from a single point of integration, known as 0x API (more on that below). In short, allowing users access to liquidity in other DEXs, thereby ensuring that orders are being filled to reach higher volumes, and thus attracting even more users onto the platform.
Flexible fees for Relayers
Previously, 0x only allowed Relayers to receive fees in ZRX only. This was problematic because sometimes Relayers may not want to receive fees in ZRX. It also led to a poor experience for Relayers since it created more additional steps in DEX trading, for example one of the largest 0x DEXs by volume didn’t have fees. And there is speculation that this is because of the limited ways in which fees could be paid out. This has been fixed in version 3, where Relayers can choose to have their fees paid in any Ethereum-based token or even in the token currently being traded.
ZRX Token: What is it?
The ZRX token is built based on Ethereum’s ERC-20 standard. Apart from being used to pay relayers for facilitating trades, it is also utilized for governance on the 0x protocol. In line with this, the amount of ZRX held determines the power a governor has when contributing to governance issues such as protocol upgrades.
The ZRX token supply is hard-capped at one billion. During its launch in 2017, half of the tokens were released and distributed to developers (15%), 0x (15%), founding team (10%), and advisors (10%).
ZRX is listed on Binance, Coinbase, Huobi, HitBTC, and other leading exchanges. For storage, the token is supported by Ledger (both the Nano X and Nano S), Enjin, Exodus, and any other cryptocurrency wallets primed for ERC-20 tokens.
As mentioned above, the 0x team has recently introduced staking features for ZRX which gives more incentives for both liquidity providing market makers and ZRX holders.
Other products powered by 0x
0x has a whole suite of products aside from its open protocol. These are:
· 0x Instant– This offers a way to buy cryptocurrency on any app or website.
· 0x mesh – Allows access to a global P2P order book for tokens.
· 0x API – Can be used to accumulate liquidity from platforms built on the protocol such as UniSwap, and Mesh. It can also be used to swap tokens based on price.
· Matcha – A platform to find the best prices across exchange networks.
· 0x Extensions – For use with relayers to incorporate new trading types.
· 0x OTC – This is a consumer-based exchange that allows for a P2P exchange of ETH tokens without a relayer. Unlike the other P2P exchanges, 0x OTC enables the seller to send a link to the buyer on any platform, including social media, and its results are recorded on the Ethereum blockchain.
Even with numerous advantages, the protocol uses multi-signature smart contracts that could be exploited since they are still based on code. Also, since the DEXes are still a work in progress, they may not have the liquidity needed to fill orders for lesser-known tokens.
As blockchain technology matures, so should the applications run on top of it. However, as more dapps flood the scene, we need a standard quality and security setting to ensure that these systems operate as they are intended. Thankfully, with 0x, the standard is already set.
Furthermore, dapp developers also need to embrace the system for users to benefit from low transaction fees.
The 0x protocol can be used in prediction markets such as sports betting, which require untampered results of outcomes of physical events.
The platform’s vast use cases are also capable of bringing real change in the decentralized world while leveraging off-chain mechanisms to drastically enhance scalability.
Decentralised Finance (DeFi) series: tutorials, guides and more
With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. We also take a deep dive into popular DeFi topics such as Yearn.finance ($YFI), Balancer ($BAL) and ($COMP).
The DeFi series on this website also covers topics not explored in YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency
Learn about Yearn.finance ($YFI) and all its various hard forks and iterations:
- Yearn.finance ($YFI) farming with yEarn Pool
- YFII Yield Farming- the controversial $YFI Fork
- YFFI Yield Farming – Another fork of the popular yield farming Dapp
- Andre Cronje, Founder of yEarn.Finance ($YFI) talks DeFi with FTX
For in-depth information other specific DeFi projects, check out our DeFi token guides:
- 0x ($ZRX) guide: The future of cryptocurrency exchanges?
- AAVE ($LEND)
- Ampleforth ($AMPL) review: The essential guide to this DeFi protocol
- Bella Protocol ($BEL): One-click crypto banking
- Balancer Finance Guide and Review ($BAL)
- ChainLink ($LINK) guide: A key link in the DeFi space
- Compound Finance ($COMP)? A guide to hacks and tips on the latest DeFi platform
- Cream Finance ($CREAM): What is it?
- Curve Finance ($CRV) guide
- DeFi Money Market and DMM Governance ($DMG) guide
- FalconSwap ($FSW) Guide
- Fuse Network ($FUSE): What is it?
- Hedget ($HGET): Does it live up to the hype?
- Kusama ($KSM): How is it Polkadot’s wild cousin?
- Linear Finance ($LINA): The future of synthetic exchange platforms?
- Mantra DAO ($OM): The DeFi project that’s all about community
- OIN Finance ($OIN): DeFi’s first foray into Ontology
- Orion Protocol ($ORN) explained
- Polkadot ($DOT): Everything you need to know about the DeFi darling of China
- RAMP DeFi: How does it unlock the value of staked assets?
- Rio DeFi ($RFUEL): The next frontier of finance?
- Serum ($SRM): First look at FTX’s new DEX for the DeFi wave
- Solana ($SOL) explained
- SushiSwap ($SUSHI) explained
- Synthetix ($SNX): Everything you need to know about this top DeFi project
- THORChain ($RUNE) information and guide
- Trustswap ($SWAP) explained- Next generation of DeFi transactions
- YF Link ($YFL): Combining the best of ChainLink ($LINK) and Yearn Finance ($YFI)?
- YFV Finance Yield Farming
Tutorials and guides for the ESSENTIAL DEFI TOOLS:
- MetaMask Guide: How to set up an account? PLUS tips and hacks for advanced users
- Uniswap review and tutorial: Beginners guide and advanced tips and tricks
More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel and (for now) FREE weekly newsletter so you can be notified as soon as they come out!
The information provided in this article is intended for general guidance and information purposes only. Contents of this article are under no circumstances intended to be considered as investment, business, legal or tax advice. We do not accept any responsibility for individual decisions made based on this article and we strongly encourage you to do your own research before taking any action. Although best efforts are made to ensure that all information provided herein is accurate and up to date, omissions, errors, or mistakes may occur.