Introduction
The notion of a DEX (or decentralized exchange) has been moving around since the first “altcoin’s” arrival. It seems contrasted to the very basis of cryptocurrency that such dependence is placed in centralized trading exchanges such as Poloniex or Bitfinex – blockchain technology was hypothesized as a method of transfer that does away with the traditional concept of trust and middlemen.
Hopping between blockchains, as it stands, requires faith in an progressively outdated system that can be compromised in a number of ways, both from the inside and the outside (the Mt. Gox theft will unquestionably remain immortalised in Bitcoin past). It would be optimistic to say that breaches are few and far between, but that simply isn’t the case.
Very few projects in the space come close to generating a solution of this magnitude. If successful,
Many believe that DEXs are the key to beginning to look at crypto not as a fragmented landscape of different factions, but as an increasingly interactive distributed network – one may even go so far as to say it lays the foundation for Web 3.0. DEXs promote privacy, anonymity and security in a way that hasn’t been seen for a while on exchanges.
What does the project do ?
According to the 0x whitepaper, 0x is “an open protocol for decentralized exchange on the Ethereum blockchain.” 0x is creating a protocol using Ethereum smart contracts for anyone in the world to operate a decentralized exchange. The team believes that there will be thousands of Ethereum tokens in the future and there will be a need to trustlessly and efficiently exchange them
The 0x protocol uses a token called ZRX.
ZRX has 2 main utility functions:
Governance – ZRX will allow holders to vote on changes to the 0x protocol. This is a critical feature since relayers will want to upgrade the protocol and use the same 0x contracts as other relayers in order to maximize liquidity. A governance mechanism decreases the chance of upgrade forks, allows an automatic upgrade of the contracts, ensuring consistency across users, and therefore permits efficient upgrades to the protocol.
Relaying fees – Relayers will host off-chain order-books and matching engines to match orders of makers and takers (the users wanting to trade ERC20 tokens). Makers and takers being matched using the service will pay a fee to the relayer using ZRX.
Since a fee in ZRX will be paid for every transaction, the more transactions are being done on the 0x protocol, the more valuable ZRX should be.
Team
0x has a team of 6. Most members of the team are software engineers, with one person in charge of operations and another in charge of design.
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Will Warren, Cofounder & CEO – Previously worked at applied physics research at Los Alamos National Laboratory. Mechanical engineering at UC San Diego. PhD dropout.
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Amir Bandeali, Cofounder & CTO – Former fixed income trader at DRW. Finance at University of Illinois, Urbana-Champaign.
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0x has received funding from various venture capital firms including Polychain Capital, Pantera Capital, Blockchain Capital, Jen Advisors and Fintech Blockchain Group. As a result, 0x has a strong team of advisors including Fred Ehrsam, cofounder of Coinbase, Olaf Carlson-Wee, founder of Polychain Capital, Joey Krug, founder of Augur, and Linda Xie, product manager at Coinbase.
Opportunities
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The problems that 0x is trying to solve benefit from decentralization. The risks pertaining to centralized exchange are some of the biggest factors preventing the wide adoption of cryptocurrency. The hacks at different exchanges are some of the biggest news that layman learn about cryptocurrencies and this is undesirable.
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Network effect is in place for this project. The more usage the 0x protocol (exchanges) has, the more valuable ZRX is. This is because investors prefer exchanges with heavy volume and lower bid/ask spread.
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ICO is a new trend that is gaining popularity very quickly. In July 2017 alone, $665 million was raised – that is twice as much money as was raised in the first five months of the year combined.
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Among different ICO platforms, Ethereum is by far the most popular one. According to Coinmarketcap, 69 out of the 100 most valuable tokens are using the Ethereum platform.
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0x has already secured partnerships with promising projects including Ethfinex, District0x, Augur, and Melonport, among others.
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The partnerships with established companies such as Bitfinex (for their Ethfinex spinoff) and ANX International (for their OpenANX spinoff) are especially exciting.
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Bitfinex is one of the largest cryptocurrency exchange in the world, with trading volume in the past 24 hours reaching $250 million. If Ethfinex is remotely close to the scale of Bitfinex, ZRX will be receiving heavy usage from this exchange alone.
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Bitfinex is starting to dabble into token trading with the addition of Santiment and Omise GO recently. It looks like the Ethfinex project is the next focus of Bitfinex.
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Multiple blockchain focused venture capital firms have invested in 0x, meaning that the project has already passed due diligence of those institutional investors.
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Concerns
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SEC regulations may have restrictions on exchanges operating in the US / for US citizens, potentially limiting the usage of 0x as certain ERC20 tokens are considered to be securities.
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0x only works for ERC20 tokens. If another smart contract protocol overtakes Ethereum in fundraising popularity, there may not be much demand for ZRX going forward.
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It is not clear if 0x will apply to list their tokens on any exchanges. If they don't, then the only exchanges that will list ZRX probably going to be smaller exchanges such as Etherdelta or Liqui.
Conclusion
Decentralized exchanges are a key piece of crypto infrastructure, and they will fundamentally improve the functionality of crypto economies. 0x is emerging as the leading DEX platform within the Ethereum ecosystem. Not only is the core protocol well-designed and fully functional, but 0x has also incentivized a whole ecosystem of third-party relayers whose services will make using 0x even easier than using a centralized exchange. DEXs built on 0x will have significantly lower fees and lower barriers to entry than their centralized counterparts. 0x’s ability to integrate directly into various DApps will mean greater fluidity and interoperability among Ethereum-based applications. 0x represents a huge step forward for the Ethereum ecosystem. The long term vision for 0x is to become a blockchain-agnostic protocol for cross-chain exchange, and we look forward to seeing the project progress in that direction.