Hi investors, Dan (@tradealert) and Dean (@deanliu) are back and today we’re talking about the 0x protocol.
In a Nutshell.
0x (pronounced “zero-X”) is a protocol for decentralized exchange (DEX) based on the Ethereum blockchain.
From a high-level, 0x is a system of free, open-source smart contracts that can be used by anyone to build DEX solutions to trade ERC-20 tokens and any financial asset which lives on the Ethereum blockchain.
Projects currently building on 0x include ETHfinex, dYdX (which focuses on decentralized financial derivatives), Paradex, Augur and many more.
The project is led by a small core team of 9, including the two co-founders including Will Warren (CEO) and Amir Bandeali (CTO).
But the project has quickly grown a very driven community of developers building exchanges products, most of which will go live soon.
The Problems they solve.
0x solves many of the problems associated with centralized exchanges.
Centralized exchanges are the most critical point of failure for the cryptocurrency sphere: they get hacked, front-run their customers and practice wash trade. They are also slow, costly and most importantly subject to regulations.
In a context of increasing pressure from regulators, it’s easy to imagine that many of today’s popular centralized exchanges might tomorrow face closure or raise the barrier of entry for their customers (KYC, AML, accreditation) to such a level where it might become impossible for retail investors to participate in the crypto economy (and for retail traders to make a profit).
Unlike centralized exchanges, 0x allows for anyone (including dAPPS) to build fast, scalable and secure decentralized exchange solutions ( called “relays“) on 0x. The way 0x achieve this is by allowing relays to take most of the trading activity (i.e., order books, ledgers, orders matching) off chain while using the Ethereum blockchain only to settle transactions.
Since the protocol itself is permission-less it’s likely the many DEX solutions that will be built on the protocol (many of which already exist) will end up competing against each other to the benefit of customers.
The Risks related to investing in ZRX tokens.
The ZRX token is the native token of the 0x protocol.
ZRX tokens are used for paying trading fees to DEX and dAPPs using 0x and will also be used in the governance of the platform in the future.
The truth is, ZRX tokens aren’t currently vital to the functioning of the protocol since exchange fees could just as well be denominated in ETH without any difference for the end user. However, it must be said that most current DEX solutions built on 0x do currently denominate their fees in ZRX tokens.
To add to that, it’s likely these fees will diminish in the far future as the competition between DEX grows, thus triggering a decline in the price of ZRX tokens.
However that doesn’t mean that the price of ZRX tokens can’t grow in the short term.
First, if 0x proves successful and become responsible for a large part of the transaction volume on Ethereum, then it’s possible we could see the price of ZRX tokens accrue (as traders hoard large balances of ZRX) provided that DEX keep denominating their fees in ZRX;
Second, as the protocol grows in usage and popularity, the need for governance will accrue and lead the major participants in the ecosystem to acquire large sums of ZRX tokens so to gain influence on the protocol thus putting upward pressure on the price;
Finally it’s possible that the token will take on new utility in the future that might make it attractive to use and to hold.
All in all, investing in ZRX tokens looks like a decent, though risky short to mid-term play but not likely a very long term investment.
If you’d like to know more about the protocol you can visit their website, Reddit and RocketChat.
Also we strongly encourage you to check out these two decentralized exchanges based on 0x:
We hope you’ve learned something new today. Don’t forget to re-steem, upvote and follow @tradealert and @deanliu if you like our featured content.
Cheers,
Dan & Dean.
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