The 0x Ecosystem

4 min readSep 26, 2017

Since launching 0x protocol on the Ethereum mainnet we have received a flood of questions asking when the first 0x-based decentralized exchange will go live. This post will provide insight into the development activity we are observing today and how we expect the ecosystem to evolve over the next few years.

Note: this post represents my personal optimistic take on the future. It is not investment advice.

The next 12 months

The cryptocurrency exchange industry generates millions of dollars in fees each day and these numbers are growing. Even a small fraction of market share maps to a massive dollar value.

Monthly trading volumes on BTC/USD since 2010 in billions of dollars.

The Chinese ban on cryptocurrency trading has put a temporary stop to billions of dollars of daily trading volume. This activity will move to decentralized exchanges that are able to route around censorship and remain globally accessible.

Daily trading volumes on BTC/CNY in billions of yuan. Notice the gap decrease in September 2017 following the government shutdown of cryptocurrency exchanges.

0x protocol lowers the barriers to entry for developers building decentralized exchanges. Low barriers to entry in combination with the opportunity for massive profits naturally leads to fierce competition.
There are numerous independent dev teams (9 that we know of) building decentralized exchanges on top of 0x protocol today. Over the next 12 months a few of these exchanges will progress from clunky prototypes into highly refined products that rival or surpass existing centralized exchanges.

0x-based trading platforms at various stages of development. /r/tokentrade (left) uses automation to transform a subreddit into an order book. Kin Alpha (2nd from left) was created by a single developer over a few weeks and is currently live on the Ethereum mainnet. RadarRelay (3rd from left) is currently in beta and rapidly improving with each release cycle. Ethfinex’s (right) impressive roadmap includes a beta release later this year.

As competition increases, dev teams will focus on tailoring their products to different markets and user demographics. This will lead to a diversity of 0x-based decentralized exchanges that cater to users with different levels of technical sophistication (Shapeshift vs. Poloniex) and geographic origin.

The next 3 years

Centralized exchanges will not be able to compete with 0x-based decentralized exchanges on fees because centralized exchanges have high operating costs. This is because centralized exchanges must build and operate proprietary infrastructure to securely handle user funds. However, centralized exchanges will continue to play a critical role in the cryptocurrency ecosystem because they offer fiat on/off-ramps, better performance and they cater to customers that are uncomfortable managing their own private keys.
As other Ethereum projects come online, new 0x-based exchanges will emerge that specifically focus on trading Augur and Gnosis prediction markets, shares of Melon funds, Dharma debt instruments, shares of Aragon-based decentralized organizations, district0x-based marketplace assets, dYdX derivatives and more. Some of these exchanges will have no affiliation with the projects named above; they will be created by independent, profit-motivated dev teams.
The Ethereum blockchain will be pushed to its performance limits as transaction volumes created by 0x-based exchanges and other dApps consistently approach and exceed the blockchain’s maximum throughput. This will result in extended periods of congestion until scaling solutions are implemented. A portion of this activity will be offloaded into state channels where applicable.
Proof-of-stake, sharding and parallelizability will be integrated into the Ethereum blockchain over time, increasing throughput by 10x-1000x. Unless something fundamentally changes in the greater blockchain ecosystem, this additional throughput will be put to use quickly.
Scaling solutions such as Plasma begin to transition from early stage research into early functional implementations.

The next 5 years

Regulations finally begin to catch up to blockchain technology and we see the first legally compliant securities tokenized on the Ethereum blockchain (among other blockchains). As the benefits of having a global and open financial system become clear to institutions, more traditional assets become tokenized.
People that have traditionally been unable to access a broad range of assets, whether due to local government restrictions or other reasons, are finally able to choose how to allocate their capital.
0x protocol becomes blockchain agnostic: the message format and governance system are gradually generalized to support consistent trade settlement across a variety of EVM blockchains. This transition allows the existing infrastructure to be extended to Plasma chains or other blockchains with as little friction as possible.

Concluding Thoughts

The accelerating pace of innovation in blockchain technology makes it challenging to predict the future. That being said, I am confident that blockchain transaction volumes and demand for decentralized trustless exchange will continue to increase in coming years. Events that I could see shifting the above timeline include (1) unforeseen research breakthroughs that move the entire industry in new directions and (2) governments attempting to clamp down on access to these open networks.

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