Analysis of 0x (ZRX)
0x is a protocol that allows Ethereum tokens to be traded on the Ethereum network.
It works by keeping buy/sell orders in a large pool, but off the blockchain, until they are actually executed. This prevents expensive fees being paid just by making an order that may never be completed. If I wanted to sell one Bitcoin for one Ethereum then I would place an order for this transaction to occur, but if no one obliged, I would still pay a fee.
The problem it is solving is the lack of an open source protocol to trade Ethereum tokens. There are currently a few protocols that allow you to do so, but they are not both liquid and scalable. 0x is an add-on to decentralized apps that are being built on the Ethereum blockchain, and it allows developers to add this exchange functionality easily.
Examples of uses of the 0x protocol include:
- Decentralized loans: One person taking out a loan may want it in a specific Ethereum token X, while another user may have some other token Y to lend out. The 0x liquidity engine can help solve this problem by transforming Y into X when borrowed and then X into Y when paid back.
- Stable Tokens: In order for stable tokens (tokens that stay at a fixed value) to exist they need to be extremely liquid, 0x will help facilitate this by allowing these tokens to exist on top of a liquidity engine, that allows the stable token to be traded for tens or even hundreds of other tokens.
Decentralized exchanges are important because they take away the need to trust a third party to transact cryptocurrency. There are constantly problems with exchanges being hacked or exchanges going down (http://bit.ly/2lOlHF8, http://bit.ly/2EHTwDe, and http://bit.ly/2FgUTWr). Also there can be problems with verification or exchanges not doing a good job with support tickets. Decentralized exchanges will gradually take the market share from centralized ones.
My Thoughts:
One recent development in 0x that I find exciting is the ability to trade Ethereum tokens directly off of a Ledger Nano (over 1 million in existence). This is fantastic because it allows users to use a secure wallet to make trades. Before users had to use a desktop wallet, which is less secure.
In my opinion, the future of 0x is promising if the following things can happen:
- There is a steady increase in the amount of people who use a decentralized exchange.
- 0x continues to beat the competition for who has the best decentralized exchange protocol and gains over 50% of the market share for decentralized exchanges.
- Applications continue to adopt it and use its protocol in their token design.
Due to 0x being adopted by many successful project on the Ethereum platform (Augur, Aragon, Blocknet, etc.) I see decentralized exchanges overtaking the centralized model in 2–5 years. 0x is positioned to be the market leader.
Additional Resources:
Please note: all opinions I have expressed are my own.
