0x: Everything to Know
By Beluga Research August 8, 2023
- 0x (ZRX) is a cryptocurrency protocol enabling decentralized exchanges and the trading of Ethereum-based tokens
- It is a decentralized exchange protocol that addresses the limitations of centralized exchanges
- It employs a modular architecture consisting of smart contracts and introduces the concept of relayers
- 0x faces challenges with scalability, smart contract risks, regulatory uncertainty, and a potentially less intuitive user experience
0x (ZRX) is a cryptocurrency protocol enabling decentralized exchanges and the trading of Ethereum-based tokens. At its core, 0x is an open protocol that enables the creation of decentralized exchanges (DEXs) on the Ethereum network. By utilizing smart contracts, 0x allows users to trade ERC-20 and ERC-721 tokens directly from their wallets, without the need for intermediaries or centralized platforms. The protocol fosters a transparent and trustless environment, empowering users to retain full control over their assets during the trading process.
A Brief History
0x was conceived in 2016 by Will Warren and Amir Bandeali, aiming to address the limitations of centralized exchanges while providing a seamless trading experience. The project's initial coin offering (ICO) took place in August 2017, raising $24 million in funding. Since then, 0x has garnered significant attention and support from both investors and developers.
0x: Everything to Know
Under the hood, 0x employs a modular architecture that consists of several smart contracts, each serving a specific function within the protocol. The main components include the 0x Exchange contract, the 0x Token Registry and the 0x Asset Proxy. The Exchange contract acts as the core trading engine, facilitating order matching and settlement. The Token Registry maintains an up-to-date list of supported tokens, while the Asset Proxy enables the secure transfer of assets between traders.
To initiate a trade on 0x, users create and sign orders offline, specifying the token pair, price and quantity. These orders are then broadcasted to the network, where they can be discovered by potential takers. Once a taker discovers an order, they can fill it by submitting a corresponding transaction. The 0x protocol ensures that order settlement occurs atomically, meaning that either the entire trade is executed or none of it is, preventing partial fills or front-running.
In addition to its core functionality, 0x also introduces the concept of relayers. Relayers are entities that host order books and facilitate the discovery of orders. They serve as an intermediary between makers and takers, aggregating and displaying available orders for efficient trading. Relayers can be built on top of the 0x protocol, offering unique user experiences and additional services such as order matching, liquidity aggregation and more.
By enabling decentralized exchanges, 0x brings forth several advantages. Firstly, it eliminates the need for users to deposit their funds onto centralized platforms, reducing the risk of hacks and theft. Additionally, the protocol allows for a wider range of trading pairs and increased liquidity since it aggregates orders from different sources. Furthermore, 0x promotes interoperability, enabling DEXs to seamlessly interact with other decentralized applications (Dapps) in the Ethereum ecosystem.
To participate in the 0x network, users can interact with the protocol directly or utilize 0x-enabled platforms and applications. To begin, users need an Ethereum wallet to store and manage digital assets. Popular options include MetaMask, MyEtherWallet and Ledger. Once a wallet is set up, users can connect it to a compatible DEX or Dapp that integrates the 0x protocol.
When using 0x, users have the freedom to trade tokens directly from wallets without the need for intermediaries. This peer-to-peer nature of 0x eliminates the traditional reliance on centralized exchanges to execute trades. Instead, users retain control of funds throughout the trading process, improving security and reducing counterparty risk.
One of the key features of 0x is its emphasis on interoperability. The protocol allows developers to integrate 0x into their dApps, enabling seamless token trading across different platforms. This interoperability promotes liquidity by aggregating the trading volume of various exchanges and increasing the pool of potential traders. As a result, users can access a wide range of tokens and enjoy competitive pricing without being limited to a single exchange.
0x also introduces the concept of off-chain order books, which enhance the efficiency of token trading. Instead of executing every trade on the Ethereum blockchain, 0x utilizes a hybrid model that combines off-chain order relay and on-chain settlement. Off-chain order books reduce network congestion and minimize transaction fees while still maintaining the security and transparency of the blockchain.
To ensure fairness and transparency, 0x employs a system of decentralized governance. Token holders can participate in the decision-making process by staking tokens and voting on protocol upgrades or parameter changes. This decentralized governance model empowers the community to shape the future of the protocol, making it more resilient and adaptable to evolving market needs.
- Interoperability - 0x allows different decentralized applications to connect and interact with each other, enabling seamless token trading across multiple platforms.
- Liquidity - By aggregating liquidity from various sources, 0x enhances overall trading liquidity in the decentralized ecosystem. This makes it easier for users to find counterparties for trades and reduces slippage.
- Non-Custodial - 0x operates in a non-custodial manner, meaning users retain control over funds throughout the trading process. This reduces the risk of hacks or theft associated with centralized exchanges.
- Lower Fees - Trading on 0x generally incurs lower fees compared to traditional exchanges. Since transactions occur directly between users, there are no additional fees imposed by intermediaries.
- Enhanced Privacy - 0x provides a certain level of privacy by allowing users to trade tokens without disclosing their identity. This can be appealing to individuals who value privacy and want to keep their transactions confidential.
- Limited Scalability - The Ethereum network, on which 0x operates, has faced challenges with scalability due to its current design. As a result, 0x may experience congestion and higher transaction fees during periods of high network activity.
- Smart Contract Risks - 0x relies on smart contracts to facilitate token trades. While these contracts undergo audits and testing, they can still be vulnerable to coding errors or security vulnerabilities. Such risks could lead to financial losses if exploited by malicious actors.
- Regulatory Uncertainty - As with any cryptocurrency project, 0x operates in a regulatory gray area. The evolving regulatory landscape surrounding cryptocurrencies can impact the development and adoption of 0x, potentially introducing compliance challenges or restrictions in certain jurisdictions.
- User Experience - While decentralized exchanges offer greater control and security, they often have a steeper learning curve compared to centralized exchanges. The user interface and overall experience of using 0x and similar platforms may not be as intuitive for newcomers to the cryptocurrency space.