While in 2021, anyone in crypto knows what a DEX is, things were quite different in 2016, when 0x (read ZeroX) was founded. 0x is a protocol that facilitates the peer-to-peer exchange of ethereum-based assets. It’s built by 0x labs, according to open-source standards and aims to be one of the building blocks of DeFi.
0x is on a mission to “create a tokenized world where all value can flow freely.” The team believes that eventually, all financial assets will be traded on the blockchain. However, in 2016 Ethereum experienced its first challenges with its scalability, making it unsuitable for facilitating large amounts of transactions on-chain.
Ethereum still runs on a Proof-of-Work algorithm, making it very decentralized and secure but energy-intense and slow. Anyone who has recently settled a transaction on Ethereum might have spent quite some time waiting and a considerable amount of gas. To address this pitfall, the 0x team came up with its hybrid Infrastructure.
0x Infrastructure
On-chain doesn’t scale easily without sacrificing decentralization, scalability or security. That’s why layer-2 scaling solutions have flourished this year. 0x Labs took a similar approach when building their protocol. Instead of hosting everything on-chain, the team combines off-chain relay with on-chain settlement.
Most existing DEXs operate entirely on-chain, which means that all orders are hosted on-chain as well. On 0x, however, when traders submit orders, they don’t show on-chain. Only settlements happen on Ethereum. This increases speed and optimizes gas fees. So how does a trade look like when using 0x protocol?
Users that create orders are called makers, while those filling the orders are known as takers. If a maker already has someone in mind to settle their order, they can send it directly to them. However, if they don’t, they submit their order via 0x Mesh to a 0x relayer. Relayers are companies like Meta Mask or Matcha that help traders match with someone else to trade.
If you’re familiar with existing DEXs, this might come as a surprise. The leading DEXs these days run on automated market makers, where traders directly interact with the pool. Yet, the difference of 0x is that it matches traders peer-to-peer and not with a liquidity pool.
The relayers help traders find someone to fill their order, but they never take custody of the underlying assets. They merely facilitate trade execution. Some might collect a small fee to do so.
Once the trader has found someone to settle their order with, the maker will submit the order with the amount they are filling it for to the blockchain. That’s when the system will go back to the main chain to settle the trade. The protocol logic verifies that the maker’s digital signature and all conditions specified in the order are met and atomically swaps tokens.
Maker and Taker both end up with the desired tokens directly sent to their wallet.
0x as a building block
0x protocol is not a user-facing product. It’s an open standard that enables other companies to build on it, tapping into the hybrid architecture and facilitate peer-to-peer crypto exchange.
Things that can be built on top of it include DEXs, eBay-style marketplaces for digital goods, trading bots, market maker bots and any DeFi protocol that requires liquidity to work correctly, such as derivatives, lending or options. 0x can plug into apps that want an exchange feature, such as games looking to enable in-game currencies.
In June 2020, 0x Labs released Matcha, a DEX aggregator that enables traders to find the best asset price across multiple exchanges with a simple and intuitive user experience.
Other companies using 0x protocol include Tokenlon, MetaMask, DeFi Saver, Radar Relay and Augur.
ZRX Token
The native token of 0x goes under the ticker ZRX and is used for governance and staking.
- Governance: token holders can vote on ZEIPS (Zero X Improvement proposals), such as changes to the smart contracts and their parameters. Voting happens off-chain, facilitated through the website and without any gas fees.
- Staking: unlike staking in other blockchains, on 0x, it’s not directly tied to the validation of blocks. ZRX tokenholders can stake by providing their tokens as liquidity to the broader network. In that sense, staking on 0x is pretty much what you’d call Liquidity Mining on other platforms. Stakers receive a fixed percentage of rewards, depending on the market maker they delegate their tokens to.
0x already forms the backbone for various popular DeFi apps and continues providing developer tools, secure and audited smart contracts to create a more tokenized world.
With gas-optimized, efficient order settlement, 0x is a popular choice for apps looking to create a smooth user experience.
The ZRX token is now live on FMFW.io with BTC, ETH and USDT pairs.
