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0x Digital Asset Report And Evaluation – Initiation Review

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As an open protocol for asset exchange, 0x ultimately aims to support an ecosystem of interconnected exchanges and dApps that benefit from the network effect of a shared asset exchange infrastructure. In our 0x Digital Asset Report and Evaluation, we examines the ZRX token and its long-term fundamental strengths and weaknesses.


Introduction To 0x

0x is an open protocol designed to facilitate digital asset trades in a decentralized manner utilizing the Ethereum blockchain. Within the current paradigm, both centralized and decentralized exchanges present means by which to trade digital assets, each with their own pros and cons.

0x offers a solution to the drawbacks of both approaches through an “off-chain order relay with on-chain settlement”. Via this hybridized model, offchain state channels are employed for conducting orders and transactions to increase speeds; only orders that have been settled are recorded on the blockchain.


0x Market Opportunity  

The utility of 0x protocol as a means for exchanging tokens gives it a wide range of use case scenarios within both DEX and dApp settings. As a means for exchanging tokens in a decentralized way, 0x targets many of the issues associated with decentralized exchanges, including the high costs, slow transaction rates and lack of liquidity.

If a DEX operates its order book onchain, execution of each new order is limited by the transaction speed of the chain. This scenario also leads to network transaction fees at every interaction, contributing to the cost factor.

0x addresses both of those issues by developing a standard protocol to relay orders in an offchain environment. Orders go back on the blockchain when they are settled instead of recording every transaction, enabling trades to occur at speeds more comparable to centralized exchanges while eliminating a share of the transaction fees.

Another core value proposition of 0x addresses the lack of liquidity faced by DEXs. 0x incorporates an API framework for creating shared liquidity pools among disparate dApps built on the protocol, which in theory allows new entrants to bootstrap liquidity by accessing broadcasted orders from all order books across the network.  

While 0x is designed to be different from both centralized and decentralized exchanges, the protocol must contend with both existing DEXs (IDEX and EtherDelta), the entrance of well-branded platforms like StellarX and Binance DEX, and Kyber Network, another decentralized exchange protocol that conducts all actions onchain.


User Ecosystem Structure

With each trade that utilizes 0x, there are two parties- the maker and the taker. The maker broadcasts an order message containing information on a specified amount of one token in exchange for another token. The maker then submits these amounts to a “relayer”.

While a relayer can theoretically take different forms, the most common example is a web application that allows traders to place and fill orders i.e. an exchange. The relayer collects cryptographically signed versions of these orders into an off-chain database, referred to as an order book. Relayers, as the name suggests, relay orders to takers, who then fill them directly through 0x smart contracts. Instead of executing trades and handling user funds, relayers merely facilitate matching orders between market participants by hosting an order book.

The 0x protocol smart contract performs an atomic swap, exchanging the maker and taker tokens. The relayer then collects fees from the orders they host in the form of ZRX tokens. The use of an off-chain order book reduces friction costs for market makers and also ensures that the blockchain is only used for trade settlement. For hosting and maintaining off-chain order books, relayers can freely set their transaction fees at will.

The project has launched the 0x Portal as an aggregate access point to active relayers. The Portal functions as a decentralized application that facilitates trustless trading of Ethereum-based tokens through a web interface aggregation of relayers.

In addition to the 0x Portal, the team also created 0x OTC, a consumer facing product that uses the 0x protocol to bypass the need for Relayers altogether when buying or selling ERC-20 tokens, in what is essentially a p2p transaction.

In August of 2017, this OTC feature was taken down, reportedly to make updates according to one Reddit source. Since then, OTC trading continues to remain unavailable. With the OTC service down, 0x is missing a core feature that sets it apart from traditional DEXs and allows the protocol to compete with Kyber Network, which offers a similar means for users to conduct token swaps via KyberSwap.  

There are purportedly 19 dApp projects and 19 DEXs that incorporate use of the 0x protocol. Out of the relayer DEXs launched so far, only two, DDEX and Radar Relay, have managed to garner any substantial level of use. Nonetheless, the projects built on 0x have served to collectively demonstrate the viability of the network for its intended use.


The 0x Token Economy

0x token (ZRX) is utilized in two ways:

  • Makers and takers (i.e. market participants that generate and consume orders, respectively) pay transaction fees to relayers (entities that host and maintain public order books).
  • For decentralized governance over the protocol update mechanism, which allows 0x smart contracts and network functionality to be improved over time. With the continually changing status of the Ethereum network, an update mechanism is essential for the protocol. Currently, decentralized governance is still in the research phase as the team seeks a solution that maximizes both security and adaptability to network changes. Until the governance structure is formalized, multi-sig is us…

 


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Introducing DARE by Crypto Briefing Digital Asset Report and Evaluation

Crypto Briefing has produced over 100 deep analyses of early-stage blockchain projects since September 2017. Our exceptional diligence has become the gold standard for crypto researchers who demand independent and unpaid reports.

 

In October 2018 we expanded our reporting to provide even deeper analysis of tokens traded on exchanges such as Binance, Coinbase, and Bitfinex.

 

The result is DARE – the Digital Asset Report & Evaluation


 

For a limited time we are making our deep-dive DAREs available free of charge.

 


These institutional-grade reports represent over 200 hours of work each – and while we will always offer a free, lite version, only Crypto Briefing Research members will have access to the full report.

In the future, we will charge a fee for reports like this. By creating your membership now, you will be offered the best introductory price available – guaranteed.


We hope you enjoy your free Digital Asset Report & Evaluation.

Your free research download includes our

INITIATION REPORT and our UPDATE #1 REPORT.

You will also receive grades for both reports.

Remember, the grade should not be taken in isolation, and a full description of our methodology is available at at the end of the report.

Digital Asset Report & Evaluation Grade
Initiated with a C+ Grade
With the delayed release of the v.2 mainnet and lack of a clear path forward on how governance of the network will function, the team has missed the mark on two crucial milestones for 2018.While the commercial proposition of 0x has competitive potential in theory, both the nascent state of the DEX market as a whole and as of yet unresolved governance issues pose significant risk factors for the project going forward.
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