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Exploring ZRX: The Token Powering the 0x Decentralized Exchange

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ZRX is it good investment

The ZRX token belongs to the 0x protocol. This protocol was created to serve as an open-source platform that facilitates the exchange of Ethereum based tokens. The founders intended to create a protocol powering DEX, and that they did with the introduction of the 0x protocol alongside its native token ZRX.

Amir Bandeali and Will Warren co-founded the protocol in 2016 with the vision that assets will one day be tokenized and sold on several blockchains. The first blockchain to offer that function was Ethereum and that influenced their decision to build their protocol on it.  The broader reach and versatility of the Ethereum chain presented it as a perfect candidate.

With the introduction of the 0x protocol, we now have a way of trading tokens of assets like real estate, stocks, crude oil, gold, etc. Also, the intention was to stimulate interoperability amongst DApps. Apart from trading tokenized assets, the 0x protocol also provides the platform for developers to build DEX. We call those that are creating and building on the protocol relayers. Their function is to host off-chain order books, on which the 0x protocol relies. While the 0x does not charge fees for users to use its protocol, however, relayers are free to set fees for work done.

The protocol native token ZRX serves two primary purposes, which are payment of fees for relayers’ work and importantly for participating in the governance of the protocol. In other words, token holders hold influence over the protocol development. Besides, your level of influence depends on the number of tokens you hold.

Introducing the 0x Protocol: The Host for the ZRX Token

0x-Protocol-explained

The 0x protocol is Ethereum based and acts as a facilitator for token exchanges particularly Ethereum-based tokens. In fact, you can use the protocol to host a DEX. 0x is built to create a safe, swift, trustless, secure environment for trading tokens with zero fees. This is achieved through the use of Ethereum smart contracts with the ultimate goal of being able to trade the tokenized version of virtually all known assets.

The decentralized exchanges (DEXs) that we are used to often face problems such as sluggishness and illiquidity, which eventually slow down transactions and cause bloat on the Ethereum chain. Centralized exchanges (CEXs) also pose their issues and the major ones are vulnerability to cyber-attacks and cybersecurity failures. A surge in cryptocurrency values generally can cause an increase in transaction volume, which can lead to downtimes for these centralized exchanges.

These weakness identified for both decentralized and centralized exchanges is what 0x protocol worked on to cut out of its protocol while maintaining the strength peculiar to both types of exchanges. This is achieved by combining an on-chain settlement with an off-chain order relay. That means that before the actual trading of tokens occurs, every activity is carried out off-chain.

Let’s then break it down further on why the approach of using off-chain is embraced by 0x protocol. As with many DEXs, they utilize smart contracts on the Ethereum network to serve every trade and order functions carried out on the DEX. This way they don’t have to store users’ money with a third party as it is done in centralized exchanges. The use of smart contracts affords them control over the funds. However, this also means that every aspect of the transaction such as withdrawals, deposits, placing orders, etc. is restricted to the Ethereum blockchain.

This also means every single transaction activity has a gas price for it to be carried out. Concerning the number of transactions a user could make in a day, the gas price can pile up too quickly for your liking or budget. Even though, DEXs are way ahead of CEXs in terms of security. However, they are falling behind in terms of accessibility and costs. This is where an off-chain relay comes in, which allows users to transmit their order off-chain.

Once the orders are transmitted, other traders can fulfill them. This way the only part of the whole transaction that takes place on-chain is the real transfer of value or asset. Thus, significantly reducing the parts of the transaction process being carried out on-chain. This is bound to reduce the chances of having bloat on the network as well as keeping the gas price low in every way possible. Now the explanation of the off-chain relay brings us to the role of relayers.

The 0x Protocol Relayers

The 0x Protocol Relayers

For the 0x protocol to successfully carry out the off-chain relay, it uses what we call relayers. Their role is to transmit the orders placed by users from either private or public order books. Additionally, they help inject liquidity to the 0x protocol through order book hosting. Although, the role of the relayers looks-alike to what we have with exchanges. However, there are variations in the sense that relayers can’t execute a trade. Instead, it functions more in a similar manner to a notice board that displays maker orders to the protocol.

So, to fulfill an order, there is a need to tender the taker’s signature alongside makers to the smart contract on the exchange. For providing this service, relayers are rewarded with the ZRX token. Broadcast Orders are the trades that go through relayers and this method allows any users to tender their orders effortlessly. At the same time, it allows everybody else to see these orders immediately as they are broadcasted hence fulfilling the orders.

Additionally, the 0x protocol creates room for point-to-point orders where a specified taker is pointed out by the maker once the order is broadcasted. A point-to-point order can only be fulfilled by the specified taker, which prevents criminals from hijacking the transaction. This kind of order allows the user to send funds straight via different channels of communication. The point-to-point order does not rely on the relayers, which is why it is also called 0x OTC (over the counter).

ZRX: the token that powers it all

Our article takes us further to the native token of the 0x protocol called the ZRX. We have mentioned briefly how the token serves the protocol, but in this section, we will dig deeper. The total supply of the token is pegged at 1 billion, and the token took off in 2017.

The token’s sharing ratio was 50% released to the public when it was launched, 15% going to the 0x protocol with another 15% retained for the developer. We have 10% allocated for the early backers and advisors with the remaining 10% retained for the founding members. The 50% released to the public are available from the onset while those retained for staff, advisors, and founding members are going to be released gradually over four years.

Back to the functions of the ZRX token and how it benefits and serves the protocol and its users. The token has two primary uses. The first is as payment for relaying fees, as we already know relayers are the ones that host the order books off-chain. They also host the matching engines that link takers with makers. Now, there is a fee to be paid to the relayer for this service by the linked taker and maker. This fee is paid in ZRX. In that sense, as transactions increases on the protocol, it will boost the value of the ZRX.

The second primary function is governance, holding the ZRX accord you voting right in the governance of the 0x protocol. This voting right allows you to vote on decisions affecting the 0x protocol. This is crucial to the development of the protocol in general. In times of upgrade, token holders can vote on which direction to go. As well as how to go about it. The governance put in place enable the contract’s auto-upgrade then minimizes the chance that there will be upgrade forks as well as maintaining consistency for all users. This goes a long way in ensuring the protocol upgrades go smoothly.

The 0x Protocol Update Structure

One major highlight about the 0x protocol is the smart contract, which is open source and allows developers to build exchanges on it. The 0x protocol can act as a plug-in for Ethereum-based decentralized apps with already a handful of projects on it such as Augur, district0x, etc.

How Does Trading on the 0x Protocol Look Like?

trading-on-ZRX-0x-network

We made mention of types of orders earlier in the article and we will be expanding on how to carry out these orders here. As mentioned earlier, trading on 0x has two methods discussed below:

  1. a) Broadcast Orders- for this type of trading, simply check into the 0x site and select trade after which you will click on a relayer. If you are buying you will see available orders. As a seller, you can decide to broadcast your order via the relayer. You will have to contact the relayer first though.
  2. b) Over Counter (OTC) order – also known as point-to-point order, this type of order involves trading in the absence of a relayer. You can simply send your transaction through communication channels like social messaging apps, text, mail, etc. to the other party. There will be an expiry date attached to the order as specified by the maker. The 0x protocol’s role here is to carry out an atomic exchange of the two distinct kinds of tokens. For OTC, outside parties beyond the stated taker can’t fill the order.

For broadcast order, the three main components to the trade include the Maker, The Relayer, and Taker.

The Maker can also be called the initiator who initiates the order while the taker is the one that fulfills the order. The Job of the relayer is just to maintain and host the liquidity pool also known as the order book. This is done by beckoning on the traders to available orders in the market. Under this format, anybody (takers) can fulfill the order. The reward for the relayer comes in the form of transaction fees. We have a structure and fee schedule for that, which must be met by both the taker and maker. The relayer has control over the fees and checks will be made to validate the transaction fees. The transaction fees will only get to the relayer once a transaction is completed successfully.

An invalid order or one that doesn’t post the proper transaction fees will be canceled instantly. However, the relayer will post the order it fulfills the requirements. After which the order is exchanged via the protocol smart contract then posted to the Ethereum network as a filled order.

How Valuable Is the Zrx Token?

Since launching in August 2017, the token has witnessed a steady rise in the market. The unique offering of the 0x protocol has projected the ZRX token into the forefront of the crypto market. The 0x protocol sold about 500 million tokens during the ICO at $0.07 per token and going on to make close to $24M in a day. The team tried to maintain an even spread of the tokens with registered buyers only allowed a maximum of 6.77 ETH of ZRX during the ICO. This will work well in preventing certain individuals from influencing the price of the token as they see fit.

For a token that started at the price of $0.07, to its current price of $0.525413 as of January 15, 2021. The token has witness serious gain in the market to currently rank 63 on Coinmarketcap as of January 15, 2021. Also, the ZRX token is among the few tokens to scale through the ICO craze of 2017 to maintain even in today’s market. This points out that the token certainly holds some value worthy of market interactions from users and traders alike. With a trading volume of $127,530,497 in the last 24 hours and a market cap of $394,019,864, the token looks considerably healthy and that could indicate that it ranks well amongst traders in the crypto market.

There is a distinct feature unique to the 0x protocol that gives it’s token a good standing in the market. The DEX supports ERC-723 (non-fungible) token and ERC-20 (fungible) token. This way a permissionless type of transaction is made possible on a diverse range of known assets. You can trade a wide range of ETH-based assets via several types of applications. The use cases for the 0x protocol are many ranging from a digital marketplace, DEX function for several DeFi networks, OTC trading platform, and many more.

Furthermore, 0x protocol is not limited to just hosting exchanges, you can also integrate the protocol into other apps that have an exchange of assets as a secondary function. Apps like portfolio management applications or used for in-game purchases.

Besides, notable names like Vitalik Buterin the cofounder of Ethereum have declared interest in trying the protocol. That is not all, as of May 2020 the ZRX token rose by 67% in value to earn the spot of the best performing digital asset for that month. That is a testament to the outstanding performance of the token in the year DeFi was all over the news.

The 0x Protocol Roadmap Into the Future

One thing peculiar to the 0x team is their active development of the 0x protocol, which they lay out in the protocol roadmap. It gives us an insight into what the future could look like for the impressive 0x protocol. First, many 0x Improvement Proposals (ZEIPs) are queued up for the betterment of the protocol. A roadmap was laid out around the formal structure that will be used in the ZEIP process so the community can participate in decision-making. You should expect to see some exciting features and functions on the 0x protocol in the future.

Scalability is another aspect of the blockchain ecosystem that 0x protocol is currently researching and seriously developing in the hope to solve various bottlenecks in the system. The team has outlined the roadmap towards using Zero-Knowledge Proofs for scaling. This brings us to the establishment of networked liquidity, which calls for coordination of trades through the Trade execution coordinators (TECs) Coordinators function to impose specific rules concerning trade execution by joining the best parts of the Open order book and order matching.

The team has mapped out the goals for continuous development of the 0x protocols including the maximization of the on-chain part of the governance system on the protocol in 2021. The protocol has come a long way from version 1.0 to 2.0 and now version 3.0, which has already been set up on the Kovan testnet. This version has moved to the Ethereum Mainnet and is expected to give users the first taste of staking on the 0x protocol. Version 3 also introduced the ability to pay relayer fees in any Ethereum based token instead of just ZRX. Version 4 is already being deliberated on. There is a continuous update from the 0x dev team, and this gives an impression of a platform that is serious about the continued success of its project.

Conclusion

The 0x protocol looks to exploit the strength of DEXs and CEXs without the added baggage of their weaknesses. The utilization of off-chain order combine with on-chain settlement has proven to be a masterstroke for the Ox team. This way transaction is done just once when the order requirements have been met. This keeps the gas fees to the barest minimum while maintaining the security of the protocol.

So, 0x is about finding the way forward for the flaws that DEXs, in general, has displayed such as slow processing of transactions and illiquidity. It is already trying to solve these bottlenecks through many brilliant innovations on its platform. The 0x protocol is like welcome to the future of DEX.

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