0x: Permissionless Protocol for Trading ERC20 Tokens
Centralized cryptocurrency exchanges, by their very nature, are susceptible to a number of security compromises. Given that these exchanges are run by a single party, they are at a risk for single point breaches that result in entire system-wide hacks. We have seen this scenario play out time and time again at companies like Mt. Gox, Bitfinex and Coincheck.
As blockchain technologies and cryptocurrency markets continue to evolve, so do the expectations of both developers and investors, who are always looking for more stable and secure platforms. Decentralized exchanges (DEXs) are a significant step forward, as they eliminate the risk associated with a central party, including security breaches and government regulation. Through these exchanges, users can transact without a middleman, thereby placing the burden of security onto individual users.
One blockchain project that is developing a unique decentralized system is 0x, an open protocol that facilitates low friction peer-to-peer exchange of ERC20 tokens on the Ethereum blockchain. The 0x Protocol is aiming to become a common infrastructure for decentralized applications (dApps), enabling them to access large public liquidity pools or even create their own. This system of available liquidity allows 0x to take the concept of a decentralized exchange a step further, as traditional DEXs are illiquid, slow, expensive, and inoperable with one another.
Interested in 0x? Here’s a quick rundown of the project:
Platform & Development
0x uses a publicly accessible system of smart contracts that can act as shared infrastructure for a variety of dApps. There are a few prominent elements to the 0x system:
- 0x leverages what it calls “relayers,” users who are responsible for broadcasting orders through public or private order books. These relayers bring liquidity to the network by hosting order books, and are compensated in the form of transaction fees for their efforts.
- Once trades are processed by a relayer, they can be filled by anyone on the network, or via a specific individual at the request of the user.
- 0x uses a decentralized update mechanism that allows for system improvements to be continuously and safely integrated into the protocol without disrupting dApps or end users.
0x currently runs a consumer-facing app called 0x OTC that allows users to exchange a number of listed tokens. Additionally, the 0x team recently unveiled a new, lightweight widget that will allow users to instantly purchase tokens with ETH in a single transaction using 0x Protocol.
Here’s how it works:
- The user sends ETH and a 0x order to a Forwarding contract.
- The Forwarding contract converts the user’s ETH into WETH.
- The Forwarding contract passes the order to the 0x smart contracts, covering the 0x token (ZRX) fee and exchanging the WETH for tokens.
- The Forwarding contract sends the newly acquired tokens back to the user.
All of the above steps are completed instantly, in a single Ethereum transaction.
The 0x token (ZRX) is largely used for paying trading fees and will have a larger role in governance moving forward. The 0x team has indicated that as 0x evolves, so will ZRX.
0x (ZRX) currently has a market cap of ~$300 million with a circulating supply of 519,642,030 ZRX and a total supply of 1,000,000,000 ZRX.
Given the growing prevalence of security breaches at centralized exchanges, we could see a transition to more decentralized platforms in the future. The 0x Protocol offers an open standard and common building block for dApps, allowing users to access or even create an expanded liquidity pool. Once 0x scales, it could very well become a serious contender to capture a significant portion of the market.
Related: Researchers Find Issues With 0x, An Ethereum-Based Project Aiming To Raise Millions In An ICO
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Disclaimer: The author(s) of this article may have a position in one or more of the securities mentioned above. This article is for informational purposes only and should not be taken as investment advice. Always conduct your own due diligence before making investments.