0x (ZRX -1.20%) is a decentralized exchange infrastructure. It enables users to trade crypto tokens across multiple blockchains, and it searches different exchanges to find the best deal on each transaction. ZRX is its native cryptocurrency and utility token, and token holders can vote on project proposals.
The 0x team has managed to attract some big backers, including crypto exchange Coinbase Global (COIN -1.50%) and NFT marketplace OpenSea, both of which invested in it in April 2022. In this guide, we'll go into more detail about how the 0x protocol works.
What makes 0x unique?
0x works with the long and growing list of decentralized crypto exchanges powering the decentralized finance (DeFi) industry. These exchanges offer peer-to-peer cryptocurrency trading, with most of them setting their prices using smart contracts. They're also open to anyone. You only need to connect a crypto wallet to use them, and no registration or personal information is required.
The difficult part for crypto traders is that there are quite a few decentralized exchanges out there, and prices can vary. It would be impossible to compare prices at all of them manually to ensure you're getting the best deal.
Fortunately, 0x does that for you. It's a liquidity aggregator that compares prices on all the major decentralized exchanges. Through its crypto trading platform, Matcha, you can enter your desired trade, and Matcha will then fetch the best price available.
It can even split up your order among multiple exchanges. For example, if the best option is to divide your order between two decentralized exchanges, such as Uniswap (UNI -0.34%) and SushiSwap (SUSHI -3.38%), 0x will do that.
Since 0x is an open-source project, anyone can use it or its code. That includes individual users, crypto exchanges, and developers, who can use it to build another application.
Where 0x came from
Will Warren and Amir Bandeali started working on 0x in 2016 and published its white paper on Feb. 22, 2017. They held an initial coin offering (ICO) on Aug. 15, 2017, to sell 500 million ZRX tokens (half of the total supply). The ICO sold out in 24 hours and raised $24 million.
The 0x team has expanded since then, but Warren and Bandeali are still with the project. Warren is the CEO, and Bandeali is the CTO. The team launched 0x Labs on June 22, 2020, with the aim of building a healthy business on top of 0x.
How 0x works
The 0x protocol is a set of smart contracts that facilitate peer-to-peer trading of crypto tokens. It's designed for trading tokens built on the Ethereum (ETH -1.88%) blockchain. These can be fungible tokens (your standard crypto tokens), non-fungible tokens (NFTs), or bundles with multiple types of assets.
There are two sides to the 0x ecosystem: makers and takers. The makers are the ones who make liquidity in the 0x system by providing a crypto asset. The takers are the ones who agree to the trade and take liquidity.
Here's how the trade process works with 0x:
- A maker places an order that includes what they want and what they're willing to trade.
- The order is shared with counterparties.
- 0x checks prices across all its sources to get the best order price for the taker.
- The taker accepts the order.
- 0x verifies that the conditions have been satisfied and swaps the maker's and taker's assets.
0x uses relayers who maintain off-chain order books. These relayers handle communication between order books to help complete transactions on 0x.
Partnerships
0x is a popular project that has built up a large roster of partners. The organization behind it, 0x Labs, secured $70 million in funding in April 2022 from a number of investors, including Coinbase, OpenSea, and actor Jared Leto.
Its connection to Coinbase is particularly noteworthy. In addition to investing in 0x, Coinbase is using 0x's protocol for its NFT marketplace. Considering Coinbase is one of the top cryptocurrency exchanges, its work with 0x could be very beneficial for both parties.
The 0x ecosystem includes quite a few projects that are working with it, including decentralized exchanges, crypto wallets, and NFT games. Here are a few of the projects that 0x has integrated with or that are building on 0x:
- Crypto.com, a crypto exchange
- Uniswap and SushiSwap, two popular decentralized exchanges
- Metamask, a crypto wallet
Unique risks
While 0x provides a valuable service, it's far from the only liquidity aggregator. As DeFi has become more popular, several protocols have launched offering the same type of service, with competitor 1INCH (CRYPTO:1INCH) being one of the most popular.
For prospective investors, another issue with 0x are the limited uses for ZRX tokens. The main use of ZRX at this time is as a governance token. ZRX token holders have voting rights on 0x Improvement Proposals (ZEIPs), with 1 ZRX being worth one vote.
You used to be able to stake your ZRX tokens and earn rewards on them. However, 0x decided to set protocol fees to zero in a ZEIP vote that ended on Sept. 18, 2021. That put a pause on staking rewards.
Cryptocurrency staking is a popular way for investors to earn passive income. The fact that it's unavailable with 0x, and there's no information on when or if it will return, is a notable drawback.
Is 0x a good investment?
0x is worth considering as an investment, especially if you're bullish on DeFi. It's also a good option if you're looking for projects outside of the market leaders that may have more room to grow.
For investors who use decentralized exchanges, 0x is a very useful tool. It's easy to use and does a great job of scouring options so that you can get the best price on your trades. The number of projects that work with 0x is also a big point in its favor. Its ecosystem is full of big names, including centralized and decentralized exchanges.
The DeFi industry has been growing rapidly. Nansen, a blockchain analytics firm, estimates that the total value in DeFi grew by 1,120% in 2021. As more people turn to decentralized exchanges, services that compare prices across all available options should do well.
However, like any cryptocurrency investment, 0x is risky. Its price is volatile, and it's notoriously difficult to predict which projects are going to make it. Although 0x has potential, you should still be careful about how much you invest. You might also want to spread your funds around to multiple cryptocurrencies and cryptocurrency stocks to build a more diverse portfolio.
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How to buy 0x
Many crypto exchanges have listed 0x, so it's not hard to find. Here are a few of the most popular places to buy 0x:
The 0x team deserves credit for identifying a market need before it became obvious. They started developing 0x well before the DeFi boom happened. Because of that and the quality of the project, 0x has become one of the most widely used liquidity aggregators.
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