The 0x protocol serves as a building block for developers, providing novel multi-chain liquidity and exchange functionalities. Powered by a network of 0x relayers and the native 0x token, or ZRX token, the protocol offers a range of developer tools and smart contracts with access to a pool of aggregated liquidity. Furthermore, these tools and services can integrate seamlessly into existing applications. If you’re wondering, “what is 0x?”, then let’s find out!
In this article, we’ll explore the 0x protocol and some of the core technologies and applications it powers. Plus, we’ll discuss the 0x token (ZRX), 0x relayers, and the key value propositions of the project.
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What is 0x?
So, what is 0x? 0x is a cross-chain “infrastructure protocol” that facilitates the trading of ERC-20 tokens and other assets without intermediaries using a suite of open-source, publicly auditable smart contracts. The native 0x token (ZRX) powers the 0x protocol and is easy to integrate into many applications.
The nodes throughout the 0x protocol are known as “relayers”. Relayers host off-chain order books and provide information to execute and cancel transactions. In return, 0x relayers earn ZRX token rewards. These tokens also enable holders to take part in protocol governance to help shape the future of the project.
The 0x protocol aggregates liquidity from popular decentralized exchanges (DEXs) and provides exclusive automated market makers (AMMs) and liquidity pools with free limit orders.
While the 0x protocol is suitable for liquidity provision for DEXs, it is also ideal for “eBay-style” marketplaces for non-fungible tokens (NFTs). Plus, the protocol can facilitate over-the-counter (OTC) trading services and other decentralized applications (dApps). The 0x protocol is highly flexible and customizable and is easy to integrate into existing applications.
0x Protocol
The 0x protocol uses an off-chain relayer for transactions known as “Broadcast Orders”. These orders take much of the computation required for transactions off the main Ethereum chain. In turn, this helps to reduce gas fees and network congestion.
Also, the protocol can facilitate point-to-point orders. Point-to-point orders enable order makers to choose a specific taker upon the broadcasting of an order. Plus, users can transfer funds directly via several communication channels, including email and messaging programs. Another benefit of these orders is that only the designated taker can fill them, protecting transactions from hackers and malicious actors.
Furthermore, the 0x protocol uses off-chain “relayers” to take computations off-chain. Rather than executing every transaction on-chain and incurring gas fees in the process, 0x transactions use off-chain relayers with on-chain settlements to minimize transaction fees. Compared to many Etherum based-decentralized exchanges, this method could save users a lot of money. This is particularly apparent when carrying out complex smart contract-based transactions with decentralized applications (dApps) and decentralized exchanges (DEXs). The only computation that occurs on-chain is the transfer of value. All other information can be broadcast off-chain, saving users money on gas fees and reducing network congestion.
0x Relayers
When using the 0x protocol, liquidity takers must pay a fee using the 0x token (ZRX). These fees are the core incentive for the 0x market makers, known as relayers.
0x relayers are the lynchpin of the protocol. Relayers broadcast orders to find a counterparty if a particular taker is not specified or is otherwise unavailable. Also, 0x relayers host order books and bring liquidity to the network. This works in a similar way to an exchange. However, relayers do not execute trades. Instead, orders fill once signatures are submitted to an exchange’s smart contract by both the maker and taker. Relayers receive ZRX tokens for providing this service, which could be a great way to earn a passive income with crypto.
0x Mission
So, what is 0x doing to make it compete with other crypto projects? The team’s mission has been continuously evolving since the project’s inception. Through changes in market trends, innovation and adoption, the ambitious mission statement adapts somewhat. However, the 0x ethos remains essentially the same.
0x aims to build “an open financial system for the world, and that perpetually inspires and guides the team”. Plus, by building public infrastructure to make assets and financial tools more accessible, the project aims to empower businesses and individuals with the tools to create a new, open financial system.
Also, the team pledges to “do the right thing” when making decisions that could affect the protocol. Though this term is highly subjective, the team is committed to acting in the interest of the project’s community and the world as a whole.
Another critical component of the mission is long-term impact. The team acknowledges that trust-minimized, frictionless decentralized applications (dApps) could pose a threat to banks and financial institutions. However, the team is persisting through the setbacks, retaining a healthy long-term perspective. Moreover, the project strives to “consistently ship”, setting high standards and challenging goals to become a highly performant, high-output organization.
The 0x Token
The 0x token (ZRX) is available on many crypto exchanges, including the two largest centralized exchanges, Coinbase and Binance. Also, investors can use Gemini, OKEx, and Crypto.com exchanges to trade the ZRX token too. Or, if you’d prefer to trade through a decentralized exchange (DEX), you can do so through the largest Ethereum-based DEX, Uniswap!
Staking
The 0x protocol offers ZRX token holders the opportunity to make a passive income with decentralized finance (DeFi). This opportunity is available through token holders staking their ZRX tokens to support the network. In return, users receive ZRX tokens as rewards. Stakers can choose one of two roles: either a market maker or a delegator.
Market makers are users who create market orders of significant volume within the 0x order books. Also, 0x market makers aim to create an exchange of assets with low slippage and tight spreads between the asking and bidding price. Market makers can create liquidity pools by either staking their own ZRX tokens or inviting other investors to contribute their ZRX tokens.
The second role within the 0x staking system is that of the delegator. Delegators are ZRX token holders who don’t have the same trading volume or level of technical know-how as market makers, but still contribute to the network by staking their ZRX tokens. Users can delegate their ZRX tokens to liquidity pools to earn a percentage of the market makers’ staking rewards. This benefits both parties plus increases the strength of the network. Also, the “staking wizard” is a tool that can recommend the best liquidity pools to participate in. This will frequently fluctuate as the decision relies on real-time market conditions.
Governance
Another use case for the ZRX token is for governance rights of the protocol. Token holders can vote by using a Web3 wallet, such as MetaMask, a hardware wallet, or directly via a smart contract. You can find details for how to do this via the 0x Governance Medium article.
The governance protocol allows the ZRX token community to make cognizant decisions surrounding 0x Improvement Proposals (ZEIP). Although not wholly decentralized, ZEIPs are the first steps towards decentralized governance using a voting mechanism, with ZRX token holders exercising voting rights. 0x aims to become increasingly more decentralized with each round of voting.
Each ZRX token is equivalent to a weight of one vote. For example, if one held 50 ZRX tokens in their wallet, they could contribute 50 votes towards a favored 0x Improvement Proposal (ZEIP). Voting for ZEIPs is free without the need to pay for Ethereum gas, plus ZRX tokens don’t need to be locked up to vote. However, for a selection of votes to count, ZRX token holdings must not change and must remain within the ZRX wallet linked to the vote during the voting period. The 0x official Discord channel is an engaging and responsive medium to post any questions surrounding protocol governance or ZEIPs.
0x Protocol Products
The 0x protocol offers a broad range of products and services for various applications, which we discuss in more detail below.
API
The 0x API (application programming interface) integrates seamlessly into a range of applications to aggregate liquidity from multiple decentralized exchanges (DEXs) via a single API. While liquidity is aggregated from 0x Mesh, Kyber, Uniswap, and many other DEXs, 0x finds the best possible price using “smart order routing” to split transactions across multiple platforms. Also, 0x API allows users to create market and limit orders and get quotes with the lowest possible slippage.
0x Mesh
0x Mesh is a peer-to-peer order-sharing network. It adheres to the 0x messaging format and applies to a range of applications. For example, Mesh can be used by relayers to share and receive orders from other relayers to allow for deeper order books. Also, market makers can benefit from using Mesh to engage with a broader audience. By doing this, market makers can pass orders through multiple trading platforms, increasing the chances of filling the order.
Another way to use Mesh is with the novel "serverless relayer" model. This model operates without backend servers or databases. Instead, users run Mesh via a web browser, and orders are shared directly between peers. However, it is worth bearing in mind that this model is perhaps not suitable for all markets.
Also, Mesh has an automated order filling mechanism that allows developers to focus on building applications. Plus, running a Mesh node enables participants to automatically find peers in the network to exchange orders with trustlessly and anonymously.
Furthermore, developers use the GraphQL API in conjunction with 0x Mesh to send orders to the network, query orders, and receive notifications.
0x Instant
0x Instant makes it easy to add frictionless crypto purchasing to any website or application using just a few lines of code. Also, 0x Instant is a fully configurable, open-source solution that anyone can use. Plus, 0x Instant affiliates can earn rewards on transactions.
This works by aggregating liquidity in the form of ERC-20 or ERC-721 tokens from 0x relayers and finding the best possible price within the network. Also, with the Instant Configurator, users can create simple embeddable interfaces to buy and sell tokens and in-game assets. Plus, users can customize 0x Instant using the AssetBuyer engine to strip away many of the complexities of order routing.
Matcha
Matcha is a liquidity aggregator that uses the 0x protocol. By searching decentralized exchanges (DEXs) across Ethereum, Binance Smart Chain (BSC), and Polygon/Matic, Matcha enables users to find the best prices for multi-chain token swaps all in one convenient location.
Furthermore, Matcha aggregates liquidity from multiple exchanges, including Uniswap, SushiSwap, PancakeSwap, QuickSwap, and many others. Then, Matcha combines multiple liquidity sources into a single trade, saving users money and time. Moreover, Matcha boasts a fiat on-ramp, free limit orders, multi-wallet compatibility, no deposit or withdrawal fees, and no trading limits.
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Extensions
The 0x protocol aims to provide “extensible exchange infrastructure for the entire crypto economy”. Accordingly, 0x v2.0 features new exchange models, plus, users can tokenize almost any type of asset using the 0x protocol. This is made possible using three new extension contracts the core team has been working on.
This includes a Forwarder Contract, a Dutch Auction Contract, and templates for a Whitelist Contract. The Forwarder Contract automatically wraps ETH to fill orders, making wrapping much simpler than before. Also, the Dutch Auction Contract continuously lowers prices until a buyer can be found. This is particularly useful for trading rare assets and is gas efficient. Then, the Whitelist Contracts are customizable contracts that can restrict access to relayers. Additionally, the team plans to create a host of other extension contracts to meet the needs of decentralized application (dApp) developers.
Why Use 0x Protocol and the ZRX Token?
0x is creating the infrastructure for “a tokenized world where all value can flow freely”. Since launching in 2017, the project has aimed to help create markets that were not possible until recently. Also, the project’s mission seeks to fix the lack of economic freedom and financial inclusion present in many geographies using blockchain technology to give financial freedom to the unbanked and underbanked.
As such, 0x strives to remove economic disparity and provide access to financial tools and services that are absent in many parts of the world. The team envisions a world where value of any kind can be tokenized on public blockchains. Financial tools such as stocks, bonds, debt instruments, and commodities are already thriving in the blockchain space.
Also, real estate, video games, and licenses benefit from transparent and equitable infrastructures based on open-source code. Furthermore, the project provides various tools and resources that make it easy to build and access blockchain-based products and services.
The open-source infrastructure 0x implements removes any of the third parties and intermediaries that cause friction in the traditional financial system. In turn, this saves time and resources and reduces fees for both users and developers.
However, the off-chain relay system 0x uses could be the project’s most attractive feature. By reducing network congestion and Ethereum gas fees, the project makes it affordable and straightforward to build and scale decentralized applications (dApps).
What is 0x? Summary
As the 0x protocol operates on Ethereum, it inherits many of the security features that protect against attacks. However, as vulnerabilities were found in the 0x v2.0 smart contract, comprehensive auditing has been carried out for v3 of the 0x protocol by several established auditing firms, including ConsenSys Diligence. Furthermore, 0x continues to offer generous bug bounties to help fix any issues or bugs that could be exploited. Also, the 0x protocol now includes several cross-chain features. These features make the protocol compatible with Binance Smart Chain (BSC) and Polygon/Matic.
Whether you want to build a decentralized marketplace, an exchange, a derivatives market, or an arbitrage bot, 0x has all the tools needed to build exciting decentralized applications (dApps)!
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