What is 0x Protocol?
The more you read about a DeFi project, the more you realize it is a money lego. Essentially, the product is either an improvement to an existing protocol i.e. Velodrome and Curve, and sometimes its features are outright instances of another project i.e Year Finance vault.
The story of 0x protocol started in 2016, when a company called ZeroEx Inc saw the opportunity to build a P2P exchange infrastructure for Ethereum tokens. Upon launch, 0x issued its own token to decentralize the protocol.
0x protocol is governed by its DAO of ZRX token holders. The community collectively decides the development direction of the protocol.
ZRX token holders also have control over the protocol treasury. The intended purpose of the treasury is to fund activities and projects that benefit and add value to the 0x ecosystem.
0x protocol derives its value from enabling users to create and operate their own markets. Due to its permissionless nature, users don't have to undergo KYC to create a market on 0x.
On 0x, trading is executed via Ethereum smart contracts and the protocol is completely free to use. 0x introduces "networked liquidity" to facilitate smooth exchanges of ERC20 tokens.
To explain the value of 0x protocol, it is important to recap why decentralized exchanges (DEXs) are such an important infrastructure piece for crypto.
In practice, a DEX should provide stronger security to users because there is no central party that can be hacked. In this system, each user creates a direct smart contract with another user, hence the peer-to-peer exchange aspect that eliminates the needs for trust in a third party.
A DEX is considered a non-custodial solution because the funds are deposited or withdrawn directly from the users' wallet and the transactions are done on-chain.
From this point of view, 0x protocol is touted the "Craigslist for cryptocurrencies," meaning developers can build their own exchanges and post them online without undergoing KYC or any checks.
The 0x Protocol uses both on-chain and off-chain settlement mechanisms to enable trustless token trading on DEXs.
On-chain settlement refers to the process by which the Ethereum blockchain is used to execute and settle trades. When a trade is executed on a DEX built on 0x Protocol, the relevant smart contracts are called, and the trade is executed and settled on the Ethereum blockchain. This process is slow and expensive, as each transaction requires network fees and confirmation time.
Off-chain settlement, on the other hand, refers to a mechanism by which trades are settled off the Ethereum blockchain, in a faster and more cost-effective manner. Off-chain settlement is achieved through a process called "state channels," which are essentially private communication channels between two parties that enable them to exchange value without having to interact with the Ethereum network.
To this day 0x Protocol has never been hacked. One of the reasons is that 0x uses Ethereum smart contracts, which have been extensively battle tested. Moreover, 0x has a strong community of ZRX holders who watch over the protocol upgrades.
How does 0x Protocol work?
0x Protocol serves as an open-source platform for users and businesses to develop dapps that incorporate exchange functionality.
0x Protocol is the unsung hero of DeFi, the piece of infrastructure that makes developers say "thank God someone did this work beforehand." First deployed on Ethereum, 0x protocol helps facilitate the peer-to-peer exchange of assets between different blockchains. But that's not all. The value of 0x Protocol comes from combining its APIs with the existing liquidity on all chains.
APIs are like librarians. Just like how you tell the librarian what book you want to read, a computer program can tell an API what information it wants to get. The API then goes to the library (or another computer) and gets the information you asked for. This way, different computer programs can talk to each other and share information easily.
In the context of DeFi, 0x Protocol is able to scan across multiple trading liquidity pools for the lowest fees and the fastest route. Their APIs usually come pre-packaged for certain operations i.e swaps, limit orders etc. For developers this means less work to build out the backbone of their dapp and more focus on improving the user experience.
0x protocol features what is calls "networked liquidity," which aggregates liquidity pools from different projects built on top of 0x for enhanced utility and value. These liquidity pools, along with upgraded smart contracts, enable smoother P2P transactions.
0x also boasts easy integration with developers and businesses (also known as relayers) to add exchange functionality on top of the existing dapp.
Within the 0x Ecosystem, there are two sides: Makers and Takers.
Makers create 0x orders and provide liquidity into the system for the Demand side (Takers) to consume. 0x aggregates liquidity from multiple sources including: DEXs, AMMs (Uniswap, Curve etc.), and Professional Market Makers.
Takers are making use of the liquidity provided by the makers. The Takers agree to trade their asset for the Maker's asset. Examples include MetaMask, Coinbase, and dYdX.
How to make money on 0x Protocol?
Making money on 0x protocol requires some technical knowledge. Basically, users have to become relayers and host an off-chain order book. Using relayers, users can find, create, fill or cancel orders.
In exchange for hosting the order book, relayers get rewarded in the form of ZRX tokens from the trading fees. We recommend checking out the 0x documentation for more details on how to become a relayer.
Price Prediction for 0x Protocol — Can it hit $100?
Buying and hodling ZRX — the native token of the 0x Protocol — is one way of potentially making money on ZRX Chain. Now, remember, ZRX is mainly used as the governance token for the 0x Protocol, which means its value is associated with the growth of the protocol.
By looking at its current price, it’s natural to think about the chance of ZRX hitting $100 per token. This can happen sooner, or way in the future, and is determined by a couple of ever changing factors.
Let’s examine the potential growth of the ZRX token by analyzing its tokenomics. ZRX's current market cap sits comfortably at ${MARKET_CAP}. With {CIRCULATING_SUPPLY} ZRX tokens being in circulation today, that means a price of {PRICE} per ZRX.
How did we come to that calculation? It’s quite easy, the price of a ZRX token is equal to its current market cap divided by the number of tokens in circulation. Dividing ${MARKET_CAP} by {CIRCULATING_SUPPLY} gives us a result of {PRICE} for each ZRX coin.
By changing the order in the simple formula above we can use it to calculate other things as well. This helps us a lot because we can deduce the market cap of ZRX at different token prices. Then, we can use the result to compare it to the current state of the network and see what would be required for ZRX to hit that price.
At a price of $100 per token, that means the current market cap of ZRX would equal ${{CIRCULATING_SUPPLY} * 100}. Remember that we arrived at this number by multiplying the amount of circulating tokens by $100.
Now let’s shift our attention to the fully diluted market cap.
Some blockchains may have their tokenomics built in a way that only a small percentage of tokens are circulating at the beginning. This can be misleading because we don’t have the full picture and only take into account the current number of coins released in the market.
The fully diluted market cap represents the total value of a coin if all tokens were in circulation. ZRX's whole supply of tokens is {MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} ZRX which means that no more coins above that number will ever be created.
These tokens are not created at the discretion of a specific entity. They are created automatically by the network to reward different actors that keep it secure.
How does this impact the price of ZRX? Taking into account the current price of a ZRX token, that would result in a fully diluted market cap of ${MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY * PRICE}. ZRX coins that have been burned are not taken into consideration because they have been permanently removed from circulation.
Whether it seems gigantic or not, the number we came to above only takes into account the current price of a ZRX token. Doing the same calculation but with a price of $100 gives us a result of ${{MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} * 100} for the ZRX Chain network fully diluted market cap.
These are all crucial details to know when calculating if ZRX can reach the price of $100 per token. If the diluted market capitalization is way too high, the token has little room left to grow. Blockchains in general have no cap on the value they can reach, whether that number seems possible it’s totally up to you.
The future of ZRX depends solely on its growth as a network used by tens and hundreds of millions of users. Technically, it is possible for the price of ZRX to reach $100 by 2030.
If you’re looking to add some ZRX to your portfolio, the most trusted places to get some are Binance and Coinbase.