0x (ZRX) is an ERC-20 token designed to power various forms of decentralized exchange (DEX). The current USD spot price is down 8675% from the all-time high set in January 2018. The token has a current total value of US$253 million, with US$17.88 million in trade volume over the past 24 hours.
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The ZRX protocol was founded by an engineer and self-proclaimed U.C.S.D. Ph.D. dropout, Will Warren, and a former fixed-income trader, Amir Bandeali. Neither had significant technical work experience before starting the project. Bandeali previously worked for a leading Over The Counter cryptocurrency trading platform, DRW.
Notable project advisors include Joey Krug, co-CIO at Pantera Capital and founder of Augur, as well as three Coinbase alums; Fred Ehrsam, co-founder of Coinbase, Linda Xie, co-founder of Scalar Capital and Will Warren’s wife, and Olaf Carlson-Wee, founder of PolyChain Capital.
The rise of the DEX is, in part, a response to the more than US$1.5 billion lost by centralized exchanges in the form of hacks, malfeasance, or incompetence over the past 10 years. As opposed to a centralized exchange, which requires assets to be deposited in exchange wallets, a DEX user maintains custody of their assets. This key difference removes the centralized honeypot for hackers.
ZRX includes a messaging format for trade settlement, and a system of smart contracts for a decentralized governance module, which has yet to be implemented. Decentralized governance was included in an attempt to reduce the friction associated with upgrades and platform downtime. However, the platform’s core feature is providing DEX architecture solutions through a system of relayers.
Relayers can use the ZRX token to approve potential future upgrades, which decreases the tokens circulating supply, and is reminiscent of proof-of-stake. This model does not prevent relayers from forking the ZRX protocol, should they wish to implement their own changes, or if they disagree with changes implemented by the ZRX core team.
In December 2018, DDEX forked the ZRX protocol and created the Hydro protocol (HYDRO). CEO of DDEX, Tian Li, stated that the DDEX and ZRX teams had divergent opinions on what constituted an urgent protocol improvement, and whether fee-based tokens create unnecessary friction.
The original ZRX token ICO occurred in August 2017 and raised US$24 million through the sale of 500 million of the one billion tokens created. The remaining 50% of the tokens were split between the 0x company, a developer fund, the founding team, early backers, and advisors. Tokens allocated to founders, advisors, and staff members were locked in a four-year vesting schedule.
While there were no pre-sale or reservation agreements, PolyChain Capital led an early seed round that covered legal fees. According to available wallet balances, the ZRX team now holds no Ethereum (ETH) in its treasury. At least half of the treasury was spent during 2017, 11,000 ETH spent in late December 2018, 7,120 ETH in 2019, and 11,500 ETH in March 2020 (blue, chart below).
Source: Santiment and Etherscan
In September 2018, ZRX released v2.0 of the protocol which brought several new features including; the 0x Portal, Non-Fungible Token support (ERC-721), increased order matching efficiency, and the option for permissioned liquidity pools where token addresses must meet specific requirements that enable the enforcement and adherence to KYC/AML regulations. Wyre has also been working with a number of DEXs to help integrate a KYC token, as well as a fiat to Dai (DAI) on-ramp.
DEX legal compliance was thrust into the spotlight in November 2018 when the U.S. Securities and Exchange Commission fined the founder of EtherDelta, a non-ZRX DEX, US$388,000 for operating an unregistered national securities exchange.
0x Instant was released in December 2018, and enabled crypto purchases on any app or website with a few lines of code. Instant is open-source, configurable, and allows hosts to earn affiliate fees on every transaction. The process works by aggregating liquidity from 0x relayers and finding the best price for the purchaser. The transaction occurs using ETH through MetaMask, Ledger, Trezor, or any other Ethereum wallet. 0x has also attracted NFT marketplaces, like Emoon, to the family of relayers. Emoon has 0x instant enabled.
In January 2019, ZRX announced a market maker program to improve liquidity across relayers. Market makers increase liquidity by adding to order book depth when necessary. Accepted applicants can receive up to US$15,000 for completing the onboarding process.
Throughout 2019, the ZRX team has updated the roadmap for future protocol changes, or 0x Improvement Proposals (ZEIPs). One key upcoming change is the inclusion of improved networked liquidity amongst relayers in the ecosystem through 0x Mesh. This change would increase market access for relayers, making it easier to connect to and share orders with other members of the 0x ecosystem. Each node in the network will also score its neighbors based on the quantity and quality of the orders it shares. The beta version of 0x Mesh went live in mid-July 2019.
Source: 0x Blog
In April 2019, Warren proposed a stake-based liquidity incentive (ZEIP-31), meaning market takers pay a small protocol fee on each ZRX trade and market makers receive a liquidity reward proportional to the protocol fees generated from their orders and their stake of ZRX tokens. Market makers who do not own sufficient ZRX to collect liquidity rewards will also be able to form a ZRX staking pool for third-party delegators.
In July 2019, the ZRX team introduced coordinators, a service that combines order matching and open order book relayer models. These coordinators allow for pooled liquidity across all DEXs, quickly finding the best price for an asset. A demo implementation of a coordinator is currently live on Bamboo Relay.
Source: 0x Blog
A contract vulnerability was found in July 2019, before it was exploited, and the network was briefly halted. The 0x v2.0 contract was shut down temporarily, patched, and brought back online. No user funds were lost and the bug reporter was awarded US$100,000.
Source: 0x Blog
In late June, ZRX launched Matcha, a new peer-to-peer DEX focused on a user-friendly UI and trading system that finds the best prices for trades between 0x Mesh, Kyber, Uniswap, Curve, Oasis, and ZRX’s proprietary liquidity sources. The DEX currently has 33 tokens listed, including six stablecoins.
Earlier this year, 0x announced request-for-quote (RFQ), or an over-the-counter (OTC) service for large trading orders. The goal of RFQ is to bring centralized exchange liquidity to the DEX. According to 0x, “the deepening of liquidity & move towards DEX aggregation in 2020 has allowed DEXs to support well-priced small trades across a wide set of pairs. DEXs currently have trouble supporting competitively-priced medium & large trade sizes, and that inability forces traders to either not trade large amounts at all or have to visit centralized exchanges. DEX trading needs to be able to consistently support well-priced medium & large trade sizes in order to support DeFi’s continued growth. That may sound easy, but supporting large trades is particularly difficult because liquidity providers must be willing to risk large amounts of money at one time.”
Source: 0x Blog
On the developer side, the ZRX project has 101 repos on Github accruing a total of 5,000 commits over the past year. Most of the ZRX related commits have occurred in the 0x-monorepo (shown below). Most coins use the developer community of Github where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.
ZRX v3.0 was approved in November 2019 with a 99% ‘yes’ vote, bringing a type of staking mechanism to the network. Rewards are denominated in ETH and collected by market makers and other stakers via weekly payouts. Currently, 22.15 million ZRX, or 2.27% of the circulating supply, is engaged in staking across nine staking pools, representing US$7.78 million. The v3.0 protocol upgrade also allowed for the possibility of a community-owned liquidity API, enabling DEX liquidity aggregation for a more robust DeFi ecosystem.
Source: Github – 0xProject/0x-monorepo
A quick comparison between coins using a staking mechanism shows XTZ towards the bottom of the pack, except for a ranking fifth in git commits. EOS (EOS) was excluded from the on-chain data comparison due to a lack of currently available reliable on-chain data.
Since January 2020, the total USD network volume across all relayers has increased substantially, nearly doubling the July all-time high in trade volume. Over US$100 million of the $500 million in trade volume for the month of August originated through the Matcha exchange. Recently, 0x API activity has been dominated by the Uniswap v2 DEX with nearly US$920 million in trade volume through all tracked relayers in September.
Total trading fees for the month of August rose to 251 ETH or US$101,000. Exchange fills dropped off substantially in mid-December 2018 when DDEX left the ZRX protocol. However, since late last year, relayer fills have also increased substantially. September saw a 5-month high in total trades executed through the ZRX protocol.
Of the 15 relayers tracked, Tokenlon leads by trade volume and number of trades. The most popular tokens traded between all relayers over the past month is Wrapped ETH, an ERC-20 compliant derivative of ETH, Tether (USDT), USD Coin (USDC), and Dai (DAI). According to a study done by 0x, the 0x API outperforms other exchanges ~72% of the time by offering better prices after accounting for gas.
Source: 0xtracker – trade volume (USD)
Source: 0xtracker – trades per month
Source: 0x API
Source: 0x Blog
Transactions per day (red line, chart below) spiked dramatically in late September 2019, likely due to speculative demand corresponding with a Coinbase listing at the time. On March 13th, transactions per day spiked to a new all-time high, corresponding with a market-wide drop in crypto prices. Transfer values per day (green fill, chart below) had been in a downward trend since May 2018 but have recently risen to over US$22,000. Ethereum’s elevated on-chain fees currently may be limiting smaller transactions and encouraging fewer larger transactions
Declining ZRX token transactions, from October 2018 until recently, can be attributed to an inherent lack of importance regarding the ZRX token itself. The ZRX tokens are almost purely a speculative vehicle and are not required to trade on relayers. Staking and future governance changes for v3.0 have likely contributed to the recent uptick in transactions.
The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (red line, chart below) is currently 50, down from multi-month highs set in March 2020. A clear downtrend in NVT suggests a coin is undervalued based on its economic activity and utility, which should be seen as a bullish price indicator. Inflection points in NVT can also be leading indicators of a reversal in asset value.
Active and unique addresses are important to consider when determining the fundamental value of the network using Metcalfe’s law. Monthly active addresses (green fill, chart below) have increased significantly in Q2 but have since decreased to 740. The rise in October 2018 active addresses corresponds with the Coinbase listing at that time.
From February to March, ZRX saw a 60% drawdown, which has subsequently mean reverted with the rest of the crypto market. ZRX price surged in early May, a useful portent for potential bullish momentum. To determine entries and exits throughout a trend, as well as the potential for a trend reversal, Exponential Moving Averages, Volume Profile of the Visible Range, pivot points, and the Ichimoku Cloud can be used. Further background information on the technical analysis discussed below can be found here.
On the daily chart for the ZRX/USD market pair, the 50-day Exponential Moving Averages (EMA) and 200-day EMA crossed bullish on May 12th following a 100% move the prior week. However, over the past 40 days, price has declined 52% and fully mean-reverted back to the 200-day EMA. In the next few weeks, a Death Cross is likely followed by a return to the previous consolidation range of US$0.22 – US$0.35.
The Volume Profile of the Visible Range (VPVR) now shows strong downside support from US$0.22 – US$0.35 with little to no upside volume resistance. Yearly pivot resistance stands at US$0.52 and US$0.61 with yearly pivot support at US$0.35. Additionally, there are currently no bullish or bearish divergences on volume or RSI to suggest waning bearish momentum.
Turning to the Ichimoku Cloud, there are four key metrics; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. Trades are typically opened when most of the signals flip from bearish to bullish, or vice versa.
Cloud metrics on the daily time frame with doubled settings (20/60/120/30) are bearish; the spot price is below the Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span is inside of the Cloud and below the spot price. The trend will remain bearish so long as the spot price remains below the Cloud, currently at US$0.63. The Cloud also shows a growing TK c-clamp suggestive of oversold conditions.
Lastly, on the daily ZRX/BTC pair, trend metrics mirror the ZRX/USD pair. Price is sitting below the 200-day EMA and the daily Cloud, returning to the previous consolidation zone of 2,200 to 4,000 sats. Upside resistance based on the volume profile sits at 4,000 sats and 6,350 sats. Yearly pivot resistance also sits at 4,300 sats and 7,200 sats. Additionally, there is a bullish divergence on RSI which suggests waning bearish momentum in the near term.
With ZRX staking now online, the ZRX token has finally found a use case other than buy and hold. Relayer trades and trade volumes have also increased substantially over the past few months, reaching nearly US$920 million in September alone. On-chain data still suggests very little continuous day-to-day token use. Going forward, additional governance decisions may also help to retain token value (similar to the Maker DAO).
The ZRX core team continues to be very active, with an extensive upcoming roadmap. As regulatory concerns globally for crypto exchanges ratchet up significantly, DEXs may gain prominence in the absence of other options.
Technicals for the ZRX/USD and ZRX/BTC pairs are both bearish after a nearly 50% drop for both pairs in the past 40 days. Both pairs have quickly Eiffel Towered back to their previous consolidation ranges. Both pairs also have prices below their respective 200-day EMA and daily Cloud levels, a litmus test for trend determination. In the near term, bullish divergences on RSI are likely to continue to form and grow, suggestive of waning bearish momentum. The last strong supports sit at US$0.22 and 2,200 sats for ZRX/USD and ZRX/BTC, respectively.