0x (ZRX) is an ERC-20 token designed to power various forms of decentralized exchange (DEX). The current ZRX price is down 84% from its all-time high set in January 2018. ZRX coin has a current total market cap of US$279 million, with US$25 million in trade volume over the past 24 hours.
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.
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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 the 0x news was the release of 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.
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.
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.
The ZRX project has 100 repos on Github with developers contributing over 5,000 commits to ZRX repos in 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, 17.38 million ZRX, or 2.5% of the circulating supply, is engaged in staking across eight staking pools. 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 second 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 (top chart, below) across all relayers has increased substantially, while ZRX fees are non-existent (not shown). Exchange fills dropped off substantially in mid-December 2018 when DDEX left the ZRX protocol. Relayer fills have also increased substantially in recent months (bottom chart, below).
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), and Dai (DAI).
Source: 0xtracker – trade volume (USD)
Source: 0xtracker – trades per month
Transactions per day (red line, chart below) spiked dramatically in late September, which is 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 line, chart below) had been in a downward trend since May 2018 but have recently risen to over US$5 million. 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 57, down from multi-month highs set in March. 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 line, chart below) have increased significantly in recent months, now holding at 1,500. The rise in October 2018 active addresses corresponds with the Coinbase listing at that time.
In the markets, exchange-traded volume of the ZRX token has been led by the Bitcoin (BTC) and Tether (USDT) pairs on Binance and Coinbase Pro. Over the past two years, ZRX has been listed, or gained new pairs, on several exchanges including Binance, Binance.US, Bittrex, Coinbase, Coinbase UK, Ethfinex, OKCoin.com, and Poloniex. In June 2019, dYdX integrated 0x-based liquidity using Radar Relay. Bitstamp has also announced plans to potentially add ZRX in the near future.
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. The 200-day EMA at US$0.30 should now act as support.
The Volume Profile of the Visible Range (VPVR) now shows strong downside support from US$0.25 – US$0.35 with little to no upside volume resistance. Yearly pivot resistance stands at US$0.50 and US$0.58 with yearly pivot support at US$0.34. Additionally, there is a multi-week bearish divergence on volume and RSI suggesting weakening bullish 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), for more accurate signals, are bullish; price is above the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above Cloud and above the spot price. The trend will remain bullish so long as price holds above the Cloud. A long flat Kumo at US$0.30 may act as a mean reversion magnet for price.
Lastly, on the daily ZRX/BTC pair, trend metrics mirror the ZRX/USD pair. Price is sitting above the 200-day EMA and the daily Cloud. 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 multi-week bearish divergence on volume and RSI suggesting weakening bullish momentum.
With ZRX staking now online, the ZRX token has finally found a use case other than buy and hold. Relayer trades and trade volume has also increased over the past few months. 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 bullish, with prices above their respective 200-day EMA and daily Cloud levels. ZRX/USD has also now cleared the large volume resistance from US$0.25 – US$0.35. Based on trend metrics for both pairs, continued bullish momentum is likely over the next few weeks. ZRX/USD shows upside resistance at US$0.50 and US$0.58 while ZRX/BTC shows upside resistance at 4,000 and 6,000 sats.