0x Price Analysis – The Golden Touch

0x (ZRX) has increased 125% over the past 20 days on bullish speculative news. The market cap currently stands at US$1.2 billion (based on the one billion total coin supply), with US$37 million in trading volume over the past 24 hours.

The ZRX protocol is an open and permissionless platform for trading Ethereum tokens, and is designed to power decentralized exchanges (DEXs). ZRX provides the architecture for DEXs, known as relayers on the ZRX platform, to be developed.

ZRX uses a messaging format for trade settlement and a system of smart contracts for a decentralized governance module.  ZRX includes decentralized governance in an attempt to reduce the friction associated with upgrades and any platform downtime. The idea being that relayers will accrue the ZRX token in order to approve or disapprove potential future upgrades. This process can also decrease circulating supply, and increase the value of the token.

Head researcher at Wyre Capital recently discussed problems with this model, suggesting that a significant minority of relayers could simply fork the core ZRX protocol should they be on the losing side. A relayer could also enter a trading position before making an announcement regarding their vote on a protocol change. The discussion also suggests including a token burn, with opt-in incentives for market makers and users providing value to the protocol.

Head engineer Will Warren defended the criticism, “You can’t force value into a token. Period. Grafting artificial incentives onto a token (velocity sinks or mint/burn schemes) inherently adds friction (more gas per trade) to the detriment of users… I’d much rather put my effort into building something worth governing. This is what the 0x core team is going to continue focusing on and I’m glad that our community seems to be focused on this too.”

Relayers using the ZRX protocol generate and manage trades on their own platforms, or “off-chain.” In doing so, they can charge maker and taker fees, take advantage of the order book spread between tokens, charge listing fees for certain tokens, or include any other fees they wish, paid in ZRX. Ideally, relayers compete to attract users by providing a better user experience or a more enticing fee structure, perhaps by providing a referral program. Trading can occur directly through a Ledger hardware wallet or the MetaMask wallet software.

A functional DEX continues to be an attractive proposition as centralized exchanges continue to get hacked, with little recourse for the exchange itself, and rarely any penalty for the thief. However, despite being decentralized, both EtherDelta and Bancor have also been targeted by hackers in the past. EtherDelta was hit with a DNS hijack and redirect which siphoned over 300ETH, while Bancor was hacked for ~25,000ETH and 3.2 million BNT. The stolen BNT was able to be frozen, leaving many users questioning the decentralized nature of the platform.

According to a recent Consensys article analyzing DEXs, ZRX exchanges rank third when comparing trading volume and available pairs. The 0x protocol has spawned over 10 relayers, including; DDEX, Radar Relay, ETHfinex, and The OceanX. The top relayers by volume, DDEX and Radar Relay, have cleared US$2.15 million over the past 24 hours. Overall, total network volume has decreased since April and May (below).

The ZRX team has also been working on V2 of the protocol, which is currently available on the 0x testnet, and will be live on mainnet after the code undergoes an audit. V2 will bring support for new token standards, such as non-fungible ERC721 tokens (NFT), and a frictionless trading widget, dubbed the 0x Portal. The Portal will allow for user education, on-boarding, and relayer discovery. Future iterations will include searching and filtering relayers, improved trading mechanics, NFT support, and an improved UI.

Most coins use the developer community of GitHub, which was recently acquired by Microsoft for US$7.5 billion. 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.

Over the past year, ZRX has had a cumulative 3,818 commits, with the commit distribution of the main repo shown below. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity.

Exchange traded volume is led by the Bitcoin (BTC) and Korean Won (KRW) pairs on Binance and UpBit. This week, Coinbase announced potentially adding ZRX to the platform, which will substantially increase the USD volume. The sphere of influence of the advisors in relation to Coinbase, including Fred Ehrsam, Linda Xie, and Olaf Carlson-Wee, means that ZRX will almost certainly be listed for trading.

Technical Analysis

ZRX has had several large rallies, fueled by speculation that Coinbase will include the cryptographic asset on their U.S. centric platform. There has yet to be a sustained trend despite the bullish impulsivity. Exponential Moving Averages (EMAs), Ichimoku Cloud, Pitchfork, and chart patterns can help assess the trend transition or interim price action. Further background information on the technical analysis discussed below can be found here.

On the 12 hour chart, the 50/200EMAs remained bearishly crossed. However, these EMAs may cross soon, indicating the potential for increased bullish momentum. After a bullish cross occurs, bids are typically placed on the 200EMA instead of immediately entering the trade. This is known as the get ready, get set, GO strategy.

Turning to the Ichimoku Cloud, there are four metrics to determine if a trend exists; 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. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.

The status of the Cloud metrics on the 12 hour chart are neutral: price is in Cloud, Cloud is bearish, the TK is bullish and the Lagging Span is above price and in Cloud. A traditional long entry will not occur until price is above Cloud. A Kumo edge-to-edge trade completed yesterday, where a trade is entered at bottom of the Cloud and exited at the top of the Cloud. However, there is currently a bearish divergence and pullback, suggesting weakening bullish momentum. Price will likely consolidate near the current level before moving higher.

A bullish Pitchfork (PF) with anchor points in March, May, and June shows price within the lower boundaries of the trend. Price will continually attempt to return to the median line (yellow) throughout the duration of a trend. A retest of the all time high, or higher, by August 1st is reasonable based on the slope of the trend.

The ZRX/BTC has a similar bullish PF with price near the lower boundary. There is also a bullish continuation chart pattern, a Cup and Handle, which is near completion. A long entry is not indicated until price breaks the horizontal resistance at 18,000 Satoshis (Sats). The pattern has a 1.618 fib extension and measured move target of 26,000 and 32,000 Sats, both of which are near the median line of the PF.

Lastly, daily Cloud signals on the ZRX/BTC pair are entirely bullish except for the TK cross. This is an ideal long trade setup with an entry triggering after a bullish TK cross, indicating strong bullish momentum. The first likely targets are 26,000 and 32,000 Sats, based on the PF and Cup and Handle in the charts above.

Conclusion

ZRX continues to be one of the hottest projects in 2018 in terms of dev activity, community growth, and as a potential fiat gateway. The core ZRX team continues to be transparent with future updates, and releases those updates on time. The number of relayers also continues to grow, ensuring a competitive DEX environment and plenty of options for users. Decentralized governance with the protocol remains an area for research, exploration, and improvement, as no strong set guidelines have been implemented as of yet.

Technicals suggest some near term cooling off after the reaction to the Coinbase announcement.  Longer term analysis indicates a preference for bids just above US$1 and a long order trigger at 18,000 sats. Trend indicators on both the USD and BTC pairs strongly suggest further upside throughout 2018.

ZRX continues to be one of the hottest projects in 2018 in terms of dev activity, community growth, and as a potential fiat gateway. The core ZRX team continues to be transparent with futureupdates,and releases those updates on time. The number of relayers also continues to grow, ensuring a competitive DEX environment and plenty of options for users. Decentralized governance with the protocol remains an area for research, exploration, and improvement, as no strong set guidelines have been implemented as of yet.