0x Price Analysis – With staking likely by 2020, the ZRX token has finally found a use case

0x (ZRX) is an ERC-20 token designed to power various forms of decentralized exchange (DEX). The current USD spot price is down 87% from the all-time high set in January 2018. The token has a total value of US$193 million, with US$11.89 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.

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 centralized exchange, which requires assets to be deposited in exchange wallets, a DEX user maintains custody of their assets. This key difference removes a key incentive 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.

Source: 0x.org

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 lead an early seed round that covered legal fees. The ZRX team holds 11,480 Ethereum (ETH) in its treasury, currently valued at US$2 million. At least half of the treasury was spent during 2017, with a further 11,000 ETH spent in late December 2018, and 7,120 ETH spent this year (yellow, chart below).

Source: Santiment

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.

Source: 0xproject.com/portal

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, 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 this year, 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.

Source: blog.0xproject.com

In April, Warren proposed a stake-based liquidity incentive (ZEIP-31), slated for release in v3.0 later this year. ZEIP-31 changes will mean that 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, 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: blog.0xproject.com

A contract vulnerability was found in July, 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: blog.0xproject.com

Since April 2018, the total USD network volume (chart below) across all relayers has decreased substantially, while ZRX fees are non-existent (not shown). Exchange fills have dropped off substantially since mid-December 2018 when DDEX left the ZRX protocol. Of the 9 DEXs tracked, Radar Relay leads by trade volume and the number of trades. The most popular tokens traded between all relayers is Wrapped ETH, an ERC-20 compliant derivative of ETH, Tether (USDT), and Dai (DAI).

Source: 0xtracker

Transactions per day (line, chart below) spiked dramatically in late September, which is likely due to speculative demand. The spike in transactions in October 2018 corresponded with a Coinbase listing at the time. The average transaction value (fill, chart below) has been in a downward trend since May 2018 and currently stands at US$2,250. Both metrics have not surpassed all-time highs set during token distribution in September 2017.

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 upcoming governance changes for v3.0 have likely contributed to the recent uptick in transactions.

Source: CoinMetrics

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) is currently 179 and rising rapidly. A rising NVT suggests the coin is overvalued based on its economic activity and utility, which should be seen as a bearish price indicator.

Monthly active addresses (fill, chart below) have increased dramatically over the past month, and are currently up from a yearly low of 564. The rise in active addresses corresponds with the Coinbase listing in mid-October 2018. Active and unique addresses are important to consider when determining the fundamental value of the network using Metcalfe’s law.

Source: CoinMetrics

The ZRX project has 77 repos on Github with developers contributing over 4,500 commits to ZRX repos in the past year. 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.

Most of the ZRX related commits have occurred in the 0x-monorepo (shown below). There are currently 31 issues in the ZEIP Github repo, 14 of which are marked for launch in v3.0, pending ZRX token holder approval. Voting begins on October 28th and ends on November 4th, with a mainnet release scheduled for November 18th.

Source: Github

Exchange-traded volume has been led by the Bitcoin (BTC) and Tether (USDT) pairs on Binance and Coinbase Pro. Over the past year, ZRX has been listed on, or gained new pairs on, several exchanges including Binance, Binance.US, Bittrex, Coinbase, Coinbase UK, Ethfinex, OKCoin.com, and Poloniex. In June, dYdX integrated 0x-based liquidity using Radar Relay.

Technical Analysis

Over the past few months, ZRX has gained 122% from all-time lows, suggesting strong bullish momentum. To determine entries and exits throughout a trend, as well as the potential for a trend reversal, exponential moving averages, volume profiles, divergences, 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 have been bearishly crossed since July 2018, with the market price mostly held below the 200-day since the cross. Over the past week, the spot price has definitively crossed the 200-day EMA for the first time since inception, with a Golden Cross likely to occur over the next few days.

Current resistance, according to the volume profile (horizontal bars), stands at US$0.32 – US$0.35 with virtually no significant resistance above this level. There is also a small but growing bearish divergence, which is suggestive of waning bullish momentum in the near term.

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 newly Bullish, the TK cross is bullish, and the Lagging Span is above Cloud and above Price. Thus far, this is the most significant bullish Kumo breakout since trading began. The previous long flat Kumo at US$0.67 is a potential price target by year’s end, with US$0.50 also representing significant psychological resistance.

Lastly, on the daily ZRX/BTC pair, trend metrics mirror the ZRX/USD pair. Price is above both the 200-day EMA and the Cloud for the first time since October 2018. A kumo breakout after an over 400-day bear market suggests a significant trend shift. Upside resistance based on the volume profile sits at 6,350 sats with larger resistance approaching 10,000 sats. There is also a bearish divergence, which is more significant than the ZRX/USD pair, and suggestive of a pullback or additional consolidation in the near term.

Conclusion

With staking likely coming by 2020, the ZRX token has finally found a use case. Although relayer fills have been muted over the past several months, on-chain data and the current spot price suggests speculation over the success of these future changes is high. Additional governance decisions may also help to retain token value going forward. 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 leaning freshly bullish, for the first time in over a year, with invigorated and sustained bullish momentum. The ZRX/USD pair is set for a Golden Cross over the next few days and the potential for an upside resistance test of the psychological US$0.50 zone over the next few months. The ZRX/BTC pair is also set for a Golden Cross over the next few weeks, with significant resistance between the 6,000 – 10,000 sat zone.