What Is the 0x Protocol?

Ethereum blockchain has positioned itself as the major open-source infrastructure for digital assets. It has created ease to transform conventional finance into decentralized finance (DeFi) by enabling smart contracts that automate loans, NFT trading, play-to-earn games, and exchanges. In the same vein, it has facilitated the development of 0x. Now you may begin to wonder what is the 0x protocol. Well, this article has wholly responded to this query in an easily understandable form.

Meanwhile, 0x involves a peer-to-peer software framework built on top of Ethereum’s infrastructure. Similar to Ethereum 0x also operates as an open-source source protocol. It uses Ethereum to real-world assets tokens and thus, eliminates intermediaries. You can tokenize any asset, therefore, 0x makes traditional assets available on the Ethereum blockchain.

Furthermore, the 0x infrastructure can mirror any assets on Ethereum as tokens ranging from company shares, bonds, or real estate. It also provides decentralized exchanges on which you can trade these mirrored assets.

What-Is-the-0x-Protocol

Carefully read through this page to learn more about this Lego of the DeFi world that provides components to build crypto markets.

What Is the 0x Protocol?

We have given a brief highlight of what the 0x protocol entails above. The 0x protocol facilitates the peer-to-peer (P2P) exchange of Ethereum-based assets. Built by Ox Labs, its infrastructure serves as an open standard and core DeFi building block for developers who need exchange functionality. The 0x protocol provides secure, audited smart contracts and developer tools tailored to the 0x ecosystem. It also offers a decentralized global P2P order book (0x Mesh). More interesting it offers an API that grants easy access to estimated liquidity sourced from several growing exchange networks

Meanwhile, the major native governance and staking token of 0x includes ZRX. If you owned a ZRX or will give you a “say power” on how the protocol evolves. While as a ZRX token holder you can also stake your tokens to earn ETH liquidity rewards.

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Amir Bandeali and Will Warren launched the 0x in 2017 with the mission to “build a tokenized world where all value can flow freely”. 0x inception has a vision of a world where you can tokenize all forms of value on public blockchains. This includes

  • Fiat currencies, stocks,
  • Commodities
  • Bonds
  • Debt instruments
  • Real estate
  • Video game items
  • Software licenses
  • Digital collectibles
  • Personal tokens, etc.

The 0x protocol intends to create a free-to-use and run-on open-source code, taking away all layers of middlemen and empowering individuals with greater financial sovereignty.

A closer example of the types of things you can build on 0x include;

  • An eBay-style marketplace for digital products
  • A decentralized exchange for A asset on B market
  • An over-the-counter (OTC) trading desk
  • A DeFi protocol that requires liquidity and exchange to function. For example, a derivative, lending, or options protocol.
  • A market making or arbitrage trading bot

Additionally, you can also integrate the 0x into any existing application where the exchange serves as a feature, and not the core purpose of the application. These types of applications may include;

  • Games with in-game currencies or items
  • Portfolio management platforms
  • Digital wallets whose users will need to exchange tokens
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How Does 0x Work?

The 0x protocol employs a hybrid off-chain/on-chain settlement protocol to run. Contrary to typical DEXs which exclusively operate on-chain. Hence, 0x can dab into liquidity far beyond on-chain networks. Just because 0x stores trading orders off-chain, and then implements trade settlements on-chain.

Meanwhile, 0x gas fees are cost-efficient under this hybrid system. Two 0x protocol actors help make this process easily conducted. They include;

  • Makers: The makers provide liquidity by generating 0x orders in the order book. Whenever makers place orders, they report the tokens involved and their exchange price. Then, they wait for a price match.
  • Takers: The takers typically siphon liquidity from the order book by placing orders matching without delay. 
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However, in situations where a maker has already familiarized themselves with a specific taker, they can send the order directly to them through over-the-counter (OTC) trading desks or general messaging apps.

On the other hand, when makers don’t know the takers, the order will first submit to 0x relayer, via 0x Mesh. The 0x Mesh consists of a peer-to-peer (P2P) network for sharing orders in the 0x messaging format. In turn, the 0x relayer is a Matcha, which enables the creation and matching of orders.

Additionally, rather than using centralized middlemen, the 0x relayer helps to maintain the off-chain order book, including the collection of transaction fees. Once a blockchain receives the order relay, the 0x settlement protocol validates the maker’s signature and executes the token swap. Also, note that the relayers do not hold tokens in their custody at any given point.

About The ZRX Tokenomics

Similar to most native protocol tokens, ZRX both serve as a governance and utility token for 0x. Furthermore, holders of ZRX tokens can use their saved ZRX tokens to vote on 0x Improvement Proposals (ZEIPs). Similar to what ETH token holders do for Ethereum Improvement Proposals (EIPs). 

Meanwhile, know that in the case of 0x, the ZRX voting weight expands to even off-chain proposals, due to its hybrid nature.

Voting Weight

During voting on 0x improvement Proposals, each ZRX token usually counts as one vote. Therefore, the voting weight is proportional. As a market maker, you can stake your ZRX tokens to receive rewards for providing liquidity on every 0x trade.

These fees are usually deposited by ETH and automatically pooled into smart contracts for staking. Meanwhile, the protocol stores or locks ZRX into a fixed period, called epochs. Hence, after each epoch ends, makers will collect them from the staking pool.

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While the 0x staking rewards, remain in flux, and depend on the trading volume and set protocol fees. The site handles both the staking and voting activities. Furthermore, if you hold ZRX token you can also deposit it into 0x DAO treasury.

Frequently Asked Questions About What Is the 0x Protocol

Is 0x a DEX?

It looks similar to a decentralized exchange (DEX) but, has its unique differences. One of the differences includes that a DEX stores orders on its blockchain, while 0x does not.

What Is Zerox Coin?

Zerox coin or token is ZRX. Created by the company 0x (zero x), ZRX involves a token built on the Ethereum blockchain to fuel cryptocurrency exchanges.

Can I Mine 0x?

No, you cannot mine 0x. 0x runs as a protocol for the Ethereum blockchain. It promotes peer-to-peer exchanges of assets built using Ethereum. So there is no token to mine.

Conclusion

Finally, as of now, many cryptocurrency projects have integrated the 0x protocol cryptocurrency projects and generated billions of dollars in trading volume. 0x Labs released Matcha, a DEX aggregator in June 2020. It has a focus on simplicity and an intuitive user experience.

Thus, by now you should have clearly understood what is the 0x protocol. However, if you have further questions feel free to relate with us in the comment box below.

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