What is 0x (ZRX)? Your ultimate guide
Confused about 0x and ZRX? This piece should help clarify and explain a few things.
In this guide
You might have heard of 0x and ZRX, but what does 0x mean? What is the 0x/ZRX coin? If you don’t know the answer to those questions, don’t worry, because we are going to explain it.
DeFi and 0x
One of the most important systems in the world of cryptocurrency is the Ethereum blockchain.
Both the blockchain and the ecosystem surrounding it form a crucial part of the world of decentralised finance, or DeFi.
The idea behind decentralised finance is to create a modern, fairer alternative to financial services that can be accessed over the internet.
The World Bank says there are 1.7 billion people who do not have a bank account. As roughly two thirds of them own a mobile phone, advocates of decentralised finance hope that by reaching these people, DeFi will promote financial inclusion.
The ZRX coin is part of the DeFi world and is linked to the 0x protocol. The 0x protocol was created by ZeroEx Inc, a company set up in 2017 by Will Warren, a former technical adviser to Basic Attention Token (BAT), and Amir Bandeali, a former trader.
The idea behind the protocol was to create a space where any sort of asset, whether crypto coin, crypto token, fiat currency, commodities, stocks, or even online gaming items could be tokenised and traded on the blockchain.
Initially, the plan was to create a standardised way of trading ether. Instead, the scheme became a decentralised exchange that allowed users to trade independently. According to the company’s website, it employs 32 people and has a team of five advisers.
The protocol’s mission statement is “Creating a tokenised world where all value can flow freely.” So how does it do that?
How the 0x protocol works
The software allows people to set up their own custom crypto exchanges. In other words, users can either turn their assets into tokens to trade on the blockchain, or they can buy and sell existing tokens. 0x relies on two sorts of people taking part in the activity. They are
There is also a group of people called relayers. These users look after the protocol’s order books and help with the communication between the books and the transactions that appear on the blockchain.
If someone wants to make a trade using the 0x protocol, makers have to send an encrypted order, which usually contains the type and amount of token being traded, and an expiry date, to a relayer who, in turn, puts it in an order book.
The ZRX token is used to reward the relayers who make those vital connections that enable trades to take place.
The protocol then sets up a smart contract which matches what a taker wants with what a maker is offering. The smart contracts run on the Ethereum blockchain. It is worth pointing out that relayers just help make the trades happen, they do not take control of any crypto assets.
Something that makes 0x different from many decentralised exchanges is that only the trade settlements take place on the blockchain. Will Warren says this means it is more flexible and easier for other developers to build on than other decentralised exchanges which store their orders on the blockchain.
So that is the 0x protocol. But what about the ZRX coin itself?
ZRX coin explained
As we have seen, the 0x protocol allows users to set up their own custom exchanges. However, with so much choice and so many opportunities to do things across the world of cryptocurrency, some people might need an incentive to take part. This is where the ZRX coin, or more properly the ZRX token, comes into play – this is the native token of the 0x protocol.
The ZRX token is used to help reward relayers for making the connections that enable trades to take place. However, it is not just through serving as a relayer that you can earn tokens. They are available to trade on a number of exchanges, both centralised and decentralised.
Owning ZRX coin gives you voting rights on the protocol and token holders can stake ZRX to earn liquidity rewards. There is a fixed cap of 1 billion ZRX tokens, of which 845,323,730, or roughly 85%, are in circulation. It operates on a proof-of-work basis but is not mineable in the traditional sense.
One of the drawbacks of the ZRX coin is that it is a cryptocurrency. As recent months have shown, cryptocurrencies can be incredibly volatile.
Also, there are specific issues that relate to the 0x protocol itself. For instance, there is the question of sustainability. Although 0x is a crucial part of the world of decentralised crypto exchanges it is by no means the only part. There are 14 decentralised exchanges that are bigger in terms of trading volume than 0x, according to one website. This implies that, while 0x is doing well (the same website lists a total of 77 different decentralised exchanges) it could do more to attract traders through its portals. With a current market share of 0.9784%, it has some way to go before it reaches the likes of UniSwap, the largest decentralised exchange, which has a market share of more than 16%.
The other issue linked to the 0x protocol is that there are drawbacks with the decentralised model of exchange. Transaction time is a lot slower than in the centralised model, for example.
As we implied when discussing the makers and the takers, there is also going to be an issue with liquidity. Put it simply, if there are not enough makers, or there are too many takers, the liquidity pool can shrink.
As it is, there is no clear idea as to how big the liquidity pool will be at any given time. Furthermore, you cannot use fiat currency, only tokens and coins. These issues will have an impact on how many people use the 0x protocol and that, in turn, will have an impact on the ZRX token value.
It is used as a store of value, but it is also used to gain voting rights within the 0x protocol. It can also be staked for ETH rewards in the protocol.
You cannot mine 0x. It operates on a proof-of-work basis but cannot be mined in the conventional sense. You either have to earn it or trade it on exchanges.
If you want to get hold of 0x, you have two options. You can either serve as a relayer on the 0x protocol and earn it that way, or you can buy it on a range of exchanges. One of the places you can buy it is Currency.com.