Introduction to 0x: A Decentralized Exchange Platform for ERC20 Tokens
Exchanges may be a necessary evil in the world of cryptocurrency. If they are famous for one thing though, it's for getting hacked. If they are famous for a second thing, it's probably terrible customer service.
The concept of a decentralized exchange has been floating around for a while now. A few exist already, and so far the results are fairly promising. Although, they are not without their faults. 0x project wants to create a decentralized exchange network just for ERC-20 tokens.
The team behind it claim that its system will significantly reduce gas fees for sending tokens. The network will also allow for some participants to earn transaction fees for participating.
What is a decentralized exchange?
Let's start out with a quick review of what a decentralized exchange is. If you're already familiar, you can safely skip to the next section.
Most cryptocurrency exchanges today are centralized. This means that all trades occur through a single service. Further, all assets stored in the exchange are typically held together. It is this centralization that both makes them convenient, and dangerous.
A decentralized exchange, on the other hand, addresses the problem in a different way. Instead of having a central website, server, and set of wallets, all of these network components are spread out amongst different participants.
This leads to there being no single point of failure. In terms of security, decentralized exchanges never hold any assets, and only facilitate trade typically through smart contracts. This means that hackers do not have a single high-value target in which to go after.
There are currently quite a few decentralised exchanges on the market such as the Waves platform and EtherDelta.
What is 0x all about?
0x project is not about making a company or website, but a system to facilitate decentralized trading on. 0x has created an API upon which anyone with enough skill can create interfaces to the network. These interfaces could potentially be apps, websites, and so on.
Aside from being decentralized, the other main goal of the project is to offer significantly lower transaction fees. Today, sending ERC-20 tokens requires transaction fees that are paid in Ether. The general rule of thumb is that sending ERC-20 tokens has a higher cost than just sending Ether directly.
Based on what we can find in the white paper, it appears that 0x is attempting to make something that, at least on the surface, looks like what the Lightning Network is doing for bitcoin. Specifically, it's offering a way to perform most of the heavy lifting off the blockchain.
In addition to being able to process lower-cost trades, the 0x network has another feature. Some users can choose to become what's called a relayer. These users participate by hosting a shared order book with other nodes, and propagating other important information on the network.
In exchange for participating in this way, they can earn 0x tokens from transaction fees. The amount of fees earned, or charged, is entirely up to the individual.
The team states that they think this type of economic model will lead to healthy competition and fair prices. The official website says that anyone can become a relayer. So it's possible that the requirements are low.
0x has a test version running now, but the full version is not available yet.
Who is behind 0x?
The group that is running the project is based in San Francisco, California. It is run by the two cofounders, Will Warran and Amir Bandeali. The two cofounders are supported by a large team of skilled people, such as previous employees of Apple, Twitter, Instagram, Facebook, and Qantas to name a few.
The project also has several advisors, including several high-ranking members of former members of Coinbase, and the founder of Augur, a prediction market that is also based on Ethereum.
Today, 0x tokens are trading for about $.70 each. The tokens have quite a large supply, with 500 million already in circulation, and a total 1 billion available eventually.
At their highest point, the tokens were going for $2.37. But prices have followed the general downward trend since January to reach where they are today. At its lowest point in early December of last year, the tokens were just $.23 each.
The majority of trade volume each day is occurring on the Binance exchange, followed by Poloniex with less than half the volume. In total the tokens are listed on 46 trading pairs among a number of different markets.
As the usage of ERC-20 tokens continues to grow, the demand for low-cost ways of moving them around and trading them will be inevitable.
While there has been word of Plasma-based solutions such as OmiseGO, a market that is entirely focused on ERC-20 tokens will likely offer several advantages over other decentralized markets that are not specializing in that field.
The team seems to be full of high-powered expertise, and they undoubtedly know what they're doing.
Token prices have seen a lot of volatility since they launched, but this is understandable as their main net launch still has not occurred yet. Quite likely, prices will begin to stabilize or at least follow a more linear trend once this happens.
Featured Image via Fotolia
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.