Some of you who have been around since 2017 or earlier remember 0x (ZRX), invested in it, and maybe still hold it, hoping it'll return to its previous ATHs and you can cash out with a profit, or at least break even. But is this justified or purely blind hope?
I took a closer look at the data and compiled the following fundamental and meta-analysis that I believe confirms many peoples' beliefs regarding 0x's decentralized protocol.
First of all, what even is 0x?
0x launched in 2017 to solve the problem of individual dApps needing to bootstrap their own liquidity. The problem was that not many dApps actually had any traction. To resolve their own problem -- and others' -- 0x launched 0x Labs, which churned out Matcha, a DEX aggregator.
The 0x protocol is used through decentralized exchange (DEX) aggregators for best-pricing on trades. Matcha offers the best prices, though you'll occasionally see slightly better prices on platforms like 1Inch, but those are misleading because they do not account for positive slippage, which you'll then lose trades' gains by losing 1 trade's slippage, similar to traditional bank 'hidden fees.'
So, like other popular DeFi aggregators like Uniswap, 0x is doing something similar, except it's been around longer and has been building around facilitating API volumes as well at lower costs than other DEXs. The team has recently stated that, in accordance with their roadmap, nothing has changed on their side to warrant FUD and they continue to make progress on the primary roadmap objective: adoption of the protocol.
Why does the ZRX token even exist?
0x protocol's native token (ZRX) is used for 3 primary reasons:
- Pay fees to the Relayers – those who create a decentralized cryptocurrency exchange using 0x protocol
- For the decentralized governance of the protocol
- Liquidity rewards system; liquidity providers (and tokenholders) are rewarded in proportion to how much ZRX they stake on the protocol
What are 0x's tokenomics?
In 2020, a 0x Market Maker served over 40,000 trades which collectively paid ~284 ETH in protocol fees. By using the 0x staking system, this market maker received back 576 ETH, nearly doubling the initial staked amount, not to mention 33% (189 ETH) was distributed to ZRX stakeholders.
How is this possible? Well, the system "also redistributes protocol fees paid on trades originated by users not registered as a staking pool. This generates a net 2x subsidy to all Market Makers serving Open Orderbook liquidity in 0x."
With that being said, Open Orderbook only constitutes a notional amount of the 0x daily trading volume (> $180 million in the last 24 hours). See here for a more detailed breakdown of 0x's volume, which is largely attributed to RFQ systems (Tokenlon, 1Inch PMM) and AMM aggregation via 0x's API.
With the upcoming 0x v4 release to boot, RFQ and AMMs will not be charged a fee to streamline these market models to the greatest extent. In 2021, 0x developers will be researching possibly implementing a fee model that accrues network value beyond open order book - where it works well.
See here for more data:
Why would I choose 0x over Uniswap?
In some ways, they are DEX competitors, are in many ways complementary. 0x is often misconstrued with an open order book-only model, "when in fact it sources from a superset of liquidity models (RFQ, aggregation, etc.) -- 0x is well-positioned to serve a variety of traders" and Market Makers. So?
"Fully algorithmic AMMs will always have a place in DeFi... but... I expect the majority of DeFi volume will become dominated by professional market makers..." As DeFi continues to mature, AMMs (Automated Market Makers) and professional MMs will each have their place in DeFi. Professional MMs will continue to appear in DeFi as the space grows - there is simply too much opportunity to generate profits. "When that happens, 0x will be well-positioned to serve professional MMs. It's inevitable - the only question is when."
For a more apples-to-apples comparison, compare the overall volumes of Uniswap vs 0x, it seems pretty apparent Uniswap is the leader of the DEX space. However, this is not necessarily telling the entire truth. If you consider that within the overall volume growth, 0x's API volume growth has significantly outpaced Uniswap over the last 2 months, the worst-performing API volume growth of the 7 DeFi platforms plotted. Meanwhile, 0x's API volume growth has been steadily increasing and is tied for third with Matcha.
Yes, Uniswap has deep liquidity. However, 0x is still providing value on those trades. It’s cheaper to trade with Uniswap through 0x than it is directly on Uniswap.io through Uniswap. 0x API provides a better price by splitting fills across DEXs.
You can also compare 0x vs Uniswap growth here.
Now, it goes without saying that obviously there is a world of difference in magnitudes. Uniswap had about ~$33.7 billion in volume during this period, whereas DeFi Saver (via 0x API) had $293 million and Zapper (via 0x API) had $140 million. The billion-dollar question is: Does this growth margin diminish over time, or do they continue to outperform?
If they continue to outperform, we may start to see Uniswap and a few others become a smaller piece of the DEX pie as 0x volume continues to grow. But why would they? It ultimately comes down to this:
Is a DEX interface a feature or a product?
If it's a feature and one that can be added through a simple liquidity endpoint, we start to see its fragmentation. As decentralized exchange fragments, a meta-DEX like 0x becomes the most critical layer.
2020 highlights from the 0x December Update:
- $9 billion in total volume traded on 0x protocol in 2020 (up 3,216% YoY)
- 0x API volume hit a weekly all-time high of $1.24 billion
- 1781.96 ETH (worth ~$1.93 million USD at time of publication) distributed to 0x market makers as liquidity rewards in 2020
This is a rough one. Like many altcoins that have not been pumped during a recent mini-alt season yet, ZRX is near its lows against BTC, in fact recently bouncing off a multi-year low of 0.00001 where ZRX last bounced in September 2019 when many alts faded into obscurity. However, that was the case for altcoins with no legitimate usecase, developer team, adoption, or reason to exist at all. This is not the case for ZRX. In fact, ZRX has been trending higher for over a month now, posting four positive weekly candles in a row despite Bitcoin weakness early in 2021. 0x isn't a sexy use-case or project for probably most investors who want a medium of exchange or a gambling token. However, like Ben from Parks & Rec's "it's not sexy but it's a rock solid business idea," ZRX has been generating hundreds of millions in revenue and is handling just as much in daily volume, even though other DEXs' APIs! It looks like ZRX is grinding higher toward the 50 Week EMA around 0.00002 where it'll likely face its first test of resistance. If ZRX can break above there, then we can start looking at higher resistance levels from 2020 and regain lost ground in satoshis. But first it's important to note that technically we have printed a higher high and higher low, which is encouraging to start. A lot of work to do from here but if this chart shows anything, it's that ZRX is dirt cheap right now if you believe in it.
The daily chart looks a little better as ZRX has already broken above the 50 Day EMA which is of course bullish, experiencing a bit of turbulence recently as it approaches the 200 Day EMA which will be a big test. If we can get continuation higher and a bullish divergence of EMAs soon, that will be technically very bullish for ZRX as macro investors and bots will turn their attention to ZRX which already has the fundamentals and now just needs the bullish indicators to start flashing. A break above 0.00003 should send ZRX higher to 0.00005, then the 2020 highs around 0.00008, then 0.0001. For good entries, you'll want to keep your eyes on the daily chart.
Price Target: $26.00 - $52.00 (currently $0.66)
ZRX's price peak occurred in June 2018 when it peaked around 0.00022 ZRX/BTC. That was when ZRX was less than 2 years old and was largely fueled by crypto mania and speculation as opposed to a functioning product and operable platform providing efficient services to millions of people for billions of dollars.
If we think ZRX can get to a similar price, say 0.0002 ZRX/BTC, then 0.0002 * my $130,000 BTC target between 2022-2024 = ~$26.
Of course, if Bitcoin outperforms my expectations and goes to, say, $150,000 or $200,000, then ZRX's 0.0002 PT would equate to $30 or $40, respectively.
But, that's assuming ZRX just performs the same; not better, when in fact it is operating very well and growing at an excellent pace, providing a ton of value to many platforms, exchanges, and traders, which may even warrant a higher price target. What about 0.0003 * $175,000 = $52.50!