A crypto exchange can be a lucrative business, especially when the market is active and trade volume — the total value of transactions — is sky-high. However, building an exchange from scratch is challenging because you need some level of liquidity, crypto assets that are kept in the exchange’s balance.
Without liquidity, any user of that small exchange will experience extremely volatile prices, whereas that won’t happen on bigger exchanges with deeper liquidity. 0x (pronounced “zero-X”) attempts to solve this problem using some clever transaction routing mechanisms to give traders the best prices possible.
Key Takeaways
- The 0x protocol was designed to serve as an open standard and function like building blocks for developers who need exchange functionality.
- 0x facilitates peer-to-peer exchanges of Ethereum-based assets, such as ERC20 tokens.
- ZRX is 0x’s native token used for governance and staking rewards to earn ETH.
- The 0x protocol is a large contributor to Ethereum’s rapid growth in the DeFi space, enabling developers to innovate new ways of leveraging blockchain technology.
👉 New to crypto? Learn the basics here.
Understanding 0x: A Framework for Building Exchanges
0x is not an exchange itself but a framework for building exchanges. It’s essentially a toolkit that developers can use to create their own exchange platforms. Developers can focus on front-end user experience, while 0x handles the backend processes like smart routing, transaction settlement, and liquidity aggregation.
Built in 2016, 0x has helped countless developers launch crypto exchanges. Many decentralized exchanges (DEXs) and NFT marketplaces use 0x behind the scenes, making it one of the most popular frameworks in the crypto space.
Examples of Applications Built Using 0x
- A decentralized market for any token, from Bitcoin to meme-coins.
- An NFT marketplace for digital collectibles.
- Trading bots that arbitrage tokens across different markets.
- Over-the-counter (OTC) trading desks for large-scale transactions.
0x is built on Ethereum, the most widely used smart-contract blockchain. It supports all Ethereum token standards, including ERC-20, ERC-721, and ERC-1155 for NFTs.
The Liquidity Problem and How 0x Solves It
Liquidity is a critical issue for small exchanges. Here’s why:
Traditional Exchanges vs. Decentralized Exchanges
Traditional exchanges use order books to match buyers and sellers. This works well in centralized systems but becomes costly and inefficient in decentralized environments due to double transactions and high gas fees.
Decentralized exchanges use liquidity pools, where traders interact with smart contracts instead of each other. Prices are determined algorithmically based on pool volumes. However, low liquidity can lead to extreme price volatility.
0x’s Solution: Aggregated Liquidity
0x connects multiple exchanges and liquidity providers, creating a shared liquidity pool. This ensures fairer prices across platforms and reduces volatility, making trading more efficient and accessible.
How to Use 0x (ZRX) Tokens
Governance
ZRX tokens are used for governance in the 0x ecosystem. Token holders can propose improvements and vote on protocol changes. Voting power is proportional to the amount of ZRX staked.
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Staking
Staking ZRX involves locking tokens in liquidity pools, such as Matcha, 0x’s proprietary exchange. Stakers earn passive income and contribute to the ecosystem’s liquidity. This helps new exchanges launch quickly without requiring massive capital.
0x (ZRX) Tokenomics and History
- Total Supply: 1,000,000,000 ZRX tokens.
- ICO: Raised $24 million in 2017.
- Funding: Additional $109 million raised across nine funding rounds.
0x was founded in 2016 by Will Warren and Amir Bandeali, who brought engineering and finance expertise to the project. The team has since grown, supported by investors like Polychain Capital and Pantera Capital.
Final Thoughts
0x is a powerful framework for building decentralized exchanges. It simplifies development by handling backend processes while enabling developers to focus on user experience. By aggregating liquidity, 0x ensures fairer prices and reduces volatility across platforms.
ZRX tokens play a vital role in governance and staking, supporting the ecosystem’s growth and sustainability.
FAQs
What is 0x used for?
0x is a framework for building decentralized exchanges, enabling developers to create platforms with aggregated liquidity and efficient transaction routing.
How does 0x improve liquidity?
0x connects multiple exchanges and liquidity providers, creating a shared pool that reduces price volatility and ensures fairer asset prices.
What is ZRX used for?
ZRX is 0x’s native token, used for governance, staking, and earning passive income through liquidity provision.