The 0x (ZRX) protocol is an open and permissionless platform for trading ERC-20 tokens on the Ethereum (available on Coinbase) blockchain. ZRX uses both a messaging format for trade settlement and a system of smart contracts for a decentralized governance module. While the protocol is less of a decentralized exchanged (DEX) in itself, ZRX provides the architecture for DEXs, known as relayers, to be developed.
Relayers using the 0x protocol generate and manage order books off-chain. In doing so, they can charge maker and taker fees, take advantage of the order book spread between tokens, charge listing fees for certain tokens, or include any other fees they wish, paid in ZRX. Ideally, relayers compete to attract users by providing a better user experience or a more enticing fee structure, perhaps by providing a referral program.
The 0x protocol has spawned over 10 relayers, including; DDEX, RADAr Relay, ETHfinex, and The OceanX (currently in beta). All relayers are currently less than one year old. In total, these relayers have completed over 100,000 trades with an average daily volume of US$4 million, and a total of over US$183 million in volume since inception. The top relayers by volume, DDEX and RADAr Relay, currently only account for ~0.02% of traditional CEX volume.
Source: https://blog.0xproject.com
Source: https://0xtracker.com
The main advantage of Relayers, and DEXs in general, is that there is no custodial risk. Over US$1 billion has been stolen from CEXs in exploits, hacks, and thefts. With 0x relayers, users manage and maintain the security of their funds entirely on their own. DEXs are predominantly used for crypto-to-crypto trading, and not on-ramping from fiat to crypto.
Trading can occur directly through a Ledger hardware wallet or MetaMask software wallet, without the need for Know Your Customer or Anti Money Laundering processes (KYC/AML). As much as the cypherpunk ETHos wants to eschew KYC/AML regulations, institutional investors cannot trade on unregulated exchanges.
Will Warren, co-founder of the 0x project, addressed institutional trading in a recent post on creating permissioned liquidity pools, where token addresses must meet specific requirements that enable the enforcement and adherence to KYC/AML regulations. This is achieved through opt-in smart contract filters, which are set for release in version 2 of the ZRX protocol. With an increase in institutional trading, or market making, liquidity problems may diminish, and users might switch from a CEX to a DEX.
The 0x team continues to hone in on what exactly decentralized governance might look like. First, 0x’s goal is to create a community curated standard reference for on-chain token metADAta. This registry is currently centrally managed by the 0x core team. Next, the team plans to launch a community veto option where upgrade proposals can be submitted by the 0x core team and vetoed by ZRX holders. In the future, a type of delegative democracy is proposed where deleGates could be assigned by ZRX stakeholders for voting power on protocol changes.
Version 2 of the protocol, slated for a June/July 2018 release date, brings support for new token standards such as ERC-721, and a frictionless trading widget. ERC-721 enabled the birth of non-fungible tokens (NFT), such as CryptoKitties. The widget allows for direct trading of ERC-20 tokens or NFTs without the user needing to engage with a 0x relayer.
There are also efforts being made to make a wrapped ETH standard, as relayers currently rely on an ERC-20 compliant derivative of Ethereum (available on Coinbase) (ETH) called Wrapped ETH (wETH). As decentralized platforms running on Ethereum (available on Coinbase) use smart contracts to facilitate trades directly between users, every user needs to have the same standardized format for every token they trade.ETH doesn’t conform to its own ERC-20 standard and therefore needs to be exchanged for wETH in a smart contract. Changes or improvements upon the ERC-20 standard, including ERC-223, may also affect or change the wETH process.
Exchange traded volume of the 0x token is largely led by the Bitcoin (available on Coinbase) (BTC) trading pair, followed by the TETHer (USDT) and Ethereum (available on Coinbase) (ETH) pairs on Binance, OKEX, and Poloniex.
Technical Analysis
ZRX had a 300% bull run after April first, fueled by speculation around Coinbase using the protocol. CEO Brian ArmsTron (available on Binance)g hinted at this in his latest blog post regarding decentralized crypto-to-crypto trading. Developing a competitor to ETHfinex and Binance, or directly acquiring a relayer like RADAr Relay, remains a sTron (available on Binance)g possibility.
A Coinbase announcement may coincide with the release of v2 of the 0x protocol which enables KYC/AML via trading registries. Based on the promising fundamentals of the project, technicals largely take a back seat until Coinbase confirms or denies using the protocol for their own exchange.
The status of the current trend can be made using Moving Averages and Ichimoku Cloud. Further background information on the technical analysis discussed below can be found here. On the twelve hour chart, the 50 and 200 Exponential Moving Averages (EMAs) are bullishly crossed with price above the 200EMA, suggesting an active bull trend. Price will likely find support near the 200EMA at US$1.072.
Turning to the Ichimoku Cloud, there are four key metrics; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.
The Cloud metrics on the twelve hour time frame are; price in Cloud, bullish Cloud, nearly bearish TK cross, and Lagging Span below price and above Cloud. These signals are mixed but leaning neutral to bearish. A bearish TK cross above the Cloud signifies a long exit. A long re-entry would not be warranted until price is above the Cloud with a bullish TK cross.
On the six hour chart, the Ichimoku Cloud metrics are all freshly bearish; price is below Cloud, Cloud is bearish, TK cross is bearish, and Lagging Span is below Cloud and price. Buyers will be looking for the price to be above a bullish Cloud, and a bullish TK cross.
Lastly, also on the six hour chart, price has formed a falling wedge pattern. This price structure and declining volume suggests a bullish reversal with a 1.618 fib extension of US$2.62. Although, according to chart pattern king Thomas Bulkowski, “the falling wedge is a very poor performer as far as bullish chart patterns go.”
Conclusion
Fundamentals suggest that the NAScent ERC-20 protocol is slowly developing more and more technical infrastructure to support high volumes trading activity. Relayers continue to come online, trading volume continues to grow, and plans for regulatory compliant trading will be released soon. When a relayer enables shorting and margin trading with readily available stable coins, similar to the available CEXs, liquidity and institutional trading on these platforms should flourish.
Technicals show the end of a low timeframe bull run and a return to the mean of the trend. A bullish break of a falling wedge with price above Cloud would be an ideal long entry signal.