Analysis of 0x – The Protocol for Trading Tokens - Crush Crypto

Analysis of 0x – The Protocol for Trading Tokens

Summary

  • Project Name: 0x
  • Token ticker: ZRX
  • Websitehttps://www.0xproject.com/
  • Whitepaper: https://www.0xproject.com/pdfs/0x_white_paper.pdf
  • Hard cap: US$24 million (ICO contributors own 50% of total token supply if hard cap is reached)
  • Soft Cap: No soft cap
  • Conversion rate: Total of 1 billion ZRX will be created
  • Maximum market cap at ICO: $48 million if hard cap is reached
  • Bonus structure: None
  • ERC20 token: Yes
  • Timeline: August 15 for 4 days, registration opens from August 9 to 12 (please refer to 0x’s website and this blog post for most up-to-date information)
  • Token distribution date: Immediately after contribution
Watch our video summary (video is 9:51 long)

Project Overview

What does the company/project do?

0x is a protocol that facilitates the exchange of ERC20 tokens. Anyone or company can utilize 0x in the backend to operate a decentralized exchange.

0x protocol enables transactions of ERC20 tokens between users in a secure, trustless, feeless, and quick manner through the use of Ethereum smart contracts. Ultimately, every assets, including fiat, commodities, stocks, can potentially be represented as a token. 0x’s goal is to allow any Ethereum tokens to be traded efficiently.

Here is a presentation done by Will Warren, co-founder of 0x, explaining the concept of 0x (video is 48:45 long):

Centralized exchanges such as GDax, Bitfinex or Poloniex are vulnerable to hacks or security failures. All the exchanges also experienced downtime to a various degree as cryptocurrency rose in popularity in the past few months.

On the other hand, decentralized exchanges like Etherdelta and Oasis are slow and illiquid. Every action on those exchanges, such as posting, canceling an order, and the actual trading require gas to perform and time to confirm, which can slow down the entire trading process dramatically. This is not only inefficient, but also going to bloat the Ethereum blockchain.

0x combines the strengths and avoids the weaknesses of the two types of exchange by having off-chain order relay with on-chain settlement. Until the actual exchange of tokens, all the actions are done off-chain.

How advanced is the project?

0x was co-founded by Will Warren and Amir Bandeali in October 2016. An alpha version of 0x has been live on 0x’s private test network since January 2017.

In March 2017, 0x closed the seed funding round that was led by Polychain Capital.

In May 2017, 0x won the Consensus 2017 Startup Competition.

Version 1.0 of 0x protocol will be deployed to the canonical Ethereum blockchain after a round of security audits and prior to the public token launch. 0x will be using the 0x protocol during the token launch.

While 0x is a protocol, the team also built a product (0x OTC) that uses the protocol to showcase how the protocol works.

What are the tokens used for and how can token holders make money?

ZRX has 2 main utility functions:

  1. Governance – ZRX will allow holders to vote on changes to the 0x protocol. This is a critical feature since relayers will want to upgrade the protocol and use the same 0x contracts as other relayers in order to maximize liquidity. A governance mechanism decreases the chance of upgrade forks, allows an automatic upgrade of the contracts, ensuring consistency across users, and therefore permits efficient upgrades to the protocol.
  2. Relaying fees – Relayers will host off-chain order-books and matching engines to match orders of makers and takers (the users wanting to trade ERC20 tokens). Makers and takers being matched using the service will pay a fee to the relayer using ZRX.

Since a fee in ZRX will be paid for every transaction, the more transactions are being done on the 0x protocol, the more valuable ZRX should be.

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Team

0x has a team of 6. Most members of the team are software engineers, with one person in charge of operations and another in charge of design.

Will Warren, Co-founder & CEO – Previously worked at applied physics research at Los Alamos National Laboratory. Mechanical engineering at UC San Diego. PhD dropout.

Amir Bandeali, Co-founder & CTO – Former fixed income trader at DRW. Finance at University of Illinois, Urbana-Champaign.

0x has received funding from various venture capital firms including Polychain Capital, Pantera Capital, Blockchain Capital, Jen Advisors and Fintech Blockchain Group. As a result, 0x has a strong team of advisors including Fred Ehrsam, co-founder of Coinbase, Olaf Carlson-Wee, founder of Polychain Capital, Joey Krug, founder of Augur, and Linda Xie, product manager at Coinbase.


Opportunities

  • The problems that 0x is trying to solve benefit from decentralization. The risks pertaining to centralized exchange are some of the biggest factors preventing the wide adoption of cryptocurrency. The hacks at different exchanges are some of the biggest news that layman learn about cryptocurrencies and this is undesirable.
  • Network effect is in place for this project. The more usage the 0x protocol (exchanges) has, the more valuable ZRX is. This is because investors prefer exchanges with heavy volume and lower bid/ask spread.
  • ICO is a new trend that is gaining popularity very quickly. In July 2017 alone, $665 million was raised – that is twice as much money as was raised in the first five months of the year combined.
    • Among different ICO platforms, Ethereum is by far the most popular one. According to Coinmarketcap, 69 out of the 100 most valuable tokens are using the Ethereum platform.
  • 0x has already secured partnerships with promising projects including Ethfinex, District0x, Augur, and Melonport, among others.
  • The partnerships with established companies such as Bitfinex (for their Ethfinex spinoff) and ANX International (for their OpenANX spinoff) are especially exciting.
    • Bitfinex is one of the largest cryptocurrency exchange in the world, with trading volume in the past 24 hours reaching $250 million. If Ethfinex is remotely close to the scale of Bitfinex, ZRX will be receiving heavy usage from this exchange alone.
    • Bitfinex is starting to dabble into token trading with the addition of Santiment and Omise GO recently. It looks like the Ethfinex project is the next focus of Bitfinex.
  • Multiple blockchain-focused venture capital firms have invested in 0x, meaning that the project has already passed due diligence of those institutional investors.

Concerns

  • SEC regulations may have restrictions on exchanges operating in the US / for US citizens, potentially limiting the usage of 0x as certain ERC20 tokens are considered to be securities.
  • 0x only works for ERC20 tokens. If another smart contract protocol overtakes Ethereum in fund raising popularity, there may not be much demand for ZRX going forward.
  • It is not clear if 0x will apply to list their tokens on any exchanges. If they don't, then the only exchanges that will list ZRX probably going to be smaller exchanges such as Etherdelta or Liqui.

Conclusion

Overall, I like this ICO both for short- and long-term potential. The project, team, progress, and execution all look to be promising.

Aside from its investment merit, I am also rooting for 0x’s success because the project moves Ethereum forward as the leader of tokens and smart contracts.

Our thoughts of the tokens for short term and long term are as follows:

For short-term holding

Good because 1) the market environment is improving so it looks very likely that the $24 million hard cap will be reached, 2) the partnership with Ethfinex really helped the exposure of 0x, and 3) tokens will be distributed immediately after contribution.

For long-term holding

Good because 1) ZRX will have fairly strong demand right out of the gate with the partnership with Ethfinex, 2) I believe the prevalence of tokens is just getting started – in 5 to 10 years, the market could be orders of magnitude bigger than what it is now, 3) it looks like 0x’s protocol is better than the existing solutions, either in the centralized or decentralized space.


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This is the guide that help me find the most profitable ICOs!

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