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What is 0x

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What is it?

0x is an ERC-20 token (ZRX) or protocol for decentralized exchanges (DEX) on Ethereum network. 0x is a set of smart contracts that can be used by anyone. It is open-source and completely free to use. Developers can use the 0x protocol to build user-friendly decentralized exchanges. 0x is one of the first examples of that type of a protocol.

For 0x protocol to work properly a system must contain:

  • ZRX - a token that will pay fees.
  • Makers - order initiators.
  • Takers - order executors/collectors.
  • Relayers - parties who host order books and match makers and takers.
  • The 0x Smart Contracts - Ethereum accounts that execute orders on the blockchain.


How does it work?

0x utilizes off-chain order matching and on-chain trade execution. This allows for a large number of individual trades to be placed quickly without the blockchains knowledge for unfilled or cancelled orders. 0x accomplishes this through a novel form of private key-signed messages. Users who wish to conduct a trade create a message that includes specific parameters about the trade:

  • which tokens they’d like to trade,
  • the price and
  • the order expiration time.

This message is then signed by the user as authorization and broadcasted to the network. Once broadcasted, this order is open and can be filled by order takers (counterparties). Alternatively, the user can name a specific counterparty and send the order directly to that party to fill. The order can only be filled according to the parameters (mentioned above) set by the user that generated the order. When the taker signs the order, it is submitted to the Ethereum blockchain, where the trade is executed by the 0x smart contract. This means that the smart contract simultaneously takes balances from both parties (from maker and taker) and sends them to the counterparty at the exact same time. No third party must be trusted.

0x is an open source protocol for order discovery and execution. The 0x team aims to provide a real exchange with order books and liquidity. As such, the protocol incentivizes third parties to create channels, called “relayers,” for users to generate and broadcast these messages. 0x allows relayers to charge a fee, denominated in ZRX, for their services. While 0x offers the back-end infrastructure for decentralized exchange, relayers will provide the front-end services that allow 0x to compete with existing centralized services. One example of a relayer is Paradex.


The team behind 0x project

Will Warren (CEO) and Amir Bandeali (CTO) are the two founders who had an idea of further improving the cryptocurrency exchange experience. Both of them are active in R&D for smart contracts and have a great team and advisors, some of which worked with companies such as Coinbase and Polychain Capital.



How Centralized and Decentralized Exchanges Work?

Speaking of Coinbase, it is a prototypical example of one centralized exchange. The users first need to deposit their assets to the platform (which works pretty much like a bank). The platform then takes the responsibility of finding the buyer. This makes way for potential hacks and security breakdowns (which wasn’t a rarity in the past).

A decentralized platform is much safer but slower. This type of platform does not serve as intermediary and users send money directly (peer-to-peer). However, these transactions require a multi-signature escrow system which significantly slows down the transaction process.


How 0x Improves Decentralized Exchange?

0x improves the transaction experience by removing the problems that decentralized platforms have, yet retaining the security levels provided by them. Some of the main problems that 0x solves are that of slowness, illiquidity, and costliness.

The standard protocol used by 0x allows for the orders to be relayed off-chain. The main difference is that the orders are returned to the blockchain after settling and not with every transaction. This way, the miners are able to avoid the fees charged for authorizing transactions.

This is possible by introducing Relayers that broadcast orders using private and public order books. However, they cannot execute transactions without the maker and the taker submitting their signatures first.

The platform also offers the OTC system of trade. This is a direct peer-to-peer exchange without the need to use a Relayer. It is only possible when the maker knows who the taker is and can send a link to be filled by the taker via any medium.



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Interesting, this could really disrupt centralized exchanges. I heard bitfinex is making some kind of a spinoff about decentralized exchange?

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The road taken by 0x seems like the most obvious one in terms of the exchange platforms upgrade. It indeed makes the best of both worlds - the speed and ease-of-use of the centralized exchanges and the safety and convenience of the decentralized ones.

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