0x Project ZRX Token: Bullish, Bearish, Catfish?
In this article, I wanna talk about 0x Project and their governance token ZRX:
- What they do;
- What their token is; and
- Whether or not I’m bullish on this long-term.
If you’ve been looking at 0x and ZRX, then make sure to continue reading, because later in this article I’m going to be talking about where the value for ZRX comes from as well as making the very important distinction between 0x labs and the 0x protocol.
I’ve also made a video covering this topic and embedded it below. So if you’d prefer to watch/listen instead of reading, you can too!
Let’s do this.
Betting On Middleware
One of the core themes I’m keen to be invested in for 2022 is middleware.
Middleware is the operational infrastructure that supports applications. And if you’re betting on the growth of decentralised finance over the coming years, then it makes sense to be bullish on the infrastructure that powers DeFi apps.
Now I may be a little bit biased given that I’ve spent the last decade building this kind of software in the traditional finance space, but I do feel that it often gets overlooked, even though it’s vital to the day to day operations of the apps we use. And when these things gain critical mass they usually end up with a monopoly over their vertical. So in my opinion middleware is one theme to keep a close eye on for 2022. And today I want to cover 0x project in particular.
The DEX Takeover
More and more trading is being done on decentralised exchanges, but given the number of Dexes out there and how they function, it's only natural that there would be discrepancies in the price of any given token at any given time. This is where 0x comes in.
0x is a decentralised exchange aggregator API.
What this means is that 0x aggregates decentralised exchanges, letting you trade across almost all Dexes so that you get the best possible price and liquidity when buying or selling DeFi tokens. Now the API part just means that 0x provides this infrastructure to dApps so that they can build on top of it.
A good example of this is Matcha which was built by 0x Project to showcase their API. Matcha lets you trade all DEXs at once, finding you the best prices across exchanges and combining them into one trade. So instead of going to Uniswap or Sushiswap or any other Dex, you go straight to Matcha and it pulls quotes from as many Dexes as possible in order to execute your trades at the best possible price.
Of course, this is incredibly valuable to dApps which don’t want to waste time integrating with a tonne of decentralised exchanges. Instead, they can plug into one endpoint and offer their users the best trade prices. Leaving them to focus on building the core features that matter most to their users.
Another great thing about 0x is that it’s not just on Ethereum. It also aggregates trades from AMMs on BSC, Avalanche, Celo, Fantom and Polygon.
AND
They have access to liquidity that other aggregators don’t, through their own order book and private liquidity pools.
But it gets better.
The Launch Of 0x’s RFQ System
0x recently launched their own RFQ system. RFQ stands for request for quote. And it's basically a cross-chain OTC system for large traders.
What this means is that the 0x API not only aggregates on-chain pools but also requests real-time quotes from market makers on behalf of its clients. And this is the kind of infrastructure that sophisticated financial institutions will need as they enter the DeFi space.
Today 0x is used by MetaMask, DeFi Saver, RARI Capital, and Zapper. And that list is only going to grow as more builders begin to build in this space.
But what’s the catalyst that’s going to drive the future growth of 0x?
Well, the big one that I believe in is mainstream adoption. Credit to Adam Cochran for his megathread on ZRX which lead to this video and where he asks:
When mainstream users join this space, where do we send them?
The obvious answer is to wallets and aggregators like MetaMask, Zapper and Argent. It’s not like they can just jump straight into SushiSwap. So as more users come in, including retail and institutional, we can expect the volume transacted through 0x to increase. And as they say:
A rising tide lifts all ships.
What about where 0x stands today?
0x did over $100 billion dollars in trade volume last year. Yes, that’s billion with a B.
In fact, if I go onto their analytics right now I can see they’ve done over $600 million dollars in the last twenty-four hours. And that figure is only going to grow as we get mainstream adoption.
That sums up the bull case for 0x, but what about ZRX?
ZRX Token
It’s really important to make the distinction between 0x and ZRX. 0x Labs is the company and the project. ZRX is the governance and rewards token for the 0x Protocol. ZRX holders do not have control over 0x Labs.
So how do ZRX holders benefit from the success of 0x?
Up until recently, ZRX holders could stake their tokens with market makers to earn Ethereum rewards. But staking rewards have been paused whilst 0x experiments with their fee structure. And as far as governance and rewards go, these are pretty opaque when it comes to ZRX, which probably explains why the token price has taken a beating of late.
The current market cap is about $400 million. Compare that to SushiSwap which does a similar trading volume and has a market cap of $800 million and you’ll see why I think ZRX has potential.
BUT
The big difference is that Sushi has a clear fee distribution model.
So for ZRX to really take off, we need to see the team introduce a clear rewards structure for ZRX holders.
At the end of the day, 0x has massive potential, but we don’t know how much of that potential upside will be captured by ZRX holders. Personally, I see this as an asymmetric play where I’ve taken some small exposure, but I’ll be keeping a close eye on it.
That sums up everything I know about 0x and ZRX. I hope you enjoyed this article. As always, this is not financial advice! And do your own research!
