- DEXs using 0x protocol to create liquidity pools.
- 0x combines the best features of centralized and decentralized exchange systems.
- 0x aggregates DEXs and has a better chance than upcoming individual DEXs.
Analysis of Decentralized Exchanges (DEXs) by blogger Marc Howard has shown that nearly 20 percent of them rely on the 0x protocol, which can be used for trading Ethereum based ERC tokens and create liquidity pools.
After analyzing 258 exchanges and eliminating those that lacked publicly disclosed protocols, Howard revealed that the 0x protocol was the bedrock of 19 percent of the 188 exchanges that had a known protocol. This gives 0x the greatest market share among all the protocols.
0x Making the Waves
0x is an open protocol designed to offer decentralized exchange (DEX) services as part of the Ethereum blockchain involving Ethereum Smart Contracts. The 0x team believes that in future there will be thousands of Ethereum-based tokens and they are ready to offer them trustworthy and efficient services. 0x has been designed to be different from centralized and simple decentralized exchanges and offers a combination of their best features.
While centralized exchanges have overflowing cryptocurrency reserves, most DEXs are struggling with liquidity problems with very little reserves and the little liquidity makes trading almost impractical for users. An online publication puts it in perspective:
“Liquidity refers to the extent to which a market allows assets to be bought and sold at stable prices. Lower liquidity tends to result in a more volatile market… and it causes prices to change more drastically.”
With this being a major hindrance for most Decentralized Exchanges (DEXs), Howard noted that the 0x protocol has enabled DEXs to combine their liquidity pools and since 0x is already leading the pool, it is on its way to becoming the go-to place for shared liquidity pools.
Promising Future for the 0x Protocol
According to Howard, 0x’s dominance will promote the rise of major Decentralized exchanges in 2019, especially with the leading centralized exchanges like Bitfinex and Binance planning to launch their own decentralized exchanges, which may create a huge impact in the market. However, Howard believes that DEXs that aggregate DEXs are likely to win the day.
“Dexdex actually aggregates some of the orders of 0x relayers to add to its own virtual liquidity pool… Dexdex is like an aggregator of aggregators. Imagine being able to aggregate the liquidity of all DEXs. It’s not exactly a zero-sum game but an ever-expanding pie.”
A decentralized exchange (DEX) is a crypto exchange market that doesn’t rely on third parties to keep customer funds but instead allows trade to occur directly between users using a peer-to-peer automated process. There are other DEX solutions like atomic swaps but the 0x protocol will trail the blaze for decentralized exchanges.