What is 0x?
A popular alternative to centralized crypto exchanges (e.g. Coinbase) are decentralized exchanges, or DEXs, which facilitate crypto trades between wallets directly. DEX-powered transfers do not require intermediary custody of assets, which means users don’t need to have an account with the platform and there are fewer “steps” that could potentially be vulnerable to hacking attempts.
0x is a product launched by ZeroEx Inc., a company founded in 2017 by CEO Will Warren and CTO Amir Bandeali, and the 0x Core Team has grown significantly since. In 2018 the founders published their mission, “Create a tokenized world where all value can flow freely,” and they continue to quote that mission today.
0x is a a DeFi—decentralized finance—protocol that helps create DEX systems. DeFi project teams can leverage the open-source documentation and code hosted on 0x and integrate it into their protocols. 0x has created the infrastructure and smart contract technology to support the creation of an exchange, find liquidity to fund trades, and connect off-chain messaging (where matches are made) to the smart contracts that tell the blockchain to execute and transfer ownership of assets.
Off-chain messaging allows trades to be paired up prior to being mined on-chain, and this process is powered by 0x nodes or relayers. If using the 0x protocol, DEX users interact with nodes to make, fill, or cancel transactions, and pay small trading fees in exchange for this service. Node hosts are paid in ZRX tokens.
What is the ZRX token?
As with most DeFi protocols, 0x is a community-led project. ZRX is an ERC-20 token that serves primarily as the governance token for the 0x protocol. As mentioned above, relaying node operators earn ZRX, but the token can also be purchased and staked in order to participate in the voting process. A recent protocol proposal passed and added a delegation functionality to ZRX, meaning holders can delegate their ZRX tokens to market makers in order to also earn passive rewards from trading fees.
Initial distribution of the ZRX token happened when ZeroEx Inc., the entity behind 0x, held a public sale to raise funds to support the development of the project. In exchange for ETH, supporters received ZRX tokens.
How does ZRX compare to Bitcoin?
ZRX differs from Bitcoin in a few key ways.
First, ZRX is an ERC-20 token, meaning it is a token that runs on—and is backed by—the Ethereum blockchain. This means that ZRX does not have its own miners. Ethereum miners perform the task of processing and validating ZRX transactions, just like how Bitcoin miners process and validate bitcoin transactions. Rather than being mined on-chain, ZRX tokens were initially minted and distributed via token sale, and continue to be distributed by coded protocol rules.
The second major difference between 0x and Bitcoin is their age. 0x was launched in 2017 with a token sale (ZRX), compared to Bitcoin’s 12 or so years, which means the 0x project is less proven, less distributed, and has a significantly smaller market value than Bitcoin.
Similar to Bitcoin, a malicious participant or group of participants who gain enough control could negatively impact the value of the asset. If one person or an aligned group of ZRX holders decided to manipulate its development, they could draft a malicious proposal and vote it through (similar concentration risk to a 51% attack on the blockchain.)
However, it should be noted that, although ZRX is different from Bitcoin, it is far from independent from it.
Bitcoin, the coin with a larger market (by a long shot), can influence the price of all other cryptocurrencies. If Bitcoin crashes, there’s a good chance that ZRX will feel the burn too (not directly as they operate entirely distinctly, but through overall market sentiment.) And if Ethereum, the coin that powers the blockchain that supports ZRX, crashes, then ZRX’s price could be impacted. In addition, as a project that relies on the demand for crypto liquidity and trading, the 0x protocol and thus potentially ZRX’s value would react to any dramatic fluctuation in any prominent crypto asset’s value. However, if ZRX crashes, Bitcoin may be less likely to get hurt by virtue of its size.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about 0x, including an opinion that ZRX is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of ZRX prior to making it available on Wealthsimple Crypto and has concluded that ZRX is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated ZRX based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of ZRX, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created ZRX;
- The supply, demand, maturity, utility and liquidity of ZRX;
- Material technical risks associated with ZRX, including any code defects, security breaches and other threats concerning ZRX and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and
- Legal and regulatory risks associated with ZRX, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of ZRX.
Like all other crypto assets, there are some general risks to investing in ZRX. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure. Further, the 0x community is not under any legal or regulatory obligation to disclose material information to the public regarding its activities. Holders of ZRX have no recourse to ZRX or Wealthsimple if ZRX declines in value for any reason.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading ZRX. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc. dated June 18, 2021. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.
Last updated: July 26, 2021