0x’s native token, ZRX , has two primary functions:
- The native ZRX token can be used to pay relayers.
- The native ZRX token can be used to establish a form of governance of the 0x protocol that is decentralized.
The hard truth is that ZRX tokens are not necessary for the current functioning of the protocol. Do note that the 0x is open-source (like many projects), it would certainly be possible for a third party to fork the 0x source code,remove the ZRX token, and replace it with ETH. Whether or not this is likely is an important topic of discussion.
Denominating fees in ZRX places a slight friction on first-time users of the protocol, who must acquire ZRX tokens prior to trading on a 0x relayer. Radar Relay , in an attempt to address this friction, allows users to trade ETH for ZRX with no fees. Due to the growing network effects in the 0x ecosystem, I don’t believe that users would switch to an “unofficial” ZRX-free forked version of the software. A much more likely scenario is that relayers find other ways of circumventing this friction, for example by not charging transaction fees at all and rather monetizing through alternative channels (e.g. how Robinhood offers free stock trades but profits on offering leverage and other products) or serving as market makers on their relay and building their fees into the spread. Because relayers have far less overhead than centralized exchanges, we’re expecting 0x-based relayers to offer much lower fees.
As competition among relayers grows, fees may be driven down even further— possibly even to zero. This scenario, which we regard as highly likely, would cause a sustained decline in the price of ZRX tokens, assuming no speculative price action. However, the ZRX token may derive its value from its second utility—as a governance tool for the protocol. The issue of decentralized governance has been one of the most widely discussed in the cryptocurrency sphere as of late. Many projects, including Tezos , which raised $232M in its token sale, have made governance a core feature of their platforms. The current block size debate in the Bitcoin ecosystem has highlighted this concern. Vlad Zamfir of Ethereum and Fred Ehrsam (formerly of Coinbase) have publicly expressed opposing viewpoints on this issue.
Several different governance systems are being explored:
● Stake-based voting by token holders
● Masternode voting (like Dash )
● Stake-based voting for elected decision makers (like EOS and Tezos )
● Stake-based voting for anyone who locks up tokens for an extended period ( Dfinity )
● Pseudo-random voting by token holders who purchase voting “lottery tickets” (like Decred )
The 0x team has not yet outlined exactly how they plan to implement decentralized governance. This is prudent given that decentralized governance is still experimental. The 0x team has said that they will be actively following developments and researching their own methods. While we don’t know how governance will be implemented in 0x, the need for protocol governance is obvious in order to prevent forking and fracturing liquidity pools.
If 0x is successful, the protocol will likely become responsible for a large percentage of total transaction volume on the Ethereum network in the near term. As a comparison, EtherDelta is one of the most widely used DApps in the Ethereum ecosystem, regularly comprising a significant portion of transactions on the Ethereum network. The Ethereum protocol itself is still in active development, and will continue to undergo major changes over time. Some have been outlined by the core development team, while other unforeseen changes may emerge in the future. As these changes occur, the 0x protocol will need to evolve and change in response. 0x also has proposed major features, such as cross-chain atomic swaps, that will be built in the future. These features would greatly increase the utility of the 0x protocol, and users need a way to decide upon when and how to integrate these changes when they’re technically ready.