BMJ Score: 4.5
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Should you invest in 0x, the token for building decentralized exchanges on the Ethereum blockchain? Here's what Bitcoin Market Journal analysts have to say about 0x investing.
What is 0x?
0x is a protocol that allows developers to create decentralized cryptocurrency exchanges. A decentralized exchange is one in which no central party oversees trades. This feature makes decentralized exchanges different from centralized exchanges like Coinbase, which require users to work through a central party in order to buy and sell cryptocurrency.
To be clear, 0x itself is not a decentralized exchange; it's a foundation upon which decentralized exchanges can be built. Several have already been created using 0x.
Market and Advantage
There are a number of cryptocurrency exchanges in existence. Most are centralized. 0x has a clear advantage over these in the eyes of many users, since its ability to support decentralized exchanges adds privacy and security.
That said, 0x is not the only decentralized exchange platform. Competitors exist, such as EtherDelta and OmiseGO. These platforms are currently in a race with each other to achieve mass adoption, and it is not yet clear who will win.
0x has some significant advantages within the decentralized exchange market:
- 0x is building on top of Ethereum, which is well established.
- 0x was one of the first projects in this niche, which gives it a lead-time in advantage.
- 0x combines off-chain orders with on-chain execution of contracts in a unique way in order to speed transactions. Its technology thus gives it a leg up over competitors.
- 0x has prominent partners, such as Radar Relay.
0x also benefits from a strong management team. Part of its team are former employees of Coinbase, the best known and best-established cryptocurrency exchange.
In addition, 0x has a particularly large technical team with extensive experience in open source development.
0x's greatest risk is its token. The token is used to pay transaction fees to relayers on the 0x network.
While this role establishes a clear purpose for the token, the risk is that it is unclear why a custom token is necessary for this purpose. Relayers could also be paid using standard Ether tokens.
For this reason, it is unclear whether the token will hold its value in the long term. The token's liquidity is also somewhat uncertain; if not enough people see the point of the token to purchase it in large quantities, it will be hard to sell the token, leading to liquidity problems for 0x investors.
Overall, Bitcoin Market Journal analysts believe 0x is a good investment target, especially in the short term. There is a strong buzz factor surrounding 0x, and there are rumors that it will become part of Coinbase. The platform has a strong open source codebase. Additionally, demand for decentralized exchange solutions is poised to grow as more and more people invest in cryptocurrencies and seek private trading solutions.
In the longer run, our analysts are more bearish on 0x's potential, due mostly to the risks associated with its token. The platform has yet to prove the need for a custom token for paying relayers, and until that question mark is addressed, the long-term value of 0x is difficult to assess.
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