Investing Idea: 0x (ZRX)

0x (ZRX)

On paper, it appears that 0x (ZRX/USD) is not going anywhere anytime soon. While we’ve been successfully trading the cryptocurrency early this year, our trades have been based on the crypto token’s accumulation range. In other words, 0x is neither bullish nor bearish and this is good news for the long-term investor. You can buy at dirt cheap prices while 0x continues to strengthen in fundamental terms.

Speaking of fundamental terms, the entire cryptocurrency market is far from a state where it is ready for mass adoption. For instance, buying and selling crypto tokens offer a less than stellar experience. An average Joe needs to first create an account in a centralized exchange before he can start trading his fiat currency into cryptocurrency. However, there are over 2,000 cryptocurrencies in circulation. On top of that, there are over 194,000 ERC20 compatible tokens.

Here’s the current situation: exchanges do not list all coins. If they don’t list many of the mainstream crypto tokens, then most ERC20 tokens are also not listed.

Therefore, the challenge of creating an exchange where people can have a seamless and trustless experience of trading most, if not all, cryptocurrencies including ERC20 tokens still remains. The challenge grows bigger considering that these Ethereum-based tokens are growing year after year as people find more assets to tokenize.

This is where 0x comes in. The open source protocol enables any developer to create a decentralized exchange where users can buy and sell ERC20 tokens without the intervention of a third party.

0x Value Metrics

  • Current Price: $0.347540
  • All-Time High: $2.53
  • All-Time Low: $0.103962
  • YTD Performance: +15.53%
  • Market Cap: $207.74 million
  • Market Cap Ranking: 43rd
  • ROI Since Launch: 211.07%
  • Primary Markets: HitBTC, Dcoin, Binance, Coinbase Pro

0x chart

Investment Case

To understand our investment case, a little background on ERC20 tokens will go a long way. ERC20 tokens are cryptocurrencies that are designed for use on the Ethereum platform. You can consider these tokens as a form of currency that can only be used in a specific decentralized application (DApp) running on Ethereum.

To illustrate how the system works, think of a casino as a DApp. The casino issues chips (ERC20 token) that you can use to play. The chips have value inside the casino but they’re worthless once you’re outside of the establishment. If you want to cash in, you’d have to find someone peer-to-peer or a counterparty through an exchange who is willing to make an offer for your chips.

The big problem right now is that the process of “cashing in” or finding someone who might be interested in your ERC20 token is as difficult as finding a needle in the haystack. Centralized exchanges list only a handful of ERC20 tokens such as OmiseGo (OMG), Basic Attention Token (BAT), and yes, 0x (ZRX).

As mentioned, there are close to 200,000 ERC20 tokens running on the Ethereum blockchain. These tokens represent a wide range of assets such as currencies, cryptocurrencies, company shares, loyalty points, real estate shares, gold shares, casino chips, gaming tokens, and so on.

ERC20 tokens
A glance on ERC20 tokens | Source: Etherscan

As more assets get tokenized, it is very likely that more people will speculate on the value of a specific token. For instance, a commercial lot is tokenized in the form of a CL token. Buyers receive CL tokens depending on the ratio of their investments. These CL tokens can rise or fall in value depending on the appreciation or depreciation of the commercial lot.

If you can see how asset tokenization works, then you’ll understand that it is very likely that there will be a huge market for people buying and selling tokenized assets in the form of ERC20 tokens. This is where 0x comes into play.

0x provides the protocol that can stand as the infrastructure where people can trade ERC20 tokens. When users trade, they use ZRX to process the transaction. Even though ZRX runs on the Ethereum platform, the cryptocurrency has managed to match centralized exchanges in terms of transaction speed by cleverly broadcasting trades off-chain through relayers. When the transfer is complete, the trade is settled on-chain.

The process of trading ERC20 tokens has been made easier with the release of the 0x OTC. The decentralized application makes it easy for you to trade your Ethereum-based token. Just input the token that you want to sell and the amount. Do the same for the token that you want to buy. The app will create a link that you can publish anywhere to find a taker. Best of all, this service is free.

0x OTC preview | Source: 0xProject

The Bottom Line

Asset digitization creates a new and bustling market for an open source protocol that enables people to buy and sell ERC20 tokens. The 0x OTC is just a start. Since the DApp is free, it will force decentralized exchanges based on 0x such as the DDEX, Radar Relay, and Paradex to step up and provide a platform that attracts users. With more users flocking to decentralized exchanges based on 0x, the higher the demand for ZRX.
This is our investment case for 0x (ZRX).

Disclaimer: The author does not own 0x (ZRX). 
Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.