Open Finance Fundamentals: 0x growing as a result of new relayers and NFT marketplaces

This report is part of a weekly series where we will explore the mechanics behind major Open Finance protocols and evaluate them on a fundamental basis. You can view prior reports here.

0x, one of the oldest DeFi projects, has been quietly building behind the scenes in 2019 and the results are starting to show. After volume dropped off to start the year, it has spiked since the spring after the current largest relayer, Tokenlon, went live. While the pace of growth has slowed down, the team has shipped prominent upgrades in v3 designed to increase liquidity through incentivizing market makers. These stake-based liquidity incentives reward market makers proportional to the protocol fees generated from their orders and their stake of ZRX tokens. In addition, v3 has provided liquidity bridges to allow DeFi projects to access on-chain liquidity from DEXs such as Kyber and Uniswap in addition to 0x's networked liquidity pools.

The top three relayers are all decentralized exchanges and account for 98% of the volume, however, that doesn't tell the entire story. If you look at the number of trades, they are dominated by NFT marketplaces such as God's Unchained in-game marketplace and TokenTrove (which trades God's Unchained and Cheeze Wizard collectibles). These marketplaces went live last month and demonstrate uses for the 0x protocol outside of cryptoassets speculation.

The v3 upgrade was a prominent milestone for 0x, significantly altering the token economics. Stake-based liquidity changes have helped bootstrap liquidity for projects such as Synthetix in the past, but the long-term viability remains a question. Now that the changes are live, 2020 will be a big year for 0x to prove it can compete in the increasingly competitive decentralized exchange space.