A survey of decentralized exchanges by blogger Marc Howard has shown us that nearly one-fifth depend on the 0x protocol. This protocol are useful to trade Ethereum-based ERC-20 tokens and make liquidity pools.
Howard analyzed 258 exchanges, discarding several that did not have publicly disclosed protocols. His survey said 0x was the cornerstone for 19% with the 188 exchanges using a known protocol – giving 0x an improved share than each and every protocol.
As such, 0x may become a power in the world of decentralized exchanges.
Solving Liquidity Problems
Decentralized exchanges allow users to maintain custody over their coins, providing a noticeable difference over centralized exchanges?which maintain therapy for their users allowing it to even prevent them from accessing their own.
Unfortunately, most DEXs face liquidity problems. Centralized exchanges have extensive reserves of cryptocurrency, while DEXs have very little in the way of reserves. This implies DEXs have little liquidity, making trading relatively impractical for users. As CoinDesk explains:
“Liquidity implies extent to which a market allows assets to become bought and sold at stable prices. Lower liquidity usually result in a more volatile market… and also it causes prices to move more drastically.”
This is known as a major problem for decentralized exchanges. However, as Howard notes, the 0x protocol allows DEXs to blend their liquidity pools. Since 0x is now leading those, it may get the standard for liquidity pools who are shared between exchanges.
The Rise of DEX Aggregators
Howard predicts that 0x’s dominance will cause the rise associated with a major DEX in 2019, also it may not be a bed that everyone is expecting. Leading centralized exchanges that include Binance and Bitfinex has decided to launch the decentralized exchanges, which are widely most likely to make a huge impact.
However, they may not be able to beat the combined powers of other DEXs. Howard argues that DEXs which aggregate other DEXs will require prominence. 0x’s widespread adoption will certainly make it simple for DEXs to layer on their own top of each other well, essentially allowing only one DEX to encompass the different others:
“Dexdex actually aggregates most of the orders of 0x relayers to improve its own virtual liquidity pool- Dexdex is definitely an aggregator of aggregators. Imagine the capacity to aggregate the liquidity of most DEXs. It’s not exactly a zero-sum game but a consistently expanding pie.”
Howard notes that there will be challenges: effective marketing and user experiences shall be necessary to beat Binance’s popularity and onboarding of existing users. He predicts that this most popular DEX should have “aggregate liquidity” and “a killer UX” on par with Coinbase.
He also admits that other DEX solutions similar to atomic swaps may provide viable alternatives. Nevertheless, it certainly entirely possible that the 0x protocol will spearhead the rise of decentralized exchanges.