0x (ZRX) has dropped 73% since the announcement of a confirmed Coinbase listing came in mid-October. The crypto asset is also down 88% from the record high established in January 2017. The market cap currently stands at US$164 million with US$6.99 million in trading volume over the past 24 hours.
The ZRX protocol is an open and permissionless platform for trading Ethereum tokens, and is designed to power decentralized exchanges (DEXs). ZRX provides the architecture for DEXs, known as relayers on the ZRX platform. The rise of DEXs is, in part, a response to more than a US$1 billion lost through centralized exchange hacks that have occurred in crypto over the past 10 years.
ZRX uses a messaging format for trade settlement and a system of smart contracts for a decentralized governance module. Decentralized governance was included in the protocol in an attempt to reduce the friction associated with upgrades and any platform downtime. Relayers can use the ZRX token to approve or disapprove potential future upgrades. This process can also decrease the circulating supply, and increase the token value. However, this model does not prevent relayers from forking the ZRX protocol should they wish to implement their own changes. or if they disagree with changes implemented by the ZRX core team.
The protocol was founded by engineer and self-proclaimed U.C.S.D. Ph.D. dropout, Will Warren, and a former fixed-income trader, Amir Bandeali, neither of which has a body of technical work experience. Bandeali previously worked for one of the leaders in Over The Counter (OTC) for cryptocurrency trading, DRW.
Notable project advisors included Joey Krug, co-CIO at Pantera Capital and founder of Augur, as well as three Coinbase alums; Fred Ehrsam, co-founder of Coinbase, Linda Xie, co-founder of Scalar Capital and Will Warren's wife, and Olaf Carlson-Wee, founder of PolyChain Capital.
The ZRX token ICO occurred in August 2017, when 500 million tokens were sold, raising US$24 million. One billion tokens were created in total. The remaining 50% were split between the 0x company, a developer fund, the founding team, early backers, and advisors. Tokens allocated to founders, advisors, and staff members were locked up in a 4-year vesting schedule. Although there was no pre-sale or reservation agreements, PolyChain Capital lead an early seed round which covered legal fees. The ZRX team continues to hold 29,600ETH in their treasury, currently valued at US$2.5 million. At least half of the treasury was spent throughout 2017 (red bars). There have been no large sells or wallet transactions recently.
Source: https://app.santiment.net/projects/0x
In September, ZRX released V2 of the protocol which brought several new features including; the 0x Portal, Non-Fungible Token (NFT) support (ERC-721), increased order matching efficiency, and the option for permissioned liquidity pools, where token addresses must meet specific requirements that enable the enforcement and adherence to KYC/AML regulations. The company Wyre has also been working with DEXs to help integrate a KYC token, as well as a fiat to Dai on-ramp. DEX legal compliance was thrust into the spotlight in November when the U.S. Securities and Exchange Commission fined the founder of EtherDelta, a non-ZRX DEX, US$388,000 for operating an unregistered national securities exchange.
Source: 0xproject.com/portal
Earlier this month, the ZRX team announced 0x Instant, which enables crypto purchasing on any app or website with a few lines of code. Instant is open-source, configurable, and allows hosts to earn affiliate fees on every transaction. The process works by aggregating liquidity from 0x relayers and finding the best price for the purchaser. The transaction occurs with ETH through MetaMask, Ledger, Trezor, or any other Ethereum wallet. 0x has also attracted NFT marketplaces, like Emoon, to the family of relayers, which also have 0x instant enabled.
Over the past year, total USD network volume across all relayers has increased but remains far from consistent or sustained. However, the number of trades on ZRX relayers have more than doubled since late October (not shown). Of the 13 DEXs tracked, Paradex and DDEX lead by trade volume and the number of trades respectively. The most popular token traded between all Relayers is Wrapped ETH (wETH), an ERC-20 compliant derivative of ETH, followed by Dai, a USD stablecoin.
Source: 0xtracker.com
Transactions per day (line, chart below) spiked dramatically through October and early November, likely due to speculative demand and/or transactions from a Coinbase listing. Transactions per day have now stabilized to ~1,500 per day. The average transaction value (fill, chart below) has trended down over the course of the year and is sitting near yearly lows.
The lack of ZRX token transactions is a result of the lack of importance of the ZRX token itself. The ZRX tokens are almost purely a speculative vehicle and are not required to trade on Relayers. Without any pending governance decisions or ZRX denominated fees, Relayers themselves have no reason to hold the token. Co-founder and CEO Will Warren has discussed this issue, including the possibility of Relayers adding a staking feature to decrease user fees, as well as the ZRX team focusing on long term value creation rather than short-term token price increases.
Source: coinmetrics.io
The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) has fallen dramatically to around ~30 over the past few months. The inflection point in NVT in mid-October also corresponds with the start of the sharp drop in price since that time. A clear downtrend in NVT suggests the coin is undervalued based on its economic activity and utility, which should be seen as a bullish price indicator. Although historic data is minimal, a low NVT should also be an indicator of an undervalued asset.
Daily active addresses (fill, chart below) increased dramatically throughout October and early November but have declined by half since almost reaching new all-time highs. This rise in active addresses corresponds with the Coinbase listing in mid-October. Active and unique addresses are important to consider when determining the fundamental value of the network using Metcalfe's law.
Source: coinmetrics.io
Turning to developer activity, 48 developers have contributed a cumulative 5,043 commits to the ZRX repos in the past year. Most coins use the developer community of GitHub where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest. Most of the ZRX related commits have occurred in the 0x-monorepo repo (shown below).
Source: https://github.com/0xProject/0x-monorepo/graphs/contributors
ZRX exchange traded volume has been led by the Bitcoin (BTC) and Ethereum (ETH) pairs on BitMart, Binance, and Coinbase. ZRX has had a slew of exchange listings over the past few months. In September, OKCoin.com announced new ZRX/USD, ZRX/BTC, and ZRX/ETH markets. In August, Poloniex listed a ZRX/USDT pair and KuCoin listed ZRX/BTC and ZRX/ETH pairs. In mid-October, Coinbase listed ZRX/USD, ZRX/EUR, and ZRX/BTC pairs. Earlier this week, Bittrex listed a ZRX/USD pair, in addition to the already existing ZRX/BTC, ZRX/ETH, and ZRX/USDT pairs.
Technical Analysis
With the ZRX/USD price pushing all-time lows, value speculators will begin to take an interest. Knife-catching, or attempts to buy the bottom of a trend, can be profitable if done with discipline and patience. To determine entries and exits throughout a trend, as well as the potential for trend reversal, exponential moving averages (EMAs), chart patterns, divergences, and the Ichimoku Cloud can be used. Further background information on the technical analysis discussed below can be found here.
On the twelve hour chart, the 50/200EMAs have been bearishly crossed since November, resulting in a 60% price decline. The 200EMA should act as both a magnet and strong resistance for price if a mean reversion attempt is made. There are active and growing RSI and volume bullish divergences as price continues to make lower lows on less momentum and less volume. Additionally, a Falling Wedge chart pattern with a descending volume profile has formed.
On the six hour chart, the Falling Wedge can be seen with a descending volume profile. Falling Wedges have a bullish bias and indicate bearish exhaustion. Hallmarks of a Falling Wedge include a series of lower highs and lower lows formed in a shrinking range. Triangles and Wedges typically break support or resistance after completing at least three-quarters of the pattern. The Wedge yields a 50% retracement target of US$0.42.
Turning to the Ichimoku Cloud, four metrics are used to determine if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.
The status of the current Cloud metrics on the twelve-hour time frame with doubled settings (20/60/120/30) are bearish; price is below Cloud, Cloud is bearish, TK cross is bearish, and Lagging Span is below Cloud and below price. A traditional long entry will not trigger until price is above the Cloud with a bullish TK cross, which has not been the case since October. The historic volume profile (horizontal bars) also suggests heavy resistance near US$0.43, with an average of all volume (red horizontal line) at US$0.72.
Lastly, on the ZRX/BTC pair, the picture is also bearish but with much less fervor. On the twelve hour chart, the Cloud is bearish but price has held above local lows over the past month. A thick Cloud with a flat top has formed, suggesting a potential Edge to Edge trend reversal trade to 12,000 sats. The long entry for the Edge to Edge trade occurs at the 9400 sat level with a likely pit stop around 10,500 sats at the 200EMA.
Conclusion
Fundamentals have been skewed in recent months by the addition of the ZRX token to the Coinbase platform. Token use appears to have increased significantly, but upon further investigation, this is all likely related to ZRX speculation alone. Although the ZRX core team continues to actively develop the protocol, as well as additional features, retaining token value remains elusive. Users and relayers are no longer required to hold the ZRX token to trade on any ZRX platforms. Furthermore, relayers are more and more likely to fork off of the ZRX protocol entirely as the need for the token has decreased substantially in recent months. Relayers leaving ZRX, as well as a lack of governance structure for the protocol, yields a bearish outlook in the near term as organic demand is all but non-existent.
Technicals show a sustained bearish trend following the Coinbase listing, as well as a broader downturn in the crypto market. Although price is currently near an all-time low, there are signs of a bullish relief rally in the near term due to the formation of a Falling Wedge with bullish oscillator divergences on descending volume. Targets for the reversal will likely find resistance between US$0.40-US$0.50 with a long-term resistance target at the psychological level of US$1.00.