A decentralized exchange protocol called 0x has raised an undisclosed sum as part of a bid to serve the rapidly growing economy of tokens being created on the ethereum blockchain.
Polychain Capital, Blockchain Capital and Pantera Capital, along with Chinese investment firms Jen Advisors and FBG Capital, all participated in the unusual investment round, announced today, in exchange for a 30% discount on its future tokens.
But those involved know that a decentralized exchange designed to function as a universal, shared order book is only as powerful as its users.
So, in an attempt to get a jumpstart on other decentralized exchanges, 0x co-founder and CEO Will Warren explained that, despite the VC funding, the exchange will be operated as non-profit foundation.
Warren told CoinDesk:
“We don’t extract any value from people who use it. Essentially, it’s an open protocol. We don’t extract value from people who use this protocol, and people can build their own applications on top of it however they please.”
Early investors and advisors include Coinbase co-founder Fred Ehrsam, Augur co-founder Joey Krug and Coinbase product manager Linda Xie. Further, the Zug, Switzerland-based project has revealed partnerships with token projects Augur, Melonport, Maker and Aragon.
Last week the firm made its first hire, an engineer, who will help design 0x to support all ethereum assets that use to the ERC20 token standard. By integrating with the decentralized exchange, Warren hopes that app builders will be able to let their users conduct transactions in other cryptocurrencies without leaving the app.
For example, in a similar way that Facebook Messenger lets users hire a Lyft ride without leaving the application, the idea is that a Melonport user could make a prediction from the Augur decentralized application (dapp) without having to visit the other site.
On a technical level, this means 0x plans to introduce a process called “token abstraction” to obfuscate smart contract interactions between app tokens and the blockchain, making it appear to end users that they are only paying fees in ether.
What about the competition?
But while 0x will likely make a big splash with its list of well-known investors, it is not the only company aiming for decentralized exchange hegemony.
Already, Ether Delta, iDex, Maker Market (now Oasis Dex) and Shapeshift are building exchanges with similar functionality.
Unlike more traditional economic systems that benefit from competition that drives down price and increases efficiency, the founder of Polychain Capital argues that in the world of decentralized exchanges, there will likely only be one.
Comparing 0x to more centralized exchanges Gemini, Kraken and GDAX, the latter run by his former employer Coinbase, Olaf Carlson-Wee said a single, well-crafted decentralized exchange would move all the liquidity to one place — making it more attractive to users — without the risks of centralization suffered by Mt Gox and others.
“The world is the most efficient if everyone is on one order book,” said Carlson-Wee, adding:
“The price is the most accurate, there’s the most liquidity, there’s the least volatility. For all participates it’s a superior experience with there being a single order book and a single execution engine.”
Decentralized resilience
But as the failed decentralized ethereum investment platform known as the The DAO made clear, just because something is decentralized that doesn’t assure it is safe from attack.
To help ensure the resilience of 0x founder Will Warren says the firm will use 100% the money from the investment and a corresponding future token sale to build open source software tools and infrastructure that supports the ecosystem.
Warren concluded:
“What we’re building is essentially a completely open, publicly accessible piece of infrastructure.”
0x logo via website; Wishing well via Shutterstock
