Decentralized exchanges (DEXs) eliminate the need for reliance on middlemen when trading crypto assets online. Instead of a custodian holding and distributing funds, trades are made directly to and from participants’ crypto wallets using smart contracts.

However, DEXs can also face their own challenges. Generally, this involves problems with sourcing liquidity (available tokens for users to trade between).

0x solves this by offering a flexible API and infrastructure toolkit for DEX developers to aggregate liquidity sources for their decentralized exchanges. 0x’s API can be seen as the backbone underlying much of Ethereum’s DEX ecosystem with industry giants like MetaMask, Matcha, Augur, and more utilizing the 0x protocol for liquidity.

One key element of the 0x ecosystem is its native and powerful ZRX token. In this guide, we will cover what ZRX is and exactly what it can be used for.

What is ZRX?

ZRX is an ERC-20 (Ethereum) token and the native token of the 0x protocol.

The 0x protocol aggregates liquidity sources for decentralized exchanges through its API and developer toolkit. Many of the top DEXs running on the Ethereum blockchain today utilize the 0x protocol to access liquidity.

As we will see in this guide, the ZRX token is primarily a governance token, meaning holders gain the ability to vote on important updates and proposals related to the protocol. However, ZRX also has secondary use cases as a staking token and a means to speculate on the potential growth of 0x and the wider Ethereum DEX market that it serves.

ZRX Use Case: Governance

The ZRX token is primarily a governance token allowing holders to vote on 0x Improvement Proposals (ZEIPs). These are proposals regarding how the 0x protocol should implement changes over time. Each ZRX token is worth one vote, therefore the amount of authority and voting power a user has is proportionate to their total holdings of ZRX.

0x describes ZRX as “governing the exchange infrastructure of the internet.” Imagine the benefits of influencing the early infrastructure of the internet. Should decentralized finance and Web 3.0 continue to take off, 0x will likely continue to power a large share of its infrastructure. ZRX token holders are well-positioned to influence this early infrastructure for Web 3.0.

Voting currently takes place off-chain on the 0x website which allows users to vote without incurring gas fees (transaction fees on the Ethereum blockchain) which can be quite high. Instead, a snapshot of the Ethereum blockchain at the time of the vote is used to measure the number of tokens a participant has.

Treasury Governance

In addition to voting on protocol implementations, ZRX holders can also vote regarding the use of the 0x protocol’s treasury funds. The 0x treasury is intended to fund future projects which add value or improvements to the protocol and is fully controlled by ZRX holders.

Anyone who holds ZRX is eligible to apply either for funding from the treasury for their project or to use the treasury funds in some other way that will benefit ZRX holders and the protocol long term. Currently, there are over 10 million dollars in the available treasury, while more than 2.5 million dollars have already been distributed to projects deemed worthy.

ZRX Use Case: Staking

ZRX holders can also earn additional income on their initial investment by staking their tokens on the 0x website. When you stake your ZRX tokens you are lending them to a pool that provides liquidity to decentralized exchanges which run on the 0x protocol.

When users stake their ZRX tokens they can choose which pool they would like to lend to and subsequently which decentralized exchanges utilizing 0x that they will be providing liquidity to.

In exchange for staking your ZRX, you can earn a split percentage of the fees earned by trades made on the 0x ecosystem. Rewards to stakers are paid weekly with ETH (Ethereum) and are proportional to both the percentage of the pool the user owns and the percentage of total 0x trades the exchanges in the pool have facilitated.

One unique thing about staking with ZRX is that, unlike many other staking platforms which offer fixed returns, 0x staking rewards are dynamic. This means they rise and fall according to the volume of trades across the exchanges that your pool provides liquidity for. This underscores the importance of choosing the right pool when staking ZRX.

Currently, there is more than 62.95 million dollars worth of ZRX tokens being staked in 0x protocol liquidity pools.

ZRX Use Case: Platform Growth

As we have seen in this guide, the ZRX token is primarily a governance token that allows you to influence the future direction of the 0x protocol. 0x holders can also earn yields on their ZRX by staking their tokens in a liquidity pool.

The 0x protocol, meanwhile, is an API and infrastructure toolkit for DEX developers which allows them to aggregate liquidity from a variety of sources so that they can facilitate trades on their platforms.

Like other cryptocurrencies, ZRX can also be held as a bet on the future growth of the tokens’ underlying platform, in this case, the 0x protocol.

As the Defi world continues its astonishing growth, DEXs will continue to require liquidity to facilitate trades, and 0x is very well positioned to be the de facto infrastructure provider for liquidity on the Ethereum blockchain. This, in turn, could create significant demand for ZRX governance tokens, particularly by those DEX operators who rely on 0x and are most affected (both positively and negatively) by changes to the protocol.

If you are bullish on the continued growth of the decentralized finance ecosystem on Ethereum, or use the 0x protocol yourself and want to have a say in future developments, the ZRX token is one to keep an eye on.