Tian Li of DDEX, the second biggest decentralized exchange running on ethereum and the ox protocol, has announced they are forking ox and they are removing ox’s token, ZRX. He said:
“0x expanded its surface area enormously, covering non-fungibles, instant exchanges, governance, and much more.
Although we were thrilled to see 0x tackle such a wide range of important issues, our perspective of what’s most urgent diverged.
Being on the front-lines, it is painfully apparent that most DEXs today still are plagued by rudimentary problems such as order collision, front-running, and poor liquidity.
After much deliberation, we’ve decided to fork the 0x protocol…
The ZRX token will be removed as well, because fee-based tokens create unnecessary friction.”
This is the first high profile fork of an ICO-ed project. More importantly, it is the first time the token has been removed, placing in question the value proposition of some tokens. Will Warren of ox said:
“Our long-term goal is for ZRX to drive a governance process in which ecosystem participants securely execute protocol upgrades and manage a community treasury. Ultimately, the role of ZRX may evolve through community governance to adapt to changes in the greater crypto landscape.”
Meaning this is basically a share with voting rights. Presumably ZRX holders would also get some dividend probably based on some fee to be paid by 0x users. If such 0x users, however, have the option of using an alternative clone without the fee, then presumably they would.
It is unclear whether 0x was aware of these announced plans to fork it, so their statement might have been rushed. It thus lacks some detail, such as how exactly do ZRX holders “manage a community treasury?”
The innovative way of doing that would be to hold the funds in a smart contract, with them movable based only on whether the token holders say yeay or nay. That would address some general corporate governance issues and would increase the level of trustlessness say in regards to whether a team can abscond with the funds.
That, however, runs the risk of some clever kid finding a bug that allows him to take all the funds. So it is probable that by “manage a community treasury” they mean hold an advisory vote where token holders don’t have custody of the funds, so can’t make the vote binding at a code level.
That would bring questions of trust into the matter because token holders wouldn’t have an easy way of verifying how the money is being spent. Meaning there would need to be audited accounts, quarterly or half yearly reports and so on.
A bigger problem would be the business model. If ZRX is not needed beyond as just a tokenized share, then where would profits come from, and thus ZRX’s value?
In the traditional world, there would have been some sort of patent or copyright whereby you can’t just copy someone else’s intellectual property and give it out for free. That’s because it took some time, resources, and effort to create that intellectual property, so they should be compensated for it.
Meaning the law effectively would have forced users to have no choice, but to pay the ZRX fees. Unless obviously they’re poor students or whatever and pirate it, which can be fine if they can’t actually afford the good or service as that keeps a balance between the need for compensation and the need for open access.
Here, however, ox is open source so there is nothing to prevent someone like Tian Li from getting the goods for free and then basing a business model on those freely provided goods whereby DDEX can now charge its own fees, but not ZRX’s, so making it more competitive compared to ZRX based dexs.
Had the ox team utilized some basic analysis to ask what if what has happened, happens, then they may have claimed some property ownership over their work to force Tian Li to pay them a fee based on a percentage of fees DDEX charges their users.
So addressing this probably reasonable concern of the token creating friction while at the same time having a business use case that doesn’t affect users as the revenue/profits come from a business to business model.
Now obviously much of what we said is controversial for some and in some cases rightly so. If legal barriers are placed on what is effectively a smart contract, then the smart contract would lose some synergy.
It probably wouldn’t be too difficult, however, to word such legal barriers in such a way as to strike a balance between what may effectively amount to cheating and what may be more of an added value incorporation of ox or the building on top of it by some cool kid.
Otherwise without some profit motive there would still be open source protocols/projects for name and fame or on idealistic grounds or to hone one’s skills, but they wouldn’t have the pressure of satisfying user demands or of being accountable to token holders.
Leading to products like GIMP, which is fine, but has tiny little annoyances which it shouldn’t have probably because fixing them is boring compared to more exiting cool things of little use to anyone. As there is no one to tell anyone to fix the boring things, the product effectively can be described as third rate at best and unusable at worse for anyone who values their time and convenience.
Meaning that, in our view in any event, while tokenized projects have plenty of innovation, they do also need to look at where they don’t have innovation (like stopping cheaters), and thus how in those areas established practices can be incorporated perhaps not off the shelf, but to some extent.
Another approach might be running fast so that others can’t catchup even if they’re giving for free what you charge.
That’s perhaps what 0x is trying in announcing a 150 million tokens grant program. So they informed Trustnodes in a press release shortly before Tian Li’s announcement. We’re not sure if this has been covered elsewhere, so we quote at length:
“The 0x Core Team, the builders of the 0x protocol that underpins the decentralized peer-to-peer exchange of tokens on the Ethereum blockchain, has announced a grant program of 150 million ZRX tokens (around $50 million) to help bolster the expansion of both infrastructure projects and relayers in the 0x network.
The grant scheme, called the Ecosystem Acceleration Program, will help high-quality teams with great ideas and potential to execute their project effectively using the 0x protocol by boosting application development and user growth.
It will focus on 3 main objectives:
Accelerating early-stage teams in the 0x ecosystem
Investing in tooling and programs to support all businesses building on 0x
Promoting technical breakthroughs through targeted research grants
Speaking on the announcement of the Ecosystem Acceleration Program, co-founder of 0x Will Warren says “The 0x ecosystem has grown organically to service a wide variety of markets, ranging from in-game items to traditional financial assets. It’s important we continue the great work that’s already been done by accelerating development in the ecosystem by supporting exciting projects that share our vision for a more open financial system.”
The grant allocations are already underway with over 15 teams receiving funding for projects thus far. The average grant size is currently running at $40k but ranges from $10k up to $1 million for the teams that display the best quality, vision, execution, and community involvement.
0x does not take equity in projects through the Ecosystem Acceleration Program; the funds are made by awarding non-dilutive capital through ZRX tokens. The grants are given to teams solely in order to grow and diversify the overall 0x ecosystem.
Raday Relay, a recipient of one of the first grants, says about the Program:
“The 0x Ecosystem Acceleration Program provides early-stage projects access to technical resources that will help shorten development time, bringing the right products to market sooner. With both financial and technical support from the 0x team, the program is a great opportunity for companies interested in making an impact with the 0x protocol.”
On top of the grant, the Program also gives promising teams access to a variety of services including legal resources, marketing strategy, technical support from 0x developers, mentorship, and introductions to leading venture capital firms that could participate in the team’s next funding round.
The Radar Relay team added: “The 0x team was actively engaged, listening to our early insights and iterating on the protocol to continually move the 0x ecosystem forward. The support from 0x accelerated the launch of Radar Relay’s API and SDK. The additional resources allowed us to focus on developing tools that better serve the developer community.”
The Ecosystem Acceleration Program comes hot on the heels of the launch of 0x ‘Instant’. A simple, free and flexible way for developers to add token exchange functionality to any website or application.
This development coupled with the Ecosystem Acceleration Program is creating an evolved ecosystem that is building for a tokenized world and that will underpin the financial system of the future where all value can flow freely.”
ox is a set of tools that allows devs to build methods to exchange value in a decentralized manner. Decentralized exchanges (dexs) are the most obvious use case, but you can also have a decentralized exchange of kitties and so on.
It is one of the most valued ERC20 token, but they do now need to lead this class of equity tokens into a more mature form whereby individuals have the information to make calculated investments, rather than effectively gambling based on snippets here and there, and where investors have a way of keeping them accountable through semi-bindable feedback.
If we take this $50 million giveaway, for example, it’s unclear how this decision was made to effectively give away investors’ money. It should have been proposed to token holders first. Then undoubtedly some of them would have said that equity should be taken in the projects that receive a grant so that they can be kept accountable.
Others may have taken the view that no equity should be taken or no such fund should be set-up or not at this amount and so on, with the public discussion then generally reaching some consensus.
Otherwise what we have here is complete unaccountability and full free reign with other people’s money in what appears to be a very amateur set-up where trustless has been turned into trust us even more than in a traditional set-up.
That’s because of the Slockit DAO bug, but if projects don’t want to have a second attempt at that trustless set-up, then there’s no innovation in that corporate governance aspect so they do need to abide by the traditional set-up.