0x Governance in 2020 and Beyond

ZRX economics unlock the next phase

It’s been two years since we shared our roadmap for 0x governance, which outlined the need for coordinated upgrades that minimize market disruption, and which are handled by stakeholders that directly draw economic value from the system. Since the beginning, our vision for 0x protocol has been that all aspects of decision-making would eventually be handled by the community, including the administration of a monetary treasury used to continuously fund protocol development and ecosystem growth.

We concluded that an on-chain token voting scheme in combination with properly designed incentives could allow for effective decentralized governance. That token is ZRX. Governance over 0x protocol would need to function like a political process where stakeholders with varying needs and incentives use an on-chain mechanism to come to consensus around which contracts to drop into the 0x pipeline. It is helpful to notice that other projects, with Compound as the most recent notable example, are moving towards this model.

In our last update, we also acknowledged that there is a need to draw a connection between activities that create value within the ecosystem and the ability to influence governance. In other words, there should be a convergence of token ownership distribution (therefore, voting power) towards that class of users that have a strong natural incentive to achieve our mission for 0x protocol i.e. the proliferation of globally accessible, low-cost markets.

We made a good step forward in that regard with the introduction of the new ZRX token economics, which incentivize token holders to delegate their voting power to market makers, who operate staking pools, and who in turn share in the protocol fees generated by trading activity on 0x. This enables the convergence of token distribution on a representative sample of protocol stakeholders over time.

It’s been two months since the beta release of ZRX Portal, a simple UI where token holders stake their ZRX, share in their staking pool’s protocol fees, and vote on governance proposals. The beta phase has been successful, with more than 14M ZRX currently staked in the system by over 1600 addresses. Protocol fees have been steadily increasing each epoch, totaling greater than 65 ETH to date, as the trading activity has transitioned to 0x v3.0.

As the primary outcome of the new token economics, market makers operating staking pools have dramatically increased their voting power. The top two staking pools have now collectively reached almost 5M ZRX worth of voting power. These staking pools operators have identified themselves as professional market makers, the primary target audience for the stake-based liquidity incentive. To put things into perspective, the v3 vote turnout was 6M ZRX, which means that the top two staking pools (per number of ZRX) would have had the ability to have a significant weight in the vote.

2020 — the year of engaged 0x stakeholders

As we mentioned in our last update, there is a long road ahead to mature as a community, to ensure accountability in managing 0x protocol as a public good, and thereby create the conditions necessary for a tokenized world where value can flow freely. The following chart outlines our desired multi-year roadmap.