Home Cryptocurrencies 0x (ZRX) ZEIP-31 AMA: New 0x Network Economics | Monday 11am PT, April 15th...

ZEIP-31 AMA: New 0x Network Economics | Monday 11am PT, April 15th 2019

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We’ve printed a draft for ZEIP-31, which proposes an improve to the 0x protocol to make the most of new ZRX token economics. ZEIP-31 proposes new community economics which are supposed to create the incentives crucial for efficient token-based governance, arrange the group to sustainably fund ecosystem progress, and reward market makers for offering liquidity.

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Beneath the proposal, takers pay a small protocol payment on every 0x commerce. Market makers (MMs) obtain a liquidity reward that’s proportional to: 1.  the protocol charges generated from their orders and a pair of. their stake of ZRX tokens. MMs who don’t personal adequate ZRX to gather liquidity rewards will be capable of kind a ZRX staking pool for third-party delegators. We goal to incorporate ZEIP-31 in 0x protocol v3.zero in Q3 2019 if accredited by way of token vote by ZRX tokenholders.

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The 0x Core Staff could be very enthusiastic about this proposal and is searching for suggestions from the group! After studying via all of the ZEIP-31 content material, be at liberty to begin asking questions on this thread. We are going to start answering inquiries on April 15th at 11am.

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**ZEIP-31 Sources**

* [Here is the announcement blog post](https://blog.0xproject.com/0x-roadmap-2019-part-4-proposal-for-stake-based-liquidity-incentive-52c16558df29)
* [Here is the ZEIP in Github](https://github.com/0xProject/ZEIPs/issues/31) for technical suggestions and analysis
* [Here is the technical whitepaper](https://forum.0x.org/t/research-on-protocol-fees-and-liquidity-incentives/340) that digs into the financial principle behind the proposal
* [Here is a presentation on YouTube](https://youtu.be/s2wlzlQxd5E) giving a high-level overview of the proposal

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15 COMMENTS

  1. Very interesting and novel approach. Surprised not to see more discussion on this. Incentive to provide liquidity. Great video by Peter. I’ve never heard of anything like this before.

  2. First of all, excellent work! This has been a long road and a lot of us are excited to see progress in this area.

    >”MMs can contribute stake on their own behalf, or **establish a ZRX staking pool that allows third parties to delegate stake to them**. Each staking pool specifies a fixed percentage of future liquidity rewards to be shared with the pool’s set of delegators. Establishing a staking pool allows MMs to participate in the liquidity reward program, without locking up funds that may otherwise serve as working capital.”

    Does this mean passive ZRX holders can join a staking pool for market makers?

    If that’s true, Coinbase Custody could offer a ZRX staking service for institutional users, however, that doesn’t address retail users, which means more retail focused staking pool services will start to appear.

  3. Sooo…I just watched Peter on the video. Great job in the presentation BTW.

    In a general sense–the intent is to incentivize MM’s for add’l liquidity in market(s)–and incentivize passive holders to participate?

  4. this is very well researched. i had to read through everything a couple times to get it all down. i’m curious how you think this will affect the relayers. how will they need to evolve to build a viable business? were 0x relayers excited about this proposal??

  5. Very exciting direction, Peter & Will! I have a series of questions about how the overall architecture fits with the goals of the economic design. All of these Qs stem from the role of TECs, described in Part 2:

    > Trade execution coordinators (TECs) are little services relayers can opt into. These coordinators provide a variety of benefits including protection against front-running, innovative marketplace mechanics, and soft cancels. *They can do this while still allowing unrestrained liquidity sharing.*

    1. It seems like TECs are a necessary module to avoid front-running and collisions from orders floating in the P2P network. If thats correct, then is there a risk that a single TEC becomes the schelling point for all trade ordering, and thus a silo for liquidity (in the same way matching relayers are?)

    2. A specific concern is that a TEC operator is incentivized to 1) silo liquidity 2) fork away from the canonical 0x contracts 3) redeploy the logic of liquidity rewards for MMs, but with their own token. So long as MMs get the same economics from the TEC operator, what reason is there to use the canonical 0x instance? Have you considered economic rewards for TEC operators to incentivize them to stay in the canonical 0x network?

    3. Could TECs be replaced with a blockchain where independent nodes run consensus on trade ordering, and are rewarded with 0x tokens for doing so? This seems like it’d offer strong network effects around a *single* liquidity pool, with both the ordering function and MMs rewarded directly in the economic design. Have you considered this approach? (I think this is what Binance is doing with their DEXchain, a fork of Cosmos SDK.)

    4. If the architecture described in #3 isn’t completely off base, what are the key reasons for prioritizing the current approach?

  6. **AMA for Relayers:**

    Digging into the technical details of ZEIP-31 and how it effects the ecosystem is interesting. But a number of these questions will be better answered by relayers than the 0x core team. Please respond to this post with your questions for relayers and hopefully relayers can share their thoughts.

  7. I see you had some input from relayers and developers on this–can you give us a high-level overview of the input you’ve had from them so far? What’s been their biggest concerns?

    Because this arguably may introduce some economic friction to the protocol, I could imagine some developers may also closely associate this effort with ZEIP 28. I.e. “I’d be willing to accept a protocol fee as a potential point of friction for users, but only if the friction introduced by ZRX as fees is removed.”

    The Venn Diagram in the Medium post for ZEIP 31 also suggests that the roll of ZRX as fees is not working for its intended function as well as hoped. I understand ZEIP 28 was written by someone not on the core team, but do you see these ZEIPs as intertwined at all internally?

  8. Proposal seems very interesting and well thought through. Great work to all involved. My question my be a simple implementation issue.

    I hold ZRX on a hardware wallet and want to start market making using a trading bot (say Hummingbot). I don’t want to delegate as I would get 10% less of the liquidity reward. But, and please correct me if I am wrong, trading bots cannot use hardware wallets to trade. So under the current proposal there will be a trade off between less 10% for liquidity reward or less secure wallets that are required for making making bots.

  9. I’m probably a bit late to this thread, but my thought on this is that protocol level fees in order to hedge MMs at the expense of arbitrageurs is an excellent idea that will increase liquidity. However, I believe that the α parameter of the Cobb-Douglas function should be set at `α=0` to maximize liquidity for ZRX. The total gain to liquidity that results from hedging MMs is likely to be small to moderate. As you increase the value of α you are funneling those efficiency gains into value capture for the token. There is some (small) value α that keeps the protocol at neutral liquidity relative to the current state. It is possible that raising α too high will actually erode liquidity for the protocol at the expense of value capture.

    While I understand the necessity of value capture for the long term sustainability of the protocol, 0x needs to first prioritize liquidity above all else.

  10. **AMA for Market Makers:**

    Digging into the technical details of ZEIP-31 and how it effects the ecosystem is interesting. But a number of these questions will be better answered by existing market makers than the 0x core team. Please respond to this post with your questions for MMs and hopefully a few MMs will share their thoughts.

  11. This is an extremely complex mechanism and not explained very simply…
    In my opinion the staking reward is not clear enough to simple token holders who just believe in the protocol future but are not Market Making. How will be decided the % interest rate on renting our own tokens to MM? How the tokens will be protected? (Ie. Tokens need to be sent to the MM ETH address or can stay in the simple user ETH one? ) Why would MM pay an interest rate or share his revenue on an asset he has an interest to hold for his short and long term ROI?

    Also, how this fee on takers will compete with other non 0x DEX? (Binance…)

    Don’t you think simple holders and relayers who bet on your protocol today should also have a financial incentive other than value increase of the asset for the risk taken? Why would investor A (not MM) invest in 0x today instead of ETH which he will be able to stake soon with a nice return?

    Thanks for your answers

  12. Will MM have to pay their small protocol fees in ZRX or will ZRX only be used to decide what kind of share of the fees the MMs will earn? If it’s the latter, that would be great! Paying fees in ZRX is a hassle

    **Update**: found the accompanying article and the asnwer:

    “The fee is denominated in ETH and deposited into a staking contract. Fees are pooled within the staking contract over a fixed window of time, which we refer to as an epoch. At the end of each epoch, MMs that stake ZRX tokens collect a portion of the accumulated pool.

    (…)

    Once MMs collect their liquidity rewards, the remaining ETH is passed into a community treasury that tokenholders control via a DAO.”

  13. ​

    With α=1, the liquidity reward is solely based on ZRX stake size and tokenholders are effectively collecting rent. With α=0, the liquidity reward is solely based on liquidity contribution, there is no financial incentive to stake ZRX tokens, and the reward function is equivalent to a system in which the protocol fee is directly passed to the MM upon settlement of each trade.

    Maybe I need to brush up on my math here, but if α = 1, wouldn’t (zi/z hat)^(1-α)=1? Meaning, liquidity reward is solely based on liquidity contribution (ti/t hat)^α ?

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