0x: An open protocol for decentralized exchange on the Ethereum blockchain

The five-minute read

One action, walked through

1. A maker approves the exchange contract to move their token, and signs an order off-chain.
2. A relayer indexes the order and shows it to takers.
3. A taker submits the order to the exchange contract, possibly filling only part of it.
4. The contract verifies the signature and that the remaining amount and the expiry allow this fill, then transfers both sides.
5. A partially filled order stays valid for the rest until it expires or the maker cancels it on-chain.

The argument, unpacked

What has to be true

• Makers have approved the contract and still hold the tokens at settlement time.
• Takers can submit a transaction before the order expires. A congested chain turns a firm quote into a maybe.
• Cancellations are visible. A cancel that does not land leaves the order fillable.
• Tokens transfer in the amount the contract expects. Fee-on-transfer tokens desynchronise the trade.

What happened after the paper

0x shipped, revised its settlement contracts, and became infrastructure that aggregators and market makers quoted against. The 2017 paper is the off-chain order and on-chain settlement split. The original fee-token mechanics should not be described as if they were unchanged.

What to check before you use the idea

• Where does the order book live, and who can settle an order they did not originate?
• What happens if the maker's balance is gone by the time the transaction lands?
• How does cancellation become visible to takers?
• Is a protocol token required for this deployment's fees, or is that the 2017 design only?

Terms

Maker

The party who signs an off-chain order and provides the liquidity.

Relayer

A party who broadcasts orders and may charge a fee, without holding the assets.

Settlement

The on-chain transaction that checks the signature and moves tokens.

Partial fill

Taking only some of a signed order, leaving the rest open until expiry or cancellation.

The problem the paper names

An on-chain order book writes every cancel and every quote to the base chain. That is expensive and public in the wrong ways. A fully custodial exchange avoids the cost and concentrates the risk. 0x splits the quote from the settlement.

What the design proposes

• Makers sign an order that names the assets, the price, the expiry and a taker policy.
• A relayer stores and serves orders. The relayer does not, in the core protocol, hold the assets.
• A taker submits a matching order to the settlement contract, which moves tokens if the signature and the allowances are valid.

How the mechanism is specified

• Cancels and fills have to be handled so a maker is not double-spent. The paper specifies on-chain state for the parts that must be authoritative.
• Relayers can charge under their own scheme. The protocol does not set their business model in stone.
• Later 0x versions and NFT extensions are not the 2017 text.

What this page does not treat as proven

• Off-chain orders are only as live as the API that serves them. The paper does not remove liveness risk. It moves it.
• Allowance and signature phishing are user-safety problems adjacent to the design.
• This is not an automated market maker. It does not invent a price. It transports an order.

Why a venture studio still reads it

Still the right diagram when a venture says 'we are non-custodial' but keeps the order book on a server. 0x forces the next sentence: what exactly is signed, and what exactly hits the chain.