1inch Network
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About 1inch Network
The decentralized finance (DeFi) movement aims to recreate traditional financial systems without intermediaries. 1inch Network stands out as one of the most innovative DeFi protocols. It operates as a decentralized exchange (DEX) aggregator, looking across multiple DEXs to find the best rates for users. The project’s clever aggregation algorithms and focus on efficiency have made it a rising star in DeFi.
History and Founding of 1inch
1inch was founded in 2019 by Sergej Kunz and Anton Bukov. The two developers recognized inefficiencies in the fragmented DEX landscape and sought to aggregate liquidity to improve swap rates. With over 60 DEXs operating on Ethereum at the time, spreads were often high due to low liquidity on individual exchanges.
1inch launched its mainnet in August 2020 after months of anticipation. The aggregator concept immediately attracted interest, as 1inch allowed users to find the optimal trade execution across multiple sources of liquidity. This removed the need to compare rates across exchanges manually.
Decentralized Exchange Aggregator
The core of 1inch’s value proposition is its DEX aggregation technology. The aggregator splits a single trade into multiple smaller orders across various DEXs to achieve the best price. This is especially impactful for large orders that could face significant slippage on a single exchange.
For example, a user wants to swap 1 ETH for USDC. The 1inch algorithm checks for the best USDC/ETH rate across all its connected DEXs – Uniswap, Sushiswap, Balancer, etc. It then splits the 1 ETH order into smaller chunks, routing them through the exchanges with the most favorable rates.
This aggregation provides better pricing and more flexible trade execution than using a single DEX. 1inch essentially aggregates liquidity across the entire DeFi ecosystem.
How 1inch Aggregates Liquidity
There are two primary components that allow 1inch to aggregate liquidity efficiently across DEXs.
First is its Pathfinder algorithm, which splits orders and discovers the optimal swapping route. It analyzes exchange rates in real-time across all integrated protocols to find arbitrage opportunities.
Second is 1inch’s liquidity protocol, which incentivizes external developers to add more aggregation sources. Any DEX can integrate its liquidity into 1inch’s ecosystem via open source liquidity protocol adapters. This creates a virtuous cycle – more sources means better rates, driving more users, incentivizing more integrations.
These two pieces allow 1inch to aggregate vast liquidity leading to seamless swap execution. The aggregator currently connects to protocols accounting for over 50% of all DEX volume.
1inch’s Unique Fee Structure
Unlike most DEXs which take a 0.3% cut of all trades, 1inch uses a two-token model. One token represents ownership of the protocol, while the other captures value from network activity.
The 1INCH governance token allows holders to vote on protocol changes. The protocol fee is captured by distributing a second ERC-20 token, 1INCH, as a reward to liquidity providers.
This fee accrues to LPs on integrated DEXs proportional to their share of 1inch’s aggregated liquidity. The model incentivizes further liquidity contributions and DeFi primitives building on 1inch.
Governance Token 1INCH
1INCH is the protocol’s governance token. It allows holders to vote on adding new DEX integrations, how protocol fees are spent, and other governance matters. All 1INCH tokens were distributed via liquidity mining, avoiding any pre-mine or token sale.
As the network evolves, 1INCH aims to transition into a decentralized autonomous organization (DAO) governed entirely by token holders. This embodies DeFi’s mission of eliminating centralized intermediaries through trustless, transparent algorithms.
Use Cases for 1INCH Token
In addition to governance, 1INCH has several other utility functions:
- Staking – 1INCH can be staked to earn staking rewards from protocol fees. This also provides voting power proportional to stake.
- Discounts – 1INCH stakers receive discounts on trading fees and can boost savings through loyalty programs.
- Access – Holders get exclusive access to new 1inch products and features.
As adoption grows, the expanding 1inch ecosystem should create further utility for the 1INCH token beyond governance and staking.
The Future of 1inch and DeFi
1inch has established itself as a leading DeFi aggregator, but has even bigger ambitions going forward. It aims to become a dominant gateway for all on-chain transactions.
The team plans to expand beyond Ethereum, adding support for Binance Smart Chain, Polkadot, Optimism and other Layer 2 networks. This will allow 1inch to aggregate liquidity across blockchain ecosystems.
1inch also wants to move beyond DEX aggregation into areas like lending, derivatives, NFTs and more. The aggregator model can apply to any on-chain protocol, providing efficiency gains to users across DeFi.
As DeFi aims to rebuild legacy finance from the ground up, 1inch Network sits at the forefront of that innovation. Its platform shows the possibilities of a new financial system – open, transparent and community-owned. With its sharp focus on aggregation, efficiency and user experience, 1inch seems poised to continue growing its share of the rising DeFi market.
