What is 1inch? (1INCH)
1inch (1INCH) Explained
1inch is a decentralized exchange aggregator that aims to provide traders with the best price and lowest fees on their transaction.
Decentralized exchanges (DEXs) are part of the decentralized finance (DeFi) ecosystem that allow traders to exchange crypto assets without an intermediary executing the order, custodying funds or otherwise overseeing the transaction. DEXs allow traders to maintain custody over their funds in their wallets, without the need to share personal identifying information.
At any given time across decentralized exchanges, prices and transaction fees can vary significantly. Rather than having to manually check and compare prices across exchanges, 1inch collects the real time pricing data from various DEXs to allow traders to identify the optimal price across the market and capture the trading opportunity within a single platform.
Who created 1inch?
Built on the Ethereum blockchain, 1inch was founded in May 2019 by Surjey Kunz and Anton Bukov during an ETHGlobal hackathon. Kunz previously worked as a software engineer for Porsche, while Bukov was a developer who previously worked on the NEAR Protocol.
In December 2020, the 1inch founders secured a $12 million funding round with participation from many notable firms including Pantera Capital and ParaFi Capital. The team went on to launch the platform’s own 1INCH token later that month.
As part of its launch, the 1inch governance token was airdropped to anyone who had used the 1inch exchange platform before that date, with some conditions.
How Does 1inch work?
1inch operates in a similar way to many popular travel booking websites. Just as these sites aggregate prices from hundreds of airline, hotel and travel provider websites, 1inch compares cryptocurrency prices and trading fees across several decentralized exchanges.
1inch automatically routes trades to the platforms with the best prices and lowest fees, allowing traders to use a single platform while comparing prices and executing trades across the entire DEX landscape.
1inch’s latest evolution, Pathfinder, identifies the best trading routes across multiple markets, while also taking gas fees into account. With Pathfinder, single trades can be broken into smaller portions across multiple DEX platforms, in order to deliver the most price efficient option.
As an example, say a 1inch user wants to trade $100 worth of the DAI stablecoin for Ether on the 1inch platform. 1inch may find that the users will pay the lowest fees if the DAI is first converted to a different stablecoin such as USDC, before USDC is then exchanged for ETH.
Additionally, 1inch may find that it would be most cost effective to exchange $30 worth of DAI for ETH using the 0x exchange and $70 worth of DAI for ETH using the Balancer exchange. 1inch traders still perform a single transaction without having to worry about the complex discovery and routing processes happening behind the scenes.
1inch liquidity protocol, which was initially launched under the name Mooniswap, allows users to earn passive income on their crypto assets by depositing them in 1inch liquidity pools. The cryptocurrencies held in liquidity pools can then be used as the opposite side of transactions by traders who place trades using the 1inch decentralized exchange.
In return, liquidity providers earn ‘LP tokens’ which can then be staked or exchanged for other cryptocurrencies.
1inch liquidity protocol also adopts a feature called virtual rates, which aims to address trade front running issues. Front running occurs when a malicious trader, miner or bot, observes a transaction being broadcast to the network and bids a higher fee to have their transaction be placed before that observed pending transaction. Virtual rates introduce an adjustment to the fees in the liquidity pool that makes this unprofitable to execute for malicious actors.
Limit Order Protocol
1inch’s limit order protocol allows traders to place more advanced, conditional orders beyond standard swap orders. Using the limit order protocol, 1inch traders are able to place orders such as stop-loss orders and trailing stop orders in order to automatically lock in their profits at certain prices or prevent losses.
Why Does 1inch Have Value?
The 1INCH token is the utility and governance token of the 1inch protocol and can be used for holding, spending, sending or staking.
As the platform’s governance token, 1INCH token holders can vote on and propose updates to the 1inch protocol, such as how fees are structured and distributed across platform users.
Aggregation protocol governance determines how ‘spread’ (the difference between the quoted price and executed price of the transaction) is distributed amongst users. Liquidity protocol governance determines the parameters of each liquidity pool on the platform, such as fees, rewards and other incentives.
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Why use 1inch?
Decentralized exchange users looking for an easier way to identify the best prices and fees before executing trades from a single platform may find value in the 1inch protocol.
Those wishing to propose and vote on improvements to the 1inch protocol may find value in the 1INCH token’s governance capabilities.
Investors that believe the 1inch team will be able to continue gaining adoption may find value in the 1INCH token as it could potentially gain additional utility within the platform.