1inch project review
1inch is a DEX aggregator that uses swap rates from other decentralized platforms to find the best token prices and lowest transaction fees.
1inch: Foundation and funding
The 1inch project was launched by developers Sergej Kunz and Anton Bukov. Both were already well-known in the crypto community for their popular YouTube live streams where they audited smart contracts for potential backdoors and algorithmic flaws. Bukov developed software for the NEAR Protocol, while Kunz worked at Mimacom, a cybersecurity consulting firm. Together, they have brought their expertise and passion for decentralized finance to create a powerful aggregator for decentralized exchanges.
The concept of aggregating smart contracts was first presented by Kunz and Bukov at the ETHGlobal forum in May 2019. After receiving support from Vitalik Buterin during a hackathon, the founders secured $2.8 million in funding from investors such as Binance Labs, Galaxy Digital, FTX, and others.
In August 2020, the 1inch Network went live, followed by the creation of the 1INCH governance token. This asset is currently added to the project's treasury by a decentralized autonomous organization (DAO). Later, the team developed Mooniswap - the network's proprietary automated market maker (AMM) that serves as the backbone of its order matching system. Essentially, this AMM is a liquidity protocol that connects to other exchanges to increase their pools and neutralize slippages in individual trades. Additionally, 1inch has deployed virtual fees to combat front-running bots on exchanges.
Front-running bots are the bane of many traders, as they deploy sneaky software tactics to manipulate fees and push their orders to the front of the queue. However, the virtual fee system on 1inch puts these bot battles to rest by regulating liquidity pool fees, making bot manipulation too costly to execute.
Here's how 1 inch works:
In a nutshell, 1inch works by following a principle that has been around since Web 2.0. It is a platform that monitors a specific segment of the internet and accumulates data in a single database. A hotel booking on Booking.com or the latest news on SmartNews app are just a few of the options you have on offer. You can filter the results according to your preferences.
1inch performs a similar task to traditional Web 2.0 aggregator sites. However, instead of collecting data on hotel bookings or news stories, it aggregates the prices of digital assets. The platform receives data from over 20 DEX exchanges and the Pathfinder protocol aggregates these prices. Pathfinder is an algorithm that searches for the most lucrative trading opportunities across multiple blockchains, considering fees costs for each trade. It can even break down a single trade into multiple parts to find the best trading solution across different platforms.
If someone wanted to trade their Wrapped Bitcoin for DAI, Pathfinder from 1inch would say, "Hold my beer" and suggest first converting the wBTC into another stablecoin on one platform, then swapping that stablecoin for DAI on another platform. All while watching fees and finding the best deal.
Users do not see the entire conversion and splitting process - they are presented with the final result, and if it satisfies them, 1inch executes the algorithm for a complex trade to achieve maximum returns. The 1inch protocol itself does not charge fees. Instead, a small percentage is taken from traders for exchanging in the liquidity pool and a gas fee, which depends on the blockchain.
By using limit order protocols, 1inch traders can set sliding stops to minimize slippage losses. While this attribute may not be very helpful for one-time trades, it can be very beneficial for scalpers working with a large number of orders on short timeframes.
What is a 1INCH token?
1inch has its own governance token, 1INCH, like other DEX projects. The token supply is not limited, but at the time of writing this article, the total supply is 1.5 billion, with 792,609,828 in circulation. Token holders can vote on network governance issues, including:
- API rate determination;
- Aggregating liquidity pools;
- Selecting new platforms for integration.
Users can vote using 1INCH tokens, and receive 100% refund of gas costs.
1inch's first airdrop occurred in January 2020, during which 6% of the total 1.5 billion 1INCH tokens were distributed. 14.5% more is planned over the next four years. To finance the protocol and incentivize the community, 23% of the 1INCH tokens were reserved.
The all-time high for 1INCH was recorded in May 2021 at $7.85. Since then, the token has depreciated by a thousand. The project's token can be purchased on major exchanges such as Binance, Coinbase, and Huobi.
Which blockchains does 1inch support?
Initially launched on the Ethereum blockchain, the 1inch network has since expanded to include several Ethereum scaling solutions and competing blockchains, among which are:
- Optimism (L2),
- Polygon (L2),
- Arbitrum (L2),
- BNB Chain,
Not all of these networks use the full suite of 1inch's functions (liquidity, limit orders, governance, and aggregation). It's like having a tool belt with only a hammer when you need a wrench, pliers, and a screwdriver. The full package of features is only available on Ethereum and Binance Smart Chain. This is where 1inch can provide traders with everything they need to achieve the best results.