1inch is a decentralized exchange aggregator that aims to provide traders with the best possible price and the lowest possible fees on their transactions.
They also have one of the coolest logos in crypto.
Decentralized exchanges (DEXs) are a component of the decentralized finance (DeFi) ecosystem that enable traders to exchange crypto assets without the need for an intermediary to execute the order, custody funds, or otherwise oversee the transaction. DEXs allow traders to keep their funds in their wallets without having to share personal identifying information.
Prices and transaction fees can vary significantly across decentralized exchanges at any given time. Rather than manually checking and comparing prices across exchanges, 1inch collects 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.
Why is it called 1inch?
The name was inspired by Bruce Lee’s legendary “1inch punch,” the standard of efficiency in Martial Arts, and aims to symbolize simplicity and power in the cryptocurrency industry.
Who Started 1inch?
Surjey Kunz and Anton Bukov founded the DEX in May 2019 during an ETHGlobal hackathon on the Ethereum blockchain. Kunz previously worked for Porsche as a software engineer, and Bukov was a developer who previously worked on the NEAR Protocol.
The 1inch founders secured a $12 million funding round in December 2020, with participation from a number of notable firms, including Pantera Capital and ParaFi Capital. Later that month, the team launched the platform’s own 1INCH token.
The 1inch governance token was airdropped as part of its launch to anyone who had used the 1inch exchange platform prior to that date, subject to certain conditions.
How does 1 inch work?
1inch works in the same way that many popular travel booking websites do. It compares cryptocurrency prices and trading fees across several decentralized exchanges, much like these sites aggregate prices from hundreds of airline, hotel, and travel provider websites.
1inch automatically routes trades to platforms with the best prices and lowest fees, allowing traders to compare prices and execute trades across the entire DEX landscape from a single platform.
Pathfinder, the latest evolution of 1inch, identifies the best trading routes across multiple markets while also accounting for gas fees. Single trades can be divided into smaller chunks and distributed across multiple DEX platforms using Pathfinder to provide the most cost-effective option.
Assume a 1inch user wishes to exchange $100 worth of the USDT stablecoin for ETH on the 1inch platform. The DEX may discover that users will pay the lowest fees if the USDT is first converted to another stablecoin, such as USDC, before exchanging USDC for ETH.
Furthermore, 1inch may discover that exchanging $30 worth of USDT for ETH via the 0x exchange and $70 worth of USDT for ETH via the Balancer exchange is the most cost effective option. 1inch traders can still complete a single transaction without having to worry about the complex discovery and routing processes that take place behind the scenes.
The 1inch liquidity protocol, originally known as Mooniswap, enables 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 opposing side of transactions by traders who use the 1inch decentralized exchange to place trades.
Liquidity providers receive ‘LP tokens,’ which can be staked or exchanged for other cryptocurrencies.
The 1inch liquidity protocol also includes a feature known as virtual rates, which is intended to address trade front running issues. Front running happens when a malicious trader, miner, or bot sees a transaction being broadcast to the network and bids a higher fee to have their transaction placed before the observed pending transaction. Virtual rates cause an adjustment to the fees in the liquidity pool, making it unprofitable for malicious actors to execute.
A Protocol for Limit Orders
Beyond standard swap orders, 1inch’s limit order protocol enables traders to place more advanced, conditional orders. 1inch traders can use the limit order protocol to place orders such as stop-loss orders and trailing stop orders to automatically lock in profits or prevent losses at specific prices.
Several distinguishing features elevate 1inch above its competitors in the industry. It has a slick and simple user interface that not only makes it easy to use but also improves the trading experience. The exchange distributes token swaps across 21 liquidity protocols, allowing members to save money by choosing swaps with the lowest fees.
The exchange has an agile and dexterous order filling mechanism, which reduces the possibility of failed transactions, which can be costly to users. Users save significantly due to reduced slippage, which compensates for the relatively higher gas fees incurred by DEX aggregators.
The exchange has drawn big names in the cryptocurrency industry, including Binance Labs, Kyber Network and Galaxy Digital.
Jay Speakman is a technology writer based in San Francisco, California. He writes on the topics of blockchain, cryptocurrency, DeFi and other disruptive technologies. Clients include Avalanche, Be[in]Crypto, Trust Machines and several blogs devoted to blockchain gaming. He will not rest until fiat currency is defeated.