Messari: Detailed explanation of DEX aggregator 1inch product architecture and development status

Original title: "Bundling and Unbundling, 1inch by 1inch"

Original author: Ramshreyas Rao  

Original compilation: Hu Tao, chain catcher

Aggregating more than 188 liquidity sources in 7 supported blockchains, with a transaction volume of more than 134 billion US dollars and more than 1.6 million users, Few DeFi projects embody Barksdale's Famous Declaration. In December 2021, 1inch successfully raised US$175 million in Series B at a valuation of approximately US$2.25 billion, led by Amber Group. The funding is aimed at exploring the regulatory space in Europe and the US, building a new 1inch protocol, expanding the utility of the 1INCH token and expanding the team of contributors.

Increasingly In a decentralized DEX environment, with a large number of public chains, sidechains, Rollups and their corresponding fee structures, liquidity and slippage, 1inch aggregator provides a single interface that can automatically provide multiple liquidity sources for a given trading pair Find the best price. But it's more than just a comparison shopping engine. The 1inch ecosystem consists of the following parts:

1inch Wallet

1inch API

1inch Aggregation Protocol (DEX Aggregator )

1inch Limit Order Agreement

1inch DAO

1inch Foundation

2021 2019 has been a busy year for 1inch Network, with a series of innovations aimed at improving the DeFi user experience. Let's break it down.

Bundling DEX for fun and profit

The core of 1inch liquidity aggregation is Pathfinder - a The routing algorithm can find the most effective Token exchange path, split the transaction into multiple sub-transactions across different protocols, and even different order depths within the protocol, so as to provide you with the best exchange rate.

In addition to optimization In addition to transaction rates, Pathfinder can also reduce the probability of failed transactions through its partial and dynamic filling mechanism. When a user submits a transaction, Pathfinder first splits it into multiple liquidity sources. If the rate of one protocol changes unfavorably during the process, specific branches of that route can be eliminated and only the favorable ones executed.

Furthermore, dynamic padding allows even amounts from unfavorable forks to be redistributed between favorable forks, and the swap can be done completely at the rate announced in the interface. Users can also choose to optimize for the best rate or lowest gas fee (up to 40%) - letting Pathfinder modify its routing accordingly. All these options are easily toggled from the trading interface.

By latest V3 version 1inch aggregation protocol code optimization, 1inch has become one of the most efficient decentralized trading solutions.

Since 2020 Since the end of the year, the protocol can also use collateral in its routing Token , such as minted on Aave and Compound Token . such Token Needs to be packed or unpacked for use in routes - this is done automatically by the user under the hood with 1inch.

Bundling is one of the oldest business models on the internet and the team of 1inch contributors has demonstrated excellent execution in growing the business. Few projects can claim the liquidity sources and optimized listings that 1inch offers through its single interface, resulting in healthy order flow across all platforms 1inch operates on.

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User growth is also fast, and returning users roughly match new users.

Split 1inch AMM - Zero Fee Limit Order

1inch also offers its own centralized trading product with zero-fee limit order functionality. Most AMMs today only offer market orders, meaning that once a user places an order, it is immediately executed at the available market price. A limit order is a standing order to execute a trade only if the market reaches a predetermined price or better - usually used by more advanced traders who can analyze the market and assess the probability of reaching a limit price.

When a user places a limit order, it is added to a centralized database managed by 1inch. These orders can then be filled by any other user, including orders created by CEX and Pathfinder in the aggregation protocol. The taker of a limit order includes a gas cost in addition to the transaction value, meaning it is a zero-fee order for the user. The implementation also allows for dynamic pricing, conditional quoting where the user sets execution conditions, and Request for Quote (RFQ) quoting for specific order sizes.

Version 2 of the 1inch limit order protocol also facilitates gas-free limit orders for ETH, enabling users with zero ETH balances to exchange supported Token . This significantly lowers the barrier to entry for new/first-time users. Other improvements include extending DAI-like licensing to more Token , optimize RFQ, etc.

Splitting out a specific function (order type in AMM) and building a unique selling proposition on top of that is another tried and tested strategy that 1inch executes well Business model, it is estimated that by January 2022, the transaction volume of Ethereum will exceed 800 million.

 

1inch DAO

1inch DAO

1INCH token holders can pledge their 1INCH in the governance agreement Token to vote on protocol parameters and governance proposals. The DAO will be implemented in two phases, with the first phase launching in December 2020. At this stage, the 1inch Foundation will provide the community with "incentive activities" according to the lock release schedule Members distribute 1INCH Token . While stabilizing the protocol governance process, the initial core community is expected to implement DAO-based governance in an efficient manner.

Phase 2 is underway, which will enable full control over the extended governance mechanism and treasury - by the 1IP management. Voting rights are held by holding st1INCH (a non-transferable ERC-20 Token , representing the 1INCH pledged in the protocol governance contract Token ) and v1INCH (representing the supporter/advisor/core contributor 1INCH locked in the vesting contract Token ) to get st1INCH Token voting rights. Both of these can delegate their voting weight to other addresses.

Currently, one address belonging to Binance holds around 10% of the voting power, followed by around 6% as stated on the governance page.

This kind of Centralization of power due to 1INCH stake pool on Binance, not holding 1INCH Token individual whales. The 1inch team is waiting for community contributions and other categories to catch up with core contributors and have a more even distribution.

1inch Token

The 1INCH token serves two purposes: as a utility Token, 1INCH is used in liquidity protocol to achieve efficient routing. as governance Token , Token stakers will be able to govern the protocol.

1inch community will hold Token 30% of the total supply, which means that after the vesting period, the majority of voting power remains in the hands of the core team, backers and investors. 8% of the network's growth fund's 14.5% was given to investors in its latest funding round.

1inch Foundation

1INCH Token Issued by the 1inch Foundation, a non-profit organization dedicated to nurturing the 1inch network and community. It does this by attracting early adopters and increasing the number of users governed by 1INCH, issuing grants to developers building on the 1inch protocol, and a yield farming program designed to incentivize liquidity across the ecosystem.

Competition

1inch is the main DEX aggregator on Ethereum with a transaction volume of over $130 billion . On both Ethereum and Polygon, 1inch is vying for supremacy with the 0x protocol (Matcha is the 0x aggregator Dapp).

Ultimately, it is a game of bundled execution that will be played on fees, liquidity, availability of trading pairs and the integration of other important Dapps and protocols. Within this design space, some tradeoffs are possible. Aggregation can happen not only at the DEX/Dapp level, but also at the network level.

Since competitors are essentially aggregating the same DEX and Dapp across chains (at least eventually), the space is ripe for commoditization, attracting The competitor with the most liquidity and the lowest fees will win. Speed of execution and adoption and scaling will be key drivers of success, and 1inch is well-positioned to maintain its dominance in this space for the time being.

The way forward

1inch demonstrates a remarkable ability to extract capital efficiencies from the DEX ecosystem, And great execution on user acquisition and funding. However, the rise of alternative L1s opens new horizons for growth in two dimensions. The first one simply expands the list of available DEXs and trading pairs. In fact, 1inch just expanded to Avalanche and Gnosis chains in 2022.

Another more complex path is through cross-chain transactions. An example is simply incorporating multiple chains and L2 into the routing algorithm. Another example is cross-chain staking - users can buy 1 inch in one chain Token , and get staking rewards from another chain. Despite the technical problems described by Vitalik Buterin, the multi-chain universe represents a new frontier for 1inch to take bundling and unbundling capabilities to new heights.

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