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Messari releases 1inch2022 Q4 report: Total transaction volume down 42% year-on-year; Unique users grew 13%

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The development of each public chain and layer2 can be seen from the data of 1inch chain.

Original title: The State of 1inch Q4 2022

Original article by Sean Butterfield, Messari

BlockTurbo

Introduction to 1inch

1inch Network is an integrated decentralized finance (DeFi) service provider, Operates on Ethereum, Arbitrum, Optimism, Polygon, Avalanche, BNB Chain, Gnosis, Fantom, Klaytn, and Aurora. 1inch Aggregation Protocol (AP), launched in 2019, allows users to trade across multiple markets and achieve the best available exchange rate compared to any single decentralized exchange (DEX). In late 2020, 1inch Liquidity Protocol introduced a native automated market maker (AMM) into the network, enabling users to provide liquidity and receive passive liquidity mining incentives. The network's third product, the 1inch Limit Order Agreement (LOP), was launched in June 2021 to support free conditional limit and stop loss orders. All three protocols are managed by 1inch DAOs using the network's local 1INCH token.

Note: This report contains data from Ethereum, BNB Chain, Polygon, Optimism, Arbitrum, Avalanche, Gnosis Chain and Fantom. Data from Klaytn and Aurora are not currently included.

Key index

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Performance analysis

Network overview

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Total trading volume fell 42 percent from a year earlier, while total trading volume fell 3.2 percent to $26.1 billion in the fourth quarter. The FTX crash led to an increase in trading volumes in November as users scrambled to reallocate assets on exchanges. Binance announced a non-binding agreement to acquire FTX's non-US entities on November 8, which coincided with a surge in trading volumes over the next few days. About 17 per cent of total trading volume in the fourth quarter occurred between November 8 and November 10, immediately after the outbreak spread.

Arbitrum, the Layer-2 (L2) solution, saw its third consecutive quarter of volume growth, up 44 percent from the previous quarter. In addition, BNB Chain saw its first growth in volume in 2022, increasing from $1.1 billion to $1.29 billion in the third quarter. These were the only two public chains to see volume growth in the fourth quarter.

Daily transactions were flat (0.1%) in the fourth quarter, but finished at 4.8 million, above the 2022 average of 4.6 million. Relative to volume, transactions were down just 13 per cent year on year. In addition, L2s Optimism and Arbitrum recorded a 153 per cent and 97 per cent increase in quarterly transactions, respectively. Both chains saw their volumes grow every quarter in 2022.

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In the fourth quarter, FTX contagion shifted user behavior toward the Aggregation Protocol (AP). AP volumes remained relatively stable month-on-month (-0.61%), but limit order agreements (LOP) volumes declined 33% as more users sought emergency execution of market orders. However, LOP's dominance grew substantially in late December as the market fell to the lows of Q1 2021. The increase in LOP volume may be due to users placing favorable limit orders and anticipating an imminent bottom.

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On average, Ethereum had about 86 percent of the total transaction volume market share in 2022. This trend will continue in 2023; However, 1inch usage has been growing dramatically since Arbitrum launched. Arbitrum's dominance of transaction volume has grown by double digits since the beginning of the year and is likely to threaten Polygon and BNB Chain's position in 2023. The increase was attributed to an increase in network usage, that is, DeFi usage overall, and may also be due to continued speculation about Arbitrum airdrops. Time will tell if the increase is sustained.

Network user

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Despite the general erosion of user confidence following the collapse of centralized exchange FTX, 1inch Network appears to have benefited as unique users grew 13 percent to more than 2.4 million in the fourth quarter.

While the BNB chain's subscriber base grew by approximately 52 percent quarter-on-quarter to 778 million subscribers, L2s Optimism and Arbitrum's subscriber base growth continued to outpace the other chains in the fourth quarter at 174 percent and 64 percent, respectively. Polygon continued its downward trend in Q2 as its user market share declined rapidly sequentially (-23%).

Microscopic analysis

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Ethereum's overall transaction volume was down month-on-month. However, in the fourth quarter, small and medium-sized retail wallet profiles grew 13 per cent and 8 per cent respectively. In addition to the growth of retail wallets, their corresponding numbers grew by 10 per cent and 3 per cent respectively. There is a clear power-law distribution of 1inch transactions, with a small number of wallets accounting for the vast majority of transactions. The growth of small and medium-sized retail investors and events is a strong signal that retail users see 1inch as a powerful platform in the ecosystem.

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At the end of the fourth quarter, the number of individual wallets across the three chains was 676,000, with more than $2.3 billion in transactions. BNB Chain added 170,000 wallets in the quarter, taking significant market share away from Polygon in the fourth quarter. Small Retail and Whale wallets grew the most, at 27 per cent and 136 per cent respectively. Notably, Small Retail sales of wallets with transactions of less than $10,000 grew by $25 million during the quarter. This growth is a strong indication that small retail investors are abandoning centralised exchanges because they have lost confidence.

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As expected, the token swap against Stablecoin and blue Chip brought the largest volume to the 1inch network. USDC pairs rose about 10 percent quarter-on-quarter to $16 billion, accounting for nearly a third of total trading volume. However, trading volume in USDT pairs rose 70 percent month-on-month to $12.7 billion. Trading pairs on Ethereum, BNB Chain, Polygon, and Optimism during the fourth quarter were USDT-USDC and USDT-BUSD, respectively.

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The primary goal of 1inch Network is to use its Pathfinder algorithm to facilitate the most efficient trade routing through a variety of protocols. In Q4, Curve surpassed Uniswap in transaction volume for the first time. Exports rose 2.6 percent to $23.1 billion in the fourth quarter from $22.5 billion. Uniswap, Curve, Balancer and CoW saw increased volumes in the pre-period, but were still down sharply from the second quarter, with their combined volumes down 51 per cent year on year.

1inch DAO Vault

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The Swap Surplus (i.e., revenue from the 1inch DAO Treasury) is the result of a positive slip point in the scrip swap on AP. 1inch DAO Treasury's agreement revenue soared in mid-November after the FTX crash caused volatility. During that time, AP's trading volume soared, which, along with chaotic markets, allowed AP to earn a swap surplus, a net gain for the Treasury. As markets experienced new lows following the FTX collapse, volatility seemed to settle and LOP's dominance reached new highs. This increased dominance benefits users because they can ensure strategic price execution. However, no swap surplus is captured when trading on the LOP, which prevents 1inch DAO Treasury from generating additional agreement revenue.

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With the 3Q 1IP-09 implementation, Treasury now accumulates 1INCH tokens when its price is below $1.30. As 1INCH has traded consistently below $1.30 in the second half of 2022, 296,000 1INCH tokens worth $249,000 were added to the Treasury in the fourth quarter. In addition, during the fourth quarter, 226 WETH worth $260,000 and $298,000 of USDC, DAI and USDT were added to the Treasury. In dollar terms, outstanding Treasury bonds grew 4% month-on-month and 268% year on year, reaching $16.4 million at the end of the year.

Qualitative analysis

Protocol upgrade and integration

1inch Labs released two core protocol updates in the fourth quarter; The Aggregation Router v5 is merged with the Limit Order Protocol v3, allowing users to benefit from increased gas efficiency. Gas costs are expected to be at least 10% lower than other DEX products.

These improvements include new interaction logic, back and forth interactions, and the ability to notify users of any errors that indicate why a particular operation failed. These implementations have been Consensys, OpenZeppelin, Peckshield, etc.

1inch Network also released Fusion in late December, which lets users place orders with maximum extractable value (MEV) protection without paying any network fees. Sending the exchange directly to the validator bypasses the memory pool (mempool) and prevents the robot from recognizing opportunistic MEV transactions. Fusion mode offers three options: Fast, Fair, and auction, built on top of AP and LOP. Fusion mode is only available for Ethereum, Polygon, and BNB Chain, but will eventually roll out to other supported chains.

Wallet integration

The user experience and interface are critical to the on-board customer. The 1inch Pathfinder algorithm continues to build new Wallet relationships with DeBridge, XDeFi, XYFinance, Fizen Wallet, and others. This trend is expected to continue, providing users with deeper liquidity and efficient trade execution.

1inch RabbitHole

This new feature helps protect MetaMask users from MEV or "sandwich attacks" when swapping 1inch. These attacks are a common type of preemptive trading attempt, driven by bots that monitor pending trade confirmations in a pool of memory. If the bot spots an opportunity, it will initiate the transaction before and after the target (user) transaction (sandwich transaction). That has led to an expected spike in the cost of petrol paid to targeted users, while the robots profit.

governance

Customized platforms for the 1inch ecosystem enable encrypted native token forums to vote, discuss, fund projects, snapshot integration, and discourse import, all of which improve governance and user experience. 1inch Forum was launched on December 16, 2022.

1inch Resolver Award program

The new incentive plan starts on December 24, 2022. The program incentivizes parsers responsible for filling out Fusion orders and using AP. As part of this new program, parsers will now be able to get gas refunds. Parser compensation is capped at 1 million 1INCH per month, and the program will run until a total of 10 million 1INCH funds have been allocated. The scheme will replace the existing gas refund scheme, which ends on 31 December 2022.

partnership

Unstoppable Domains

Partnering with Unstoppable Domains to enable new and existing 1inch Wallet users to enter human-readable domain names (such as Johndo.wallet) to buy and send transactions. This removes a layer of friction, since the default wallet address is a string of alphanumeric characters that are hard to remember and can introduce errors when sending transactions.

Unstoppable Domains are cast NFT without any renewal or casting fee. The NFT can be used as a wallet address and digital identity across various Dapps.

Revolut

By tapping into over 20 million Revolut customers worldwide, the launch of the 1inch Learn and Earn Education initiative will raise awareness and provide the necessary tools to navigate the space. Participants earn 1INCH tokens through the new educational series, which aims to empower users and help them master skills.

Critical event

[

1IP-10] 1inch DAO SAFE airdrop statement

1inch DAO Treasury Gnosis Safe is eligible for 10,128.65 SAFE airdrops, about half of which are available immediately, while half is cashed in over the next four years. The purpose of the proposal is to facilitate the transactions needed to apply for SAFE airdrops and assign them to the 1inch DAO Treasury.

[1IP-11] 1inch Staking Pod

The proposal aims to improve the pledge system to incentivize activities on the web. The Modular delegation award and the Universal stINCH Award should enhance engagement within the community while driving adoption. The proposal describes:

Incentive Time Lock 1INCH Pledge unlicensed delegate Pod Award allocation Compatibility 50% of all current and future 1inch DAO Agreement revenue shall be distributed to stakeholders

[1IP-X] Governance community participation incentive

Discussion around promoting 1inch governance activities by motivating community members to make suggestions and receive rewards. An initial allocation of $12,000 in USDC tokens for a period of six months (2,000 per month).

summarize

1inch Network continues to maintain its position as a leading DEX aggregator, while emphasizing improved user experience and increased liquidity. 1inch empower the community by reducing friction on the user experience and incentivizing participation and adoption through DAO's novel pledge contract update. To achieve these goals, 1inch has launched a Fusion upgrade, partnered with Unstoppable Domains, and passed 1IP-11 Staking Pod. 1inch maintains its strong position in the market and will continue to roll out new chains and solutions, and is expected to integrate with zkSync in the future.