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1inch Explained: Is It a Good Investment?

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1inch Good Investment

There are lots of DEXs out there in the market but we also have what we call DEX aggregators. On top of that, we still have DEX aggregators with liquidity pools of their own. 1inch is one of such DEX aggregators, which enables the farming of its token 1INCH on its platform. The 1inch protocol offers decentralized exchange along with its liquidity pools. Additionally, it can draw on other DEXs liquidity pools and that put it in a position to offer better rates.

As with other DEXs, 1inch offers similar benefits that CEXs don’t offer like better stability, self-custody of your token, autonomy over the listing of tokens as well as coin diversity. The downsides are mostly issues of low liquidity and thin order books, which 1inch aims to solve. The issue of a thin order book results in canceled transactions that can be costly and with high slippage. We look at what 1inch offers that make it so different and a worthy investment for potential investors.

Introducing The 1inch DEX

Let’s start with a little background story of how it all started. The 1inch platform is the brainchild of Anton Bukov and Sergei Kunz who are both from Russia. They started with smart contracts auditing before working on the idea of 1inch and eventually establishing it in 2019 raising around $14.8M over two rounds of fundraising. Notable names like Pantera and Binance Labs did participate in the fundraising. The two founders are well versed in the crypto industry taking part and winning many bounty programs.

As we hinted earlier, 1inch serves as a DEX aggregator that allows the protocol to pull resources from several other DEXs.  This way it groups many large DEXs into a single entity with many headings on its platform. That is you can access the liquidity pools of these DEXs right from inside 1inch and also view which has the best price to enable you to secure the best deal on transactions you make. You can easily split and distribute your trading over several exchanges through 1inch to get the best price possible and lower slippage too.

The 1inch platform as of now accommodates over 20 liquidity pools with notable ones being SushiSwap, Kyber, Balancer, Uniswap, and Curve. Additionally, unlike centralized exchanges, 1inch does not hold your funds on its platform, as it is non-custodial. That means that every trade you do is straight from your wallets in just one transaction. Once your wallet is connected to the 1inch platform you can begin trading tokens at the best market price. You are also allowed to set up limit orders without any incurred fee. At the same time, you can earn interest on injected liquidity into the pools or lending out cryptos. The addition of the 1INCH token as the native token to the platform and the introduction of liquidity pools now means that you can stake your tokens to earn rewards paid in the protocol native token.

1inch-crypto-exchange-platform

Is There Any Exchange Fee On 1inch?

Now, the 1inch platform itself has no fees for transactions that take place on its platform. Instead, the only fee you will pay is charged by the DEX where the liquidity is sourced from and that varies per DEX. So, DEXs like Balancer or Uniswap each will have their unique transaction fees. Therefore, you should be aware of how much the supported DEX charges as transaction fees. The native token “1INCH” is used for rewards on the 1inch exchange.

So, how does 1inch DEX get the money if it doesn’t have transaction fees of its own? Well, the platform gets a share of the transaction fee that is charged by the source of the liquidity that is supported on its platform. So that means 1inch will get a share of whatever fees liquidity sources like Uniswap charged the users. Additionally, the 1inch exchange gains money from positive slippage and a part of it goes to the referrers while the remaining part is disbursed as governance rewards.

What users of DEX have to put in mind is the issue of gas price especially on an Ethereum-based platform like 1inch. The high transaction volume on Ethereum has driven the gas price up, which means that you could be paying a high gas price on transactions at times. When the Ethereum is low, you can bring this down by using Chi Gastoken on the 1inch exchange to bring down your costs of trading or transaction.

What Makes 1inch Different?

Tackling the Issue of Liquidity

; the major issue facing DEXs is that of low liquidity combined with the fact that the available is even spread across several different DEXs. This makes the matter worse, which is why huge transactions are vulnerable to high slippage and that affects pricing hence affecting the execution of the trade.

To solve this significant issue, 1inch aggregates liquidity from all these DEXs and presents each DEX price, gas price, and available liquidity in a user-friendly way. 1inch goes further by distributing the orders over several exchanges at the same time ensuring it is all done in a single transaction. This reduces the time you waste clicking on several DEXs to check their order books.

Introducing the GasToken

to combat the issue of high gas prices on the Ethereum network when transaction volume on the Ethereum network goes up. The usage of GasToken by the 1inch exchange helps stabilize the gas fee and saves you costs on transactions made.

There is also what we call

Smart Contract Covers

on the 1inch platform which you can buy straight from Nexus Mutual via the 1inch exchange.

Understanding the 1inch Token

1inch-token-explained

As mentioned already, the 1inch exchange is Ethereum-based and that means its native token is an ERC-20 token. It serves the functions of governance and rewards. The introduction of the 1INCH token now means that the platform will be under the 1inch DAO. The utility token was released by the 1INCH Foundation to foster permissionless trading and decentralization of the 1inch protocol.

The token holders are able to participate in the governance of the protocol and decide on important matters that affect the future of the protocol like governance reward, the swap fee for 1inch liquidity pool as well as price impact fee which represents the dynamic swapping fee based on the incurred price impact. Also, the token holders can vote on measures of the Spread Surplus Pool. This will be discussed further under governance and rewards.

To participate in governance you can simply navigate to the DAO tab on the 1inch site and check the present requirements there. However, you must have staked your tokens by them or inject liquidity into the 1inch platform.

The Tokenomics

The 1INCH token is capped at 1.5 billion tokens with the community taking 30% of the supply to be utilized over four years while 14.5% going to the development of the platform and the rest of the supply released gradually to the investors, team, among others.

It is projected that close to 50,000 wallets will scoop 6 percent of the token supply during the first distribution round.

Trading on 1inch DEX

Once you are on the 1inch platform, you can link your wallet through the connect wallet tab. You can use well-known wallets like Ledger and Metamask for the 1inch exchange. You can now proceed to choose tokens you will like to trade and check the best prices for them. You can choose which DEX you want to view too. You can then scroll down to check the displayed exchange rate for each DEX and the variation of their price from the best market price. The platform also displays certain CEXs for comparison purposes.

Once you have satisfied all requirements, you can proceed to trade your token by clicking on the Swap Now button. After which you are required to confirm your trade. However, before you confirm, ensure that every information supplied is correct then you can click Verify button. The transaction will be approved from your wallet and processed on the Ethereum network. That is how the 1inch exchange can keep the slippage low and ensure that you get the best market price for your token.

Governance and Rewards

One aspect that 1inch does differently from other DeFi’s is the governance model adopted by the protocol. Most Defi’s lacks a governance model that is adept at responding and adopting changes on the protocol swiftly to match the fast-moving market. To counter this, 1inch adopted an instant governance model where participants can vote on certain protocol measures without any barrier to entry. This is done under the DAO in an effective, transparent, and easy way for token holders. Under this governance model by 1inch, each vote counts.

The token will serve both the present and future protocols that could launch within 1inch. For starters, the 1inch network is kicking off with the 1inch Liquidity Protocol governance modules

and the 1inch governance aggregation protocol. The governance aggregation protocol allows token holders to stake their tokens so that they can vote on the settings of Spread Surplus. Spread Surplus is gained from swapping in cases where the quoted price is slightly lower than the price at which the transaction occurred.

This is not to say that 1inch is manipulating the price. That is far from it, what happens here is the Pathfinder algorithm fetches the best and updated prices for a swap, which is the quoted price. However, the price can shift in between the time of quoted price and actual execution of trade and that is what could potentially generate a Spread Surplus.

At the moment, 1INCH stakers get 0% of the Spread Surplus as every surplus is paid to referrers. However, that is something that can change through voting.

The liquidity protocol governance features the price impact fee, which is a fee that accumulates as a result of price slippage. This fee is paid as a reward to stakers and liquidity providers and it allows stakeholders to earn a substantial amount on the protocol due to volatility. Liquidity providers and stakers have a say on key parameters on the protocols such as referral reward, price impact fee, governance reward, and swap fee. This is all done through voting using the token.

The Types of Governance

We have two, which are factory and pool governance. The factory governance covers every setting that is common to every pool like the default price impact fee, swap fee, governance reward, referral reward, and decay period. On the other hand, the pool governance deals with each pool-specific settings regarding price impact fee, swap fee, governance reward, referral reward, and decay period.

Explaining Some Terminologies

Swap Fee

This is the fee attached to every swap on the network and it is fixed.

Decay Period

This is put in place to protect users against arbitrage trading that extract value from the liquidity pool. Also, it is meant to safeguard users against front-running attacks. The longer the decay period the wider price spread after transactions. The decay period can be between a minute and five minutes.

Referral and Governance Reward

The referral reward is deduced from both the price impact fee and swap fee, it is paid to referrers, and they are wallets and DApps that bring in trading volume and traders. As a referrer, you can claim your share of the token from every pool is one swoop. Governance reward is the compensation paid to stakers for their participation in governance. This is also deduced from both the price impact fee and swap fee.

The Limit Order

The limit order allows you to set a duration for your order, during this period it is active and can be filled by takers. To do that, you will need to select your preferred trading pair and input the token amount. Version 2 of the 1inch exchange now allows this functionality for users.

What Are the Available Liquidity Pools?

In case you don’t know, the now rebranded Mooniswap is what became the 1inch liquidity pool. You can either remove your liquidity from Mooniswap or have it migrated to a 1inch liquidity pool. You can view the pools via the DAO tab where you will find the pool segment. There you will see all liquidity pools with their corresponding APY rates as well as other beneficial information. To add liquidity, you will need to link your wallet to the 1inch network.

That being said, there are various pools under the 1inch network where you can inject liquidity and earn money. However, not every pool is eligible for yield farming 1INCH token. The farming pools supported where you can stake your LP tokens to farm yields include 1INCH-DAI, 1INCH-ETH, and 1INCH-USDC.

Is 1INCH A Good Investment?

1inch good investment

The coin is currently ranked 114 on Coinmarketcap with a trading volume of $139,634,772 over the last 24 hours. It is currently trading at $2.51 as of January 25, 2021, and according to Cointobuy, you can expect it to go up further in the future. It is worth noting that last month saw the token reach as high as $2.6 after Binance announced that it is listing the token on its exchange. Why is this significant? Well, if you considered that before that time the token was trading for a mere $0.2. You will see that this is a significant boost for the token performance in the market.

The ability of the 1inch protocol to optimize trading for traders and ensuring lower price slippage put the platform and its token in a good stand with users in the market. This approach by 1inch has allowed it to gain massive traction with the cumulative trading volume nearing $6.6B as of December 2, 2020. To put this into perspective, this is achieved just 17 months after the protocol was established.

Potentially, 1inch can be boosted further by the clear roadmap laid down by the 1inch dev team and that includes the introduction of lending and yield farming protocol. When you add that to the already established next-gen AMM protocol and the 1INCH token, it bodes well for the potential of the 1INCH token in the market.

The further add to the above points, version 2 of the 1inch protocol has gone live now with many new features like the Pathfinder API to further enhance the performance of the token. The fact that popular exchanges like HBTC, BiONE, Binance, OKEx, and Huobi Global have listed the token on their exchanges for trading speak well of the token investment worthiness.

Conclusion

One major issue with DEXs in the current market setting is Liquidity. Apart from low liquidity, DEXs liquidity is spread across several different DEXs and that makes the matter worse for traders. This exposes a significant amount of huge transactions to high price slippage. Thus, culminating in a trade execution pricing that is considered weak.

However, by splitting this transaction across several exchanges at a go in a single transaction. 1inch solves the issue of price slippage. To also tackle the issue of liquidity, the platform aggregate and sources liquidity from several decentralized exchanges. This efficient and effective means of trading provides a single point of entry to Defi for many traders and creates a trading ecosystem that tackles the bottlenecks existing in the DeFi market.

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