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1inch can not only quickly find the best exchange rate for token exchange, but also improve the most effective exchange path. The newly launched 1inch v2 introduced CHI tokens and made significant improvements in many aspects.
Original author: Paul Veradittakit
Translator: Lu Jiangfei
In 2020, decentralized exchanges (DEX) have brought a lot of liquidity to many early token projects, and launched the concept of “liquid mining” more groundbreakingly. DeFi users only need to provide liquidity to get benefits. Now, several decentralized exchanges have appeared in the industry. Decentralized exchanges are meaningful for aggregators (major brokerage business) because they can facilitate transactions and provide the best transactions in different liquidity pools. Implementation (best trade execution). Since the “fragmentation” of DEX liquidity is unlikely to disappear in a short time, platforms like 1inch can easily become the first choice for most DeFi trading users.
Traditional transaction aggregation / prime brokerage services
In traditional financial markets, only investment banks and large financial institutions can provide transaction aggregation/primary brokerage services to help hedge funds or other banks promote active trading operations. As an intermediary, transaction aggregation/ prime brokerage service providers can provide customers with many support and services, such as:
- Manage risk;
- Capital Accumulation;
- Coordinate secure transactions
- Acting as a “middleman” between hedge funds and institutional investors and commercial bank counterparties.
Transaction aggregation / prime brokerage business services can enable large-scale trading operations to proceed smoothly, thereby closely connecting institutional traders with global markets and investors.
Digital asset transaction aggregation / prime brokerage business
Like institutional counterparties, cryptocurrency traders have the same liquidity, security, and regulatory requirements. However, the development of existing technology and financial infrastructure to support the crypto ecosystem is still incomplete and out of touch with the market. Despite the large number of cryptocurrency exchanges, there are still major limitations in terms of interconnectivity, network security and cross-platform efficiency. In 2019, the cumulative market value of cryptocurrencies has been close to 250 billion U.S. dollars, and the influence and scale of the crypto ecosystem are increasing. Therefore, the market’s demand for cryptocurrency prime brokerage services has become more and more urgent. In fact, some transaction aggregation/brokerage services have appeared in the crypto market. The main solutions they provide include:
- Provide support for trading activities;
- Provide support for arbitrage opportunities;
- Provide support for multi-platform navigation services of the trading ecosystem.
What is a decentralized exchange?
Decentralized exchange (DEX) is a cryptocurrency exchange that can be operated without the involvement of a central agency or a third party. Based on the Ethereum blockchain, decentralized exchanges provide users with higher security, and can effectively control stored funds or transaction funds. In contrast, centralized exchanges do not completely rely on blockchain. They really rely on third-party operators, and transaction fees are also charged by these third parties.
What challenges do traditional decentralized exchanges face?
- Inefficiency: Users must manually view all traditional decentralized exchanges so they understand the best price and the most effective price before they can choose a decentralized exchange for exchange transactions;
- It is difficult to find the best exchange rate for tokens in traditional decentralized exchanges, and manual inspection cannot cope with complicated transaction routes and paths;
- Comparing the exchange rates of all traditional decentralized exchanges (the exchange rate data are all floating) is a very time-consuming process.
The DEX aggregator is a relatively new product that can find the best token exchange rate for users in the shortest time, not limited to any single exchange. If the DEX aggregator algorithm is advanced enough, it can also allow users to complete the optimal transaction at the best price in real time, while avoiding the loss caused by the user’s price impact and reducing the risk of transaction failure.
What is 1inch?
1inch was launched in May 2019. It is a DeFi aggregation service platform that can pool liquidity from multiple other decentralized exchanges to provide traders with the best potential exchange rates for token exchanges. 1inch effectively serves as a unified portal for the decentralized exchange ecosystem, bringing together different sources of liquidity, enabling traders to effectively trade on different DeFi platforms.
On the other hand, 1inch is also a non-custodial exchange. They will not directly hold users’ digital assets, but help users to conduct peer-to-peer transactions, and then charge a small fee for each transaction. 1inch will “split” the tokens that users want to exchange into multiple parts, and then distribute them in multiple “market depths”, and each part will be exchanged on different decentralized exchanges. Currently, 1inch Exchange obtains liquidity from 21 mainstream DeFi protocols, including 0x Protocol, Uniswap, Bancor, Balancer, Kyber, Airswap, etc.
Chi Gas Token
In May 2020, 1inch announced the launch of a native functional gas token: Chi. During the transaction, 1inch will destroy gas tokens to reduce costs. In fact, 1inch Chi Gas Token can reduce gas costs by 42%. By using Chi Gas Token in transactions, it can help users effectively save miners’ fees and costs, and then bid for higher prices without having to pay correspondingly high gas fees. So far, 1inch has burned nearly 6 million gas tokens, saving users more than 2 million US dollars in gas costs.
If you want to transfer value on the Ethereum network, users must pay a gas fee (GWEI), similar to the fees charged by banks for fund transfers. As a basic resource, the gas fee is included in every Ethereum network transaction. The mining reward paid by the Ethereum blockchain to miners is proportional to the gas fee consumed by the transaction. However, due to the volatility of gas fees, it is almost impossible to accurately predict the final scale of transaction costs-and this is the main reason why 1inch created the Chi Gas Token, which is to solve the problem of high volatility of gas fees. By tokenizing gas fees, users can store gas when the cost is low, and then use/deploy gas when the cost is high.
1inch released the second version of the agreement in November 2020, aiming to improve the initial agreement to ensure that users process transactions at the best exchange rate and fastest speed. The main component of the 1inch v2 version is Pathfinder, which is an application programming interface (API), which includes:
- A new exploration and routing algorithm;
- A more intuitive, customizable and user-friendly UI.
In addition to being able to “split” a token exchange transaction between multiple liquidity agreements, the new Pathfinder algorithm also effectively utilizes the many “market depths” in the same agreement. The “market depth” is based on The number of public buying and selling orders is an important indicator of the supply and demand relationship of cryptocurrency.
Pathfinder can split an exchange transaction for a specific protocol according to different “market depths”. It actually acts as a bridge between the “source token” and the “destination token”. At this stage, 1inch v2 supports finding the best exchange rate from 21 different DeFi liquidity sources, and can fully shorten the response time and help users process transactions more efficiently. For example, the 1 sBTC-sUSD exchange rate provided on the 1inch platform is nearly 98% higher than the bid on the Uniswap platform.
Pathfinder redemption path:
The 1inch v2 platform can perform multi-path exchange transactions. As part of the exchange path, 1inch v2 also supports “packaging”, “unpacking” and “migration” from Aave and Compound mortgage tokens.
The following figure shows the Pathfinder user interface:
Why is 1inch so attractive?
1inch Exchange provides users with a highly innovative DeFi trading experience, allowing users to process large transactions at the best exchange rate. In the past, when users wanted to find the best exchange rate for tokens, they had to manually search on many DEXs, which was very difficult and time-consuming. 1inch provides an automated and interoperable platform that can not only find it quickly The best exchange rate for token exchange can also improve the most effective exchange path.
Not only that, the newly launched 1inch v2 introduced the CHI token and made significant improvements in many aspects, including:
- Bring users customizable and price-competitive transactions;
- Aggregate liquidity;
- Improve lower gas cost;
- Colleagues in reducing user costs have further simplified important transaction functions.
Recently, DEX transaction volume has shown explosive growth, and the 1inch solution appeared at the right time. In fact, DEX’s market growth performance during this period was significantly better than that of centralized exchanges (CEX). According to CoinGecko data, in the third quarter of 2020, the average monthly transaction volume of the top ten decentralized exchanges increased by 197%, while the average monthly transaction volume growth rate of the top ten centralized exchanges was only 35%. Of course, in terms of total market transaction volume, centralized exchanges still account for a large portion of the market, but DEX has begun to accelerate its “grabbing” of market share-from 3.8 billion US dollars in July this year to 30 billion US dollars in September ,impressive. In the DEX market, Uniswap continues to dominate. In July this year, its transaction volume accounted for 47%, but by September it had soared to 63%, and its transaction volume even surpassed Coinbase. In addition, between July and September, the total transaction volume of centralized and decentralized exchanges increased by US$155 billion, an increase of 88%.
Source of the above image: CoinGecko
It is estimated that by the end of 2021, 1inch will gain 70% of the DEX market share. As the most commonly used aggregator by traders in the DeFi community, 1inch’s recent total transaction volume has exceeded 6 billion US dollars, and the total transaction volume of token exchanges exceeds 350,000 , Has strong growth prospects.