What Is 1inch Network (1INCH)?
1inch Network is a pioneering DEX (Decentralized Exchange) aggregator, established by developers Sergej Kunz and Anton Bukov, who are known for their expertise in smart contract auditing. Launched during the ETHNewYork hackathon in 2019, 1inch was designed to optimize the trading process in the decentralized finance (DeFi) space by searching through a multitude of decentralized exchanges to find the most profitable trading platforms for liquidity providers.
The platform stands out for its ability to offer deep liquidity, which is essential for efficient market functioning, as it allows traders to swap assets without significantly impacting their prices. 1inch provides access to over 116 sources across multiple blockchains like Ethereum, Binance Smart Chain, and Polygon Network, managing liquidity sources valued at over $30 billion. This vast network enables users to swap various tokens at optimal prices with lower transaction fees.
1inch's approach is akin to popular hotel aggregator platforms such as Trivago or Kayak, which simplify the search for the best rates across different websites. Similarly, 1inch aggregates data from various DEXs, presenting users with the best exchange rates and fee structures in one place, eliminating the need to individually scour multiple platforms.
The network has gained significant traction and funding, raising about $15 million, and is governed by the 1inch Network Foundation. The foundation also launched the 1INCH token in December 2020, which plays a critical role in the platform’s decentralized autonomous organization (DAO) and contributes to the ecosystem by aiding in gas-preserving swap execution.
Sergej Kunz and Anton Bukov have led the project since its inception. Kunz, based in Stuttgart, Germany, has a background in cybersecurity, while Bukov was a smart contract developer before co-founding 1inch. The project’s impressive development is reflected in its funding history, with significant investments from entities like Binance Labs and Pantera Capital. 1inch's adoption has been rapid, surpassing $1 billion in total volume within its first year and expanding into multiple blockchain networks, including Binance Smart Chain and Polygon.
1inch Network, with its innovative aggregation protocol and commitment to improving the efficiency of the DeFi market, has established itself as a significant player in the cryptocurrency space, offering users a streamlined, cost-effective, and secure platform for token swapping.
How Does 1inch work?
1inch Network operates as a DEX aggregator, much like popular travel booking websites, which aggregate prices from various providers. It compares cryptocurrency prices and trading fees across several decentralized exchanges (DEXes), automating the process of finding the best rates and lowest fees for users. This is achieved through its aggregation protocol, which employs the Pathfinder algorithm. Pathfinder evaluates numerous swap possibilities on one or multiple DEXes to secure the best price, often splitting trades across different platforms to optimize cost-efficiency.
A key feature of 1inch is its ability to automatically route trades to the most advantageous platforms, considering both price and transaction fees. For example, a user wishing to exchange DAI for Ether might find their trade split between different exchanges like 0x and Balancer to minimize costs. This seamless process occurs behind the scenes, providing a single transaction experience for the user.
The platform's central proposition is its speedy and efficient trade execution. Utilizing its advanced algorithm across over 80 decentralized exchanges, 1inch negates the need for time-consuming, individual exchange comparisons. This efficiency also addresses the issue of slippage – the price movement between transaction confirmation and execution – which is a common challenge in volatile crypto markets. By distributing trades across multiple liquidity pools, 1inch enhances pricing transparency and accuracy.
Moreover, 1inch reduces transaction costs by finding trading routes with lower gas fees while maintaining high returns, and ensures security as a non-custodial platform, keeping users' funds tied to their private keys.
In 2022, 1inch expanded its capabilities with the introduction of Fusion, a feature aimed at eliminating gas fees and reducing front-running risks. Fusion swaps, processed as limit orders through a Dutch auction mechanism, are facilitated by resolvers who pay the gas fees. This is particularly beneficial on congested networks like Ethereum's mainnet.
Besides the aggregation protocol and Fusion, 1inch also offers a limit order protocol, allowing users to set specific prices for their swaps, and RabbitHole, which mitigates front-running risks by routing swaps through third-party validators.
In summary, 1inch streamlines the process of cryptocurrency trading across multiple DEXes, offering users a more efficient, cost-effective, and secure trading experience. Its innovative approach to aggregating trades, reducing slippage, and addressing common DeFi challenges positions it as a leading platform in the cryptocurrency exchange domain.
How is the 1INCH token used?
The 1INCH token, integral to the 1inch Network, functions as both a utility and governance token across multiple smart contract chains. Released in December 2020 with 6% of tokens initially unlocked, 1INCH plays a vital role in the platform's ecosystem.
In terms of utility, within the Fusion mode of 1inch, 1INCH tokens are staked by parties called "resolvers." They deposit these tokens into a “feebank” contract, thus becoming eligible for processing swap transactions on the platform. This staking mechanism is crucial for the efficient functioning of the Fusion feature, which aims to reduce gas fees and minimize front-running risks in swap transactions.
On the governance side, holding 1INCH tokens empowers users with voting rights within the 1inch Decentralized Autonomous Organization (DAO). This aspect of the token grants its holders a significant say in the platform’s future directions and decision-making processes. The 1INCH DAO is a decentralized entity that steers the platform, ensuring that it evolves in alignment with the community's interests.
The distribution of the 1INCH token was strategically planned, with a maximum supply of 1.5 billion tokens. These were allocated as follows: 33% to backers and investors, 30% to community incentives, 22.5% to core contributors, and 14.5% to the network growth fund, with complete distribution scheduled by the end of 2024.
Users interested in joining the 1INCH DAO can do so by acquiring 1INCH tokens, connecting their wallets to the 1inch dapp on the Ethereum network, and staking their tokens. Upon staking, users receive Unicorn Power, a unique measure within the platform, which they can delegate to earn rewards.
In summary, the 1INCH token is a cornerstone of the 1inch Network, serving dual roles in utility and governance. It enables participation in the Fusion protocol and grants holders a say in the platform's direction through the 1INCH DAO. The token's strategic distribution underscores its importance in the network's growth and community engagement. As 1inch continues to evolve, the role of the 1INCH token in facilitating transactions and empowering users remains central to its ecosystem.
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