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The 1inch Network is a decentralized exchange (DEX) aggregator. It’s trying to become the decentralized finance (DeFi) equivalent of one of those hotel or car insurance websites sifting myriad data streams to find the most inexpensive prices.
The 1INCH token serves as the 1inch protocol’s governance token and also as its utility token, per 1inch. Holders use the token to vote within the Decentralized Autonomous Organization (DAO) model.
A DeFi variety pack – liquidity aggregation, limit order functionality, yield farming, among other services – 1inch’s decentralized applications (dApps) boast an ability to instantly scour “thousands of quotes and fees across multiple DEXs to provide users with the best rates.”
All the key DEXs get scraped for the cheapest prices, as Decrypt put it.
To put 1inch in perspective, consider some basics about sprawling, fragmented, unconventionally facilitated crypto trading markets.
Within the autonomous, permission-less DEX realm, staked assets are pooled to keep these markets liquid; individual tokenholders deposit their coins for an annual yield and, in turn, these assets (the liquidity supply) get priced via a complicated mathematical formula called a bonding curve. It values tokens relative to their given supply within a particular liquidity pool. The most prominent DEXs include Uniswap, Sushi, Pancake Swap and Curve Finance. While similar, these exchanges often differ in the way they price digital assets and set fees, creating arbitrage opportunities that can be exploited by speculative traders.
Theoretically, and practically, these ever-so-slight discrepancies in price and trading fees make it possible for digital market participants to find the best deal on a given token. Because DEX aggregators source liquidity from different DEXs, they have the ability to optimize slippage, swap fees and token prices which, when done right, offer a better rate for users, according to Quora.
An algorithm-wielding, crazy-fastidious bargain hunter, 1inch scours nearly 170 liquidity sources across seven blockchain ecosystems in search of the cheapest route for potential trades. According to 1inch Network, its aggregation protocol uses the proprietary Pathfinder Algorithm to sniff out the best prices anywhere, including from a selection of more than 90 liquidity sources running on Ethereum and Binance; and from more than 30 sources connected with Polygon and Arbitrum.
Trade routes can be circuitous to say the least. It may turn out the cheapest/most efficient way to swap your UNI for ETH involves swapping UNI for three other completely different tokens across two separate exchanges before finally getting that ETH, Decrypt explained.
The brainchild of Sergej Kunz and Anton Bukov, 1inch was founded in 2019 during an ETH hackathon event; it would secure $5 million in an initial round of funding. Originally focused on purely DEX aggregation services, the protocol has since expanded their product offerings to comprise a full complement of DeFI services, such as the 1inch Liquidity Protocol (LP), an independent, automated market maker (AMM).
Christmas 2020 marked the launch (via airdrop) of 1inch’s native currency. The 1INCH governance token grants holders the right to vote on proposed changed to the protocol. Liquidity providers earn 1inch in exchange for deposits on the 1inch LP. As of early 2022, the token is compatible with both the Ethereum Network and Binance Smart Chain.
Continued innovation has been a hallmark of the protocol since its inception. Late 2020 marked the debut of 1inch 2.0, a network update designed to decrease transaction speeds and costs. This was quickly followed by the March 2021 launch of 1inch 3.0, a revamped aggregation protocol intended to reduce gas fees by an additional 30% (Decrypt).
Be on the lookout for 1inch Pro, designed to fully comply with appropriate U.S. regulations. Not having a full regulatory green light in the U.S. is viewed unfavorably. The announcement coincided with the infusion of an additional $125 million in Series B funding which will be primarily invested in 1inch Pro and related services (TechCrunch).
As of February 2022, 1inch says that it ranks as the world’s leading DEX aggregation service, transferring, on average, roughly $250 million worth of digital assets each day.
As of mid-February 2022, 1INCH was changing hands at roughly $1.77, representing, over the prior six-month period, a decline of 42%. This down move comes amidst larger price corrections in digital asset markets and risk assets in general. Back in May of 2021, the 1INCH token hit an all-time high of $7.45. A summer price drought ensues. That was followed by a steady streak of positive performance throughout the autumn of 2021, a period in which the token hit $5.62, its highest level in several months. 1INCH is currently the 155th largest digital asset with a market cap of roughly $830 million.
The token’s price is, in part, a function of its scarcity. Unlike fiat currencies, with their seemingly infinite supply, 1INCH is capped at 1.5 billion tokens, roughly 415 million of which are already in circulation.
Per the protocol, all remaining tokens will be gradually distributed over the next two years.
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