Table of ContentsToggle
Maybe you have ever heard about the 1inch project. This is one of the largest decentralized exchanges in the crypto world. 1inch is especially known for one reason and that is that its developers claim to offer the best exchange rate among all their competitors at all times. In addition, they claim to have options to maximize savings on commissions.
1inch is a powerful decentralized finance protocol or DeFi, whose main objective is to offer its clients an exchange interface that is easy to understand, supports multiple chains, has low commissions and has a system capable of guaranteeing the best possible exchange for those users who implement its services.
This project is a great tool for traders who usually use DeFi applications, those who are looking to convert their tokens, save on commissions and invest less in transaction costs. If you are interested in this project stay reading this article where we will tell you all about 1inch and how it works.
The history of 1inch begins with its foundation in May 2019. After many years working on this project, Russian developers Serjez Kunz and Anton Bukov worked very hard on smart contract auditing. The big idea for this project was born at the ETHNewYork Hackathon where they were experimenting with arbitrage and strategy bots. During these experiments they developed a preliminary version of what would become the protocol.
At that time the protocol was an AMM that had the ability to join several decentralized exchanges to use them as bridges to obtain liquidity and to offer with advantages the best exchange rates in the market.
By 2020, specifically in August, Kunz and Bukov had already raised their first capital worth approximately $2.8 million thanks to collaborators such as Galaxy Digital, Libertus Capital, Dragonfly Capital, FTX, IOSG, Greenfield One, LAUNCHub Ventures, among others. To the capital raised, an additional investment of $12 million was made by Spartan Group, ParaFi Capital, Nima Capital, Blockchain Capital and Pantera Capital.
By raising all this capital, 1inch was able to launch Mooniswap in August 2020. Mooniswap is also known as 1inch Liquidity Protocol. This protocol is an automated market maker or AMM that operated with a small delay of approximately five minutes in prices. This delay allowed the development of a more competitive environment for arbitrage traders and, in turn, was able to reduce the risks of impermanent loss to liquidity providers.
We should note that at the same time Kunz and Bukov were not standing still and at the same time Mooniswap was deployed, they were working on an improved version of the protocol. This version was introduced in November 2020 under the name 1inch V2. This new version featured a powerful routing and pairing algorithm called “Pathfinder“. This new algorithm allowed to offer even better exchanges and had a speed several times faster than the previously presented algorithm.
It is worth noting that Pathfinder had the ability to employ strategies to ensure that the trades being executed could be executed under the most optimal swap formula by taking advantage of the depth of the decentralized swap markets and the behavior presented in the AMM price curve. The new version of Pathfinder was much more optimal and its trades superior to those of the competition.
By the end of 2020 1inch launched the 1INCH token which became the governance token for the DAO of the project. From that moment on, the community has the ability to actively participate in the development of the project. It should be noted that 1inch is currently one of the most recognized projects in the blockchain world.
The operation of 1inch is that of a very peculiar decentralized exchange (DEX), since this operation is based on dividing the exchange order received from the user, among the various decentralized exchanges that it uses as liquidity providers. To understand it better, let’s take an example: if we wanted to exchange ETH for BCH, what 1inch does is to take our exchange order and divide it among the different decentralized exchanges it has indexed. Some examples of these exchanges are Uniswap, AAVE, Curve, Compound, among others.
Once our order has been split, the Pathfinder algorithm starts analyzing the various pools available in the indexed DEX in order to perform our trade. To do this, the algorithm analyzes some data, including the depth of each of these pools, performs a simulation of the price slippage for the order in question, calculates the cost in gas and other exchange fees.
The process described above is repeated for each of the decentralized exchanges consulted and it should be noted that there can be as many as 12 at a time. The last part of the process is the creation of a comparative table where we are provided with information on which is the most optimal exchange solution.
Certain elements are taken into account to offer this solution. These are the exchange that offers the best price, the lowest transaction cost and most importantly, the commissions.
The most striking thing about this project is that to go through this whole process we only need to connect to the DEX through a Web3 wallet and the rest of the transactions will be carried out completely automatically.
In case we do not want to access external exchanges, this project also offers the possibility of creating our own liquidity pools within the platform for the realization of exchanges within the same platform, as well as advanced exchange functions such as the possibility of creating the so-called “limit orders“, among other functions.
The 1INCH token is a token developed for a specific purpose and that is to be used within the 1INCH protocol. In short, this is a utility token oriented to the governance of the protocol. This token also has other utilities such as being used so that third parties can use it as an exchange currency for network services.
An important fact to note is that the total issuance of the 1INCH token is limited to exactly 1.5 billion tokens which are released programmatically within the network. In addition, 1INCH is a multi chain token that is available on Ethereum and BSC.