Key Takeaways
1inch is a DeFi aggregator that sources liquidity from multiple decentralized exchanges to provide users with competitive rates for token swaps.
The platform uses a proprietary routing algorithm, Pathfinder, which can split and optimize trades across different liquidity pools.
1INCH is the protocol’s native token. It’s used for governance, staking, and delegation across the ecosystem.
What Is 1inch?
1inch is a decentralized finance (DeFi) aggregator designed to help users trade tokens more efficiently across multiple decentralized exchanges (DEXs). Instead of relying on a single DEX or manually comparing prices, the platform connects to multiple platforms and automatically finds the optimal routes for your token swaps.
1inch uses smart contracts and routing algorithms to direct trades across different sources, which can help reduce costs and slippage. Additionally, the protocol offers flexible trading options, including a simple mode for quick swaps, an advanced mode with more detailed settings, and limit orders, which allow you to set your desired price.
The swap process usually consists of the following steps:
Connect wallet: Open the 1inch application and connect your preferred wallet.
Select tokens: Choose the token you want to sell and the token you want to receive, then enter the amount. A quote will indicate the amount you are expected to receive.
Approve token: If the token you are selling has not been approved before, complete an approval transaction. This allows the smart contract to interact with your tokens and requires a small gas fee.
Adjust settings: Review your trade and adjust settings if needed. You can set preferences such as gas fee strategy, slippage tolerance, and routing options.
Execute swap: Confirm the swap details and proceed with the transaction. For large trades, you may want to consider enabling additional protection against front running.
Confirm and wait: Approve the final confirmation in your wallet and wait for the blockchain to process the swap. Once complete, the new tokens will appear in your wallet.
History
1inch was founded in 2019 at an ETHGlobal hackathon by Sergej Kunz and Anton Bukov to address the liquidity fragmentation in DeFi, where token prices typically differ across DEXs. Today, the protocol is supported by the 1inch Foundation, which manages the token and ecosystem growth, as well as the 1inch DAO, where token holders guide the platform’s direction through governance.
How 1inch Works
Aggregation Protocol
The Aggregation Protocol is responsible for handling token swaps on the network. The protocol is designed to find the best available rates for token swaps and route transactions across multiple decentralized exchanges.
This process relies on Pathfinder, a real-time routing algorithm that checks liquidity. Pathfinder considers both token prices and gas fees before determining how a trade should be executed. A single transaction can be divided across several DEXs or different liquidity pools within the same DEX to reduce slippage and improve execution.
All trades are processed through smart contracts that run verification checks during execution. Each swap is carried out as an atomic transaction, meaning it will either be completed in full or not at all. This setup provides a safeguard for your funds, even if one of the liquidity sources does not work as expected.
Limit Order Protocol
The Limit Order Protocol gives traders more control over their swaps. Instead of having a trade go through instantly at the current market price, you can set conditions for when it should be executed. For instance, you might choose to sell a token only if its price rises to a certain level.
When you create a limit order on 1inch, the trade is stored in an off-chain database rather than directly on the blockchain. Once the conditions are met, the order can be filled by anyone, including the Aggregation Protocol. The party that fills the order covers the gas fees, and 1inch does not charge extra fees for this service.
Behind the scenes, smart contracts handle price calculations based on supply and demand. This setup also supports more advanced features, like auctions and requests for quotes (RFQs). With an RFQ, you specify the exact amount of tokens you want to buy or sell, and a counterparty can step in to complete the order if they agree to the terms.
Key Features
Spot Price Aggregator
The Spot Price Aggregator is designed to provide accurate token pricing for decentralized markets. The aggregator works by pulling price and liquidity data directly on-chain, querying multiple DEXs across EVM-compatible networks.
To maintain reliable results, the system filters out pools with low liquidity, which are more susceptible to price manipulation. The aggregator also recognizes wrapped tokens and converts them back into their underlying base assets, providing consistent pricing across different token standards.
After collecting the data, the aggregator calculates liquidity-weighted averages to give a fair view of market conditions. This tool is designed for use off-chain, since relying on it directly within smart contracts could expose trades to manipulation risks.
The 1inch Wallet
The 1inch Wallet is a non-custodial mobile wallet that allows you to swap tokens, stake assets, and track your portfolio all in one place. It supports the Ledger hardware wallet for added security and includes a built-in scam protection feature.
When you visit a website or connect to a decentralized application (DApp) through the browser, the wallet automatically scans the domain and alerts you if any suspicious activity is detected. These features add an extra layer of protection, but you should still exercise caution, as risks can persist when dealing with unfamiliar sites or applications.
The 1INCH Token
The 1INCH token is the native token of the 1inch ecosystem and has a maximum supply of 1.5 billion. It’s used within the protocol for many purposes, including:
Governance: 1INCH holders can vote on key protocol decisions, including upgrades, fees, treasury management, and the operation of Fusion Mode.
Staking: By staking 1INCH, holders help secure the protocol and can earn rewards distributed through DAO initiatives or resolver programs.
Delegation: 1INCH holders can delegate their voting power to trusted representatives or resolvers, supporting protocol activity while maintaining control of their influence.
Closing Thoughts
1inch is a DeFi aggregator designed to make token swaps more efficient and provide access to competitive exchange rates. Its Aggregation Protocol identifies trading routes across different DEXs, while the Limit Order Protocol allows users to set specific trading conditions. Additionally, the protocol’s Spot Price Aggregator offers competitive token pricing, and the 1inch wallet brings these features to mobile users with additional security measures.
Further Reading
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