Key Points
1inch is a DeFi aggregation platform that gathers liquidity from multiple decentralized exchanges to provide users with competitive token exchange rates.
The platform uses a proprietary routing algorithm called Pathfinder to split and optimize trading paths between different liquidity pools.
1INCH is the native token of the protocol, used for governance, staking, and delegation.
What is 1inch?
1inch is a decentralized finance (DeFi) aggregation platform designed to help users trade tokens more efficiently across multiple decentralized exchanges (DEXs). The platform does not rely on a single DEX or manual price comparison but connects multiple platforms to automatically find the optimal token exchange paths.
1inch routes trades between different sources of liquidity through smart contracts and routing algorithms, helping to reduce trading costs and slippage. Additionally, the protocol offers several flexible trading modes, including: simple mode (quick completion of exchanges), advanced mode (providing more detailed settings), and limit orders (supporting on-demand price setting).
The exchange process typically includes the following steps:
Connect Wallet: Open the 1inch application and connect the wallet you need.
Select Tokens: Choose the tokens you want to sell and the tokens you wish to receive, then enter the sell amount. The system will display the expected amount to be received.
Authorize Tokens: If the tokens to be sold have not been authorized yet, complete the authorization transaction first to allow the smart contract to operate your tokens, which incurs a small Gas fee.
Adjust Settings: Review the transaction details and adjust settings as needed. You can set preferences such as Gas fee strategy, slippage tolerance, and routing options.
Execute Exchange: Confirm the transaction details and submit the transaction. For large transactions, consider enabling additional protective measures against front-running.
Confirm and Wait: Perform final confirmation and authorization in your wallet and wait for the blockchain processing to complete. After the transaction is completed, the new tokens will appear in your wallet.
Historical Development
1inch was founded by Sergej Kunz and Anton Bukov in 2019 during the ETHGlobal hackathon, aiming to address the liquidity fragmentation issue in DeFi—the token prices often differ between different DEXes. Today, the protocol is supported by the 1inch Foundation (responsible for managing tokens and ecosystem growth) and 1inch DAO (guided by token holders through governance to direct the platform's development).
How does 1inch work?
Aggregation Protocol
The Aggregation Protocol is responsible for handling token exchanges on the network. Its core goal is to find the optimal exchange price for users and route trades across multiple decentralized trading platforms.
This process relies on the routing algorithm Pathfinder, which can track liquidity in real-time. Before determining the execution path for a transaction, Pathfinder considers token prices and Gas fees. A single transaction can be split across multiple DEXes or different liquidity pools within the same DEX, thereby reducing slippage and enhancing execution efficiency.
All trades are processed through the smart contract and verified during execution. Each exchange transaction is atomic, meaning it either completes entirely or not at all. Even if one source of liquidity does not operate as expected, this mechanism ensures the safety of user funds.
Limit Order Protocol
The Limit Order Protocol provides traders with more control in exchanges, allowing users to set execution conditions instead of immediately trading at the current market price. For example, you can choose to sell tokens only when the price reaches a specific target.
When creating a limit order on 1inch, the order is stored in an off-chain database, not directly on the blockchain. Once conditions are met, any trading party can match the order, including aggregation protocols. The matching party will bear the Gas fee, and 1inch does not charge additional fees for this service.
The smart contract in the background calculates prices based on supply and demand. This mechanism also supports more advanced features, such as auctions and Request for Quote (RFQ). With RFQ, you can specify the exact amount of tokens to buy or sell, and if an agreement is reached with the counterparty, the transaction can be completed.
Key Features
Spot Price Aggregator
The Spot Price Aggregator is designed to provide accurate token pricing for decentralized markets. This aggregator queries multiple DEXes across EVM compatible networks to directly obtain price and liquidity data on-chain.
To ensure data reliability, the system filters out liquidity pools with lower liquidity, as these pools are more susceptible to price manipulation. The aggregator also identifies wrapped tokens and converts them back to their corresponding underlying assets, providing consistent pricing across different token standards.
After collecting data, the aggregator calculates a liquidity-weighted average to fairly reflect market conditions. This tool is primarily used for off-chain applications, as using it directly in smart contracts may increase the risk of trading manipulation.
1inch Wallet
The 1inch Wallet is a non-custodial mobile wallet that enables users to exchange tokens in one place, stake assets, and track portfolio performance. It supports Ledger hardware wallets for enhanced security and includes scam protection features.
When you access the website through a browser or connect to a decentralized application (dApp), the wallet will automatically scan the domain and alert you when suspicious activity is detected. This adds an extra layer of security, but caution is still advised when visiting unfamiliar sites or apps.
1INCH Token
1INCH is the native token of the 1inch ecosystem, with a maximum supply of 1.5 billion tokens. The token has various uses within the protocol, including:
Governance: 1INCH holders can vote on key protocol decisions, such as upgrades, fee adjustments, fund management, and the operation of Fusion Mode.
Staking: Holders can participate in protocol security maintenance by staking 1INCH and receive reward distributions through DAO programs or Resolver incentive programs.
Delegation: 1INCH holders can delegate their voting rights to trusted representatives or resolvers to support protocol activities while retaining control over their influence.
Conclusion
1inch is a DeFi aggregation platform designed to improve token exchange efficiency and provide competitive prices. Its aggregation protocol determines the optimal trading path across different DEXes, while the limit order protocol allows users to set specific trading conditions. Additionally, the spot price aggregator provides reliable token pricing, and the 1inch wallet brings these features to mobile users while offering extra security.
Further Reading
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