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What Is the 1inch Network?
1inch is an aggregator for decentralized exchanges (DEX) on the Ethereum blockchain. It compares DEXs like Uniswap and Sushiswap so that you can find the most profitable trading option for your trading pair across all platforms.
1inch was named after Bruce Lee’s famously fast and efficient "one-inch punch," because the 1inch protocol is a tool to make decentralized trading faster and more efficient.
How Does 1inch Work?
A normal DEX works by weighing different coins equally in a trading pool. If you have a pool with 10,000 USDC and 10 ETH, then that pool will sell 1 ETH for 1,000 USDC. After only 1 ETH has been sold, there will be 9 ETH and 11,000 USDC, so at the next trade, 1 ETH will cost 1,222 USDC. This is how prices are set in decentralized exchanges.
Of course, the price change is not this immense if the liquidity pool is large enough, but small liquidity pools like the one described in this example can have an extreme slippage at times.
Since different exchanges can have different amounts of funds available, there can be price differences between them. 1inch automatically selects the best option and lets you directly trade on the DEX via the 1inch platform.
By using 1inch to trade, you get directed to the most profitable liquidity pool, and the platform automatically splits your trade into multiple trades if needed to avoid the high slippage that a single DEX can have.
If there is a pool on Uniswap with 10 ETH and 10,000 USDC, and you want to buy 2 ETH, then it would become more expensive than just 1,000 USDC because of the low liquidity and high slippage. If there is another pool on Sushiswap that has10 ETH and 10,000 USDC, then 1inch would automatically split your transaction in two and buy from both pools to lower the slippage in price.
This can save you a lot of money if you want to trade more exotic cryptocurrencies that are typically low on liquidity on decentralized exchanges. 1inch also shows you how many more coins you can receive if you use their selected best trading route. This pathfinder also takes into account the various Ethereum gas fees before directing you to one or more pools.
So far, 1inch supports many different exchanges on the Ethereum blockchain and its second-layer solution, Polygon, as well as the Binance Smart Chain.
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What Is the 1nch Token?
Like Aave and other DeFi platforms, 1inch has a governance token that gives its holders voting rights for proposed changes to the protocol. The token was launched on the 25th of December, 2020. Its distribution was inspired by Uniswap and the UNI token, and it was distributed to early users of 1inch.
However, in order to ensure that some users don't get multiple airdrops for having used multiple wallets, there were certain criteria that they must have met to receive the newly launched 1inch token:
- They must have made at least one trade before September 2020,
- four trades in total before the 25th of December, or
- trades that were at least worth $20 before the 25th of December
6% of the entire max supply was released that way to everyone who fit at least one of the above criteria.
The 1inch token has a total supply of 1.5 billion. Of the remaining supply, 30% was allocated to community incentives, and they will be released to everyone who participates in the governance of the protocol over the next few years.
14.5% of the supply went to a protocol growth and development fund that is used to enable further development. The rest of the supply will be released to the core developers and their early investors.
A relatively high percentage of the token's supply is owned by the developers. In comparison, Yearn.finance released 100% of its tokens to users, and Uniswap released 60% of the UNI supply to users. The 1inch distribution is far from ideal.
However, the 50% that goes to the core developers and investors will be unlocked in later years. Currently, the majority of the tokens were distributed as community incentives.
Is the 1Inch Token a Good Investment?
So much for the supply. As for the demand, the primary use case of the token is governance. Holders have certain voting rights for proposals to the protocol. Voting does not require a minimum number of tokens, it takes the form of staking, where you move your tokens to the proposal you support and receive tokens from the 30% community incentives.
The more users 1inch has, the more demand there will be for voting rights. Since it is one of the best ways to trade in a decentralized way, there is no doubt that the number of users will grow. However, the distribution of new tokens really doesn't seem fair and could quickly lead to few people holding so much power over governance that there is no point in even having a governance token.
The 1inch protocol is amazing and can save you some money if you want to use decentralized exchanges, but only time can tell how the price of the token will perform.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
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