With decentralized finance so explosive over the past year it’s no wonder that there are so many DEXs and liquidity pools operating and popping up.

Keeping track of them all, and which are offering the best trading conditions, can be a real nightmare. And that’s where the 1inch Exchange is so interesting.

The 1inch Exchange calls itself the “Leading DEX Aggregator” and we’re inclined to agree. It also has liquidity pools and users can farm the native 1INCH token on the platform. That 1INCH token is also interesting as an instant governance token.

1inch, like so many other Ethereum-based projects, emerged from an ETH dev conference. This time it was at the ETHGlobal hackathon back in 2019. It was founded by Sergej Kunz, who is still the CEO of 1inch, and Anton Bukov, its CTO.

1inch Founders

The founders of the 1inch Exchange. Image via 1inch blog.

In August 2020 they completed a Seed round from Binance Labs of about $2.8 million. Then, in early December of 2020, they managed to close a much larger $12 million funding round that was led by Pantera capital.

Initially the founders of 1inch Exchange created a separate portal for yield farming, which was called Mooniswap. It was basically a Uniswap clone. Since December 2020 that portal has been deprecated as the 1inch Liquidity Protocol was launched. Now 1inch really does function more like Uniswap, with a combination of exchange and liquidity pools. However the platform likely offers better rates because it is pulling liquidity from a number of other decentralized exchanges.

The following review will go into more detail regarding the features available at the 1inch exchange, as well as explaining how to go about making an exchange or providing liquidity to the pools. There’s a lot to cover, so let’s dive in.

What is 1inch Exchange?

The 1inch exchange is a decentralized exchange, or DEX, aggregator. Rather than working as an exchange itself it splits orders between many other DEXs and private liquidity providers to find the best possible exchange rates. In its current state 1inch supports over two dozen liquidity sources.

Liquidity Providers

So many sources of liquidity. Image via 1inch.exchange

At 1inch Exchange it’s a simple process to connect a web3 wallet and begin swapping ERC-20 tokens at the best possible rates. The exchange will even split orders between several exchanges if that’s what it takes to get the best rate for an entire order.

It is also possible to create limit orders at 1inch, to earn by staking 1INCH tokens, and to earn by supplying liquidity to the 1inch liquidity pools.

1inch Exchange Pros & Cons

As a short introduction to the strengths and weaknesses of the platform we include these pros and cons to get started for your consideration:

1inch Exchange Overview

This is an exchange with plenty of good things going for it. Image via 1inch.exchange.

Pros

  • 1inch Exchange has had no security breaches or hacking incidents.
  • The user interface has been created to be very user friendly.
  • 1inch Exchange charges no trading, deposit, or withdrawal fees.
  • 1inch Exchange ensures high liquidity and excellent rates by aggregating DEX order books, while also limiting the number of transaction fees.
  • CHI Gas Tokens can lower transaction costs even further.
  • The addition of the 1inch Liquidity Protocol allows for yield farming.

Cons

  • The platform does not support the use of fiat currencies.
  • Even though the platform is quite user friendly, beginners could struggle to get a grasp on how to use 1inch Exchange.
  • The “Infinity Unlock” feature could potentially be a point of attack in the future. While it does save on transaction fees and time, unlocking each transaction separately is more secure.

1inch Order Routing

1inch uses a proprietary API they’ve named Pathfinder which contains a discovery and routing algorithm. Pathfinder finds the best possible paths for any proposed token swap, splitting a swap across several exchanges and even across different market depths of the same exchange if necessary. As a result, the exchange rate and/or the gas fees a user gets is better than what they would have gotten on any single exchange.

1inch Routing

Superior order routing via Pathfinder. Image via 1inch.exchange

The addition of Pathfinder was the major part of the upgrade to 1inch version 2. Pathfinder uses different ‘market depths’ as bridges between source and destination tokens. Thereby, the algo uses a more sophisticated approach than just splitting a swap across different protocols. In addition, it can split part of the swap for a specific protocol between different ‘market depths’ on the same protocol, getting the user the best rates, also taking into account gas consumption.

1inch Exchange Fees

One of the positives of using 1inch is its complete lack of fees. There are no exchange fees, no deposit fees, and no withdrawal fees. The only costs for users are only dependent on the decentralized exchanges used to source liquidity for trades, and 1inch even does its best to limit these as much as possible through the use of “Infinite Unlock” and the CHI Gas Tokens.

As an example, the Uniswap exchange has a flat fee of 0.3% for its orders, and Balancer charges a variable fee depending on which pool you’re entering. In general there are nearly no DEXs offering fee-free trades.

The native 1INCH token is not just a utility token, but also provides governance for the platform, and fees and rewards on 1inch are now completely reliant on DAO proposals and voting. If you look under the “DAO” tab of the 1inch website and then the “Governance” link to the left you can see the current swap fee, the governance rewards, and other parameters, as well as participating in governance by voting on proposals.

1inch DAO

1inch uses a DAO for instant governance. Image via 1inch.exchange

Unlike other protocols with DAOs there is no minimum requirement for holdings at 1inch. Users with any 1INCH tokens at all are free to vote and have a say in the potential changes to the protocol parameters.

Although there are no fees being charged by the exchange it is still able to generate revenue. For example, it receives a portion of the swap fees that go to the liquidity sources it is partnered with. It can also make some revenue from positive slippage of orders. These earnings go into pools to pay referrers and for the payment of the governance rewards.

One of the greatest benefits to using the 1inch Exchange is the way in which it can lower the gas fees paid for transactions. With current transaction fees topping $20 it is increasingly important to minimize gas fees whenever possible. 1inch does this in two ways: through “Infinite Unlock” and through its CHI Gas Tokens. We discuss both in more detail later in the review.

The 1inch Token

The 1INCH token is much more than an ERC-20 utility token for the 1inch Exchange. It is an instant governance token that is used to provide governance to the DEX aggregator and liquidity protocol.

1inch Token Launch

1INCH token holders have control over the protocol. Image via 1inch blog.

Holders of the 1INCH token, no matter the amount, can use their voting power to decide on various parameters of the 1inch protocol. These include the governance reward, the swap fee for the liquidity protocol, the price impact fee, and the decay time for the exchange. All of these parameters are found under the DAO tab of the 1inch Exchange website. Users can also go here to vote on current proposals.

The total supply of 1INCH tokens has been set to 1.5 billion, with 30% of that allocated to the 1inch community. The 1inch team has made the choice to distribute these community tokens via airdrops, and the total supply is planned to be distributed over a period of 4 years.

The remaining token supply will be used for development (14.5%), and will gradually be distributed to the early investors and team members (55.5%).

1inch Token Unlock

30% of the total token supply will go to the 1inch community. Image via 1inch blog.

Buying 1inch Tokens

1INCH tokens are available from a large number of exchanges, but none of them will sell the token to you for fiat currency so it’s necessary to have some other cryptocurrency to purchase your first 1INCH tokens. You can do that at 1inch Exchange of course, but an easier way might be to use Binance to buy 1INCH.

Those without a Binance account already can quickly and easily open one here.

1inch Airdrops

One of the things that created the initial excitement and buzz around the 1inch Exchange was its choice to airdrop tokens as part of the token launch.

As part of that airdrop all wallets that interacted with 1inch until December 24, 2020 at midnight (UTC), received 1INCH tokens as long as they met one of the following conditions:

  1. at least one trade before September 15, 2020;
  2. at least 4 trades in total;
  3. trades for a total of at least $20.

As a result 90 million tokens were airdropped on Christmas Day 2020. A short while later on February 12, 2021 a second airdrop of 6 million tokens was made to Uniswap users. The marketing ploy delivered tokens to Uniswap users who met the following criteria:

  • Traded at least 20 days on Uniswap;
  • Placed at least 3 trades in 2021;
  • No bots allowed.
1inch Token Airdrop

Early adopters of 1inch were quite pleased by the surprise airdrop. Image via 1inch blog.

There was also a second airdrop of 9 million 1INCH tokens to members of the 1inch community who were overlooked during the first airdrop. The distribution scheme applied to Mooniswap (revamped to 1inch Liquidity Protocol in December, 2020), some wallets with transaction relayers and limit order users, as well as to some providers of liquidity to 1inch pools who did not receive tokens they were entitled to in the initial Christmas distribution.

Will there be more airdrops? Who knows for sure. There have been ongoing liquidity mining programs that distribute additional tokens based on providing liquidity to specific pools and we expect that will continue for some time. To find out about new airdrops and liquidity mining programs keep an eye on the 1inch Exchange blog, or its other social channels.

1inch on the Binance Smart Chain

On February 25, 2021 the 1inch Foundation deployed the 1INCH token on the Binance Smart Chain, making the 1inch Aggregation Protocol and the 1inch Liquidity Protocol available to BSC users.

Bridge ETH To BSC

Adding a bridge to the Binance Smart Chain was a smart move. Image via 1inch blog.

The 1INCH token on Binance Smart Chain will be used for a bridge between the Binance and Ethereum networks. When a user sends 1INCH tokens to the BSC, they will be locked in Binance Bridge, and a corresponding value in 1INCH tokens on Binance will be consequently unlocked. Thus 1inch users will get access to PancakeSwap and other BSC based decentralized exchanges and lending protocols.

There have been 10 million 1INCH tokens initially issued on BSC, and they will be used as liquidity in Binance Bridge for transactions between Ethereum and the Binance Smart Chain. Users can get more information about using 1inch on the Binance Smart Chain here.

Staking the 1INCH Token

While the most important function of the 1INCH token is its governance feature, it also has a staking feature that lets any 1INCH holder stake the coins and make more 1INCH tokens. Tokens can easily be staked by going to the DAO tab on the website and then navigating to the Governance section.

Those who choose to stake their 1INCH tokens receive rewards from the swap fee and the price impact fee. Plus, those who hold the 1INCH token have the right to vote on both these parameters, and when voting holders also receive governance rewards.

Staking 1INCH tokens is quite simple. First you need to acquire some 1INCH tokens if you don’t already have some. Then navigate to the 1inch Exchange and click on the DAO tab. Once on the DAO page go to the Governance tab if not already there. Find the token staking box in the upper right of the page and click on the button to Connect Wallet.

Staking 1inch

Staking is easy at 1inch Exchange. Image via 1inch.exchange

Once the wallet is connected you enter the amount of 1INCH tokens you’d like to stake and then unlock them. You can use the regular “Unlock” or you can choose to use the “Infinity Unlock” feature. The Infinity Unlock will save you from paying gas for this transaction again, but if it is ever exploited it could present a security risk.

You can also click the settings icon in the upper right corner of the staking box to change the gas cost between Standard, Fast, and Instant. Once staking is unlocked you can always stake more by making a last transaction.

Chi GasToken

The CHI gastoken was introduced as a way for 1inch Exchange users to save on Ethereum gas fees, which can become quite expensive. Think of gas like the fees charged by banks on transfers, however with gas fees the more traffic there is on the network, the higher the gas fees. Due to the popularity of DeFi apps the Ethereum network has become quite congested, and as of February 2021 gas fees are in excess of $20 per transaction.

The CHI gastoken is an ERC-20 token that is used to pay transaction costs on the 1inch Exchange. According to 1inch the transactions on the exchange are up to 42% cheaper because of the CHI gastoken.

CHI Gastoken

Save on transaction fees with the CHI gastoken. Image via 1inch.exchange

The price of CHI is pegged to that of Ethereum’s gas price, so when the gas price is high the cost of CHI will also be high, and vice versa. CHI is actually quite similar to Ethereum’s gastoken (GST2),, but with some improvements. Buying (minting) Chi saves you 1% in comparison to minting GasToken. Whereas the selling (burning) of Chi saves you 10%, compared with GST2.

1inch Supported Wallets

Because 1inch is a decentralized exchange aggregator and liquidity provider there is no requirement to create an account to trade through them. All that’s needed is to connect a supported wallet to the exchange and fund it with supported ERC-20 tokens. There are never any third-parties between your wallet and the exchange.

The 1inch Exchange does support a number of wallets for swapping tokens. The wallets supported include MetaMask, TrustWallet, MEW, WalletConnect, and the Ledger hardware wallet.

Connecting Wallet 1inch

Many different web3 wallets can be used with 1inch Exchange. Image via 1inch.exchange

The 1inch Exchange can be used with a number of web-based, mobile, and hardware wallets depending on your preference. Below we show you how to use the 1inch Exchange with the Metamask wallet.

How to Swap on 1inch Exchange

Below are the three steps to completing a swap on the 1inch Exchange:

Step 1: Connect your ETH Wallet

You will have the option to connect your wallet right from the homepage. Find the “Connect Wallet” button in the upper right corner of the website and click it. You’ll need to accept the terms and conditions, choose between the Ethereum or Binance Smart Chain networks, and then choose the wallet you’re trying to connect.

Step 2: Select the Token

Once your wallet is linked you can choose which tokens you’d like to exchange. The 1inch Exchange will display a comparison chart showing the exchange rates from various linked DEXs.

Not only is it possible to see the individual rates, you can also compare those with the best rate available.

Exchange Routing

1inch Exchange has superior order routing technology. Image via 1inch.exchange

In some cases you might not be able to find the asset you’d like to swap in the menu. This can occur if the asset hasn’t been whitelisted yet by 1inch. In this case you can apply for the token to be whitelisted, or you can simply add it as a custom token by clicking the small circled plus icon in the upper right corner of the order entry box.

Step 3: Swap Tokens

The token swap has a number of parameters you can choose from. It will allow for a market order or a limit order, and you can choose to execute the order for the maximum return or for the lowest gas price. In either case it will show you your exchange rate, the USD value, and the anticipated fees for the exchange.

 

1inch Token Swaps

Choose from limit or market orders, best exchange or lowest gas, and swap your tokens transparently. Image via 1inch.exchange

You’ll next need to unlock the token and you can either unlock just for this exchange, or you can choose the Infinity Unlock option. The former is more expensive in the long run, but it is also potentially more secure.

Unlock

Basic unlock or infinity unlock? You decide. Image via 1inch.exchange

Once the tokens are unlocked you can go ahead and confirm the swap by clicking the “Swap Now” button. You’ll be presented with all the details of the swap and will be asked to confirm it once again. And then finally you’ll need to approve the transaction in your wallet and it will be sent to the blockchain.

Confirm

Confirm the swap and complete the exchange. Image via 1inch.exchange

1inch Infinity Unlock

I’ve mentioned the Infinity Unlock feature a number of times, so now might be a good time to look at it in more detail. Basically it gives the platform permission to spend a specific token forever, meaning you won’t have to spend gas to unlock the token again in the future. While it is a savings on transaction fees, it could potentially be dangerous if a hacker finds a way to exploit it in the future. The basic Unlock feature is more expensive in the long-run, but also more secure.

Infinity Unlock

Infinity unlock can save you fees in the long run. Image via 1inch.exchange

1inch Liquidity Pools

The original liquidity pools for 1inch were on the Mooniswap portal which was based on the Uniswap model. More recently the Mooniswap portal has been deprecated and has been rebranded 1inch Liquidity Protocol and moved to 1inch Exchange.

You can find the 1inch Liquidity Protocol pools by navigating to the DAP tab on the exchange website, and then going to the Pools tab in the left sidebar. Those who may have had liquidity remaining on Mooniswap were able to remove that liquidity and move it to the 1inch Liquidity Protocol.

As you can see there are a number of pools available with good liquidity and very generous APYs.

Pools

So many liquidity pools to choose from. Image via 1inch.exchange

Note that not all of the pools are included in the 1inch farming, so if you are interested in staking your LP tokens to earn 1INCH token you should choose liquidity pools such as 1INCH-ETH, 1INCH-USDC and 1INCH-DAI.

Adding Liquidity to Pools

If you’ve worked with any AMMs before you know all about adding liquidity, and the 1inch pools aren’t different. You start by connecting your wallet if it isn’t already connected. After that you’ll navigate to the Pools section of the portal, which is under the DAO tab. There you’ll see all of the available liquidity pools, including how much liquidity is in them, and the APY they are currently yielding.

Find the pool you’re interested in providing liquidity to and click on it. Then find the “Provide Liquidity” button and click it.

Liquidity

Provide liquidity in equal measure. Image via 1inch.exchange

When you’re providing liquidity you need to deposit an equal value of each token into the pool. 1inch makes this easy enough and you can simply add the amount for the LP token you want to mint and then adjust it based on the amount of crypto you want to add to the pool.

You’ll again use either “Unlock” or “Infinite Unlock” to allow the platform to use your coins. After unlocking the pair of tokens you can add liquidity in the future by making a final transaction.

Staking 1inch LP Tokens

Once you’ve provided liquidity to one of the pairs that are also included in the liquidity farming portal you will be able to stake those LP tokens and earn 1INCH tokens.

Get started by clicking the Farming link in the left sidebar of the DAO page. Now you’ll see all the 1INCH farming pools that are available, and you’ll be able to stake your LP tokens.

Farming 1inch Tokens

See your daily, monthly, and yearly earnings from staking LP tokens. Image via 1inch.exchange

When you click the Deposit button for any of the pools it will bring up a form to input how much you want to stake in that pool. Once you enter an amount it will estimate your daily, monthly, and yearly 1INCH earnings.

1inch Exchange Security

As is the case for anything crypto related security is key and a major concern for all users.

One way in which 1inch is secure is that it is a non-custodial DEX aggregator platform. That means they never have possession of your coins or the private keys. Unlike centralized exchanges that require you to deposit your cryptocurrencies in order to trade, at 1inch your coins always remain in your wallet and in your possession.

One further nod towards the security at 1inch is that the platform has never suffered from any hacks or security threats. And since you never provide then with any personal information, not even an email address, there’s no need to worry about data breaches.

1inch Customer Support

While you might not expect much in the way of support from a decentralized exchange with no account registration process, and no fees for trading, the 1inch team has actually made sure that customer support is available through a number of channels.

Furthermore, the 1inch team is also active on social media channels such as Twitter and YouTube.

Conclusion

Overall it seems clear that the innovative features and tools provided by the 1inch Exchange can far outweigh any potential issues with the platform. In fact, we think the 1inch Exchange has done an excellent job in handling some of the problems that plague the emerging DeFi ecosystem.

One of their solutions is the provision of far greater liquidity than many of the existing DEXs. The lack of liquidity is a problem caused by the fragmentation of DEX platforms, but as an aggregator 1inch more than makes up for this.

By splitting orders across multiple exchanges where necessary 1inch does away with the slippage that can lead to far higher than necessary trading costs. It’s also quite nice to be able to compare the rates and gas fees being offered across multiple exchanges. Active traders will find that this can save them quite a bit of time wasted in looking across the order books of multiple exchanges.

The other notable features on the platform thus far include the CHI gastoken, the 1inch Liquidity Protocol, the addition of limit orders, and the move to include a bridge to the Binance Smart Chain.

Total 1inch Users

User growth at 1inch shows how popular it is in the DeFi community. Image via Defiprime.com

That said, the platform probably isn’t suited to cryptocurrency beginners, but is instead something more suited towards those with some experience not only in cryptocurrencies, but also with DeFi platforms.

The team is trying to make things as simple as possible though, and if they can create a platform suitable for all experience levels then they might easily become a leader in the DEX ecosystem.

Featured Image via Shutterstock

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

Posted by Steve Walters

Steve has been writing for the financial markets for the past 7 years and during that time has developed a growing passion for cryptocurrencies.