In late 2020, the decentralized finance (DeFi) world witnessed a remarkable event. A leading DEX aggregator, the 1Inch Exchange, decided to launch its native 1INCH token. To celebrate this launch, they rewarded regular platform users with a generous token distribution. This airdrop generated immense excitement among traders, leading to immediate listings on major exchanges like Binance, with prices reaching up to $2. It was, by all accounts, a spectacular debut. But what exactly is 1Inch, and how does it work?
What Is 1Inch Exchange?
Founded by Anton Bukov and Sergej Kunz in 2019, 1Inch is a decentralized exchange (DEX) aggregator. A DEX is a platform that facilitates peer-to-peer cryptocurrency transactions online, similar to FOREX but for the crypto world. This means you can swap one cryptocurrency token for another seamlessly. Because it's decentralized, a DEX operates without third-party governance.
Several DEXs are available, with Uniswap, Kyber Network, and Oasis among the most popular. However, each platform offers cryptocurrencies at different prices, and their trading fees can vary significantly. Finding the cheapest way to execute a trade would be ideal, right? This is where 1Inch comes in.
How Does 1Inch Work?
1Inch uses an advanced algorithm that scans over 33 different liquidity protocols to find the most efficient swap route for your trade. Efficiency is measured in terms of price, gas fees, liquidity, and slippage. For example, if you want to trade Tether (USDT) for Wrapped Bitcoin (WBTC), the platform's algorithm scours prices across various exchanges to ensure your trade occurs via the optimal path. Sometimes, it finds a direct route; other times, it splits the transaction across multiple DEXs to maximize savings.
The 1Inch Automated Market Maker (AMM) Protocol
In addition to aggregation, 1Inch launched its own Automated Market Maker (AMM) called Mooniswap in August 2020. This protocol is a direct competitor to Uniswap and introduces a novel approach to exchange rates to reduce impermanent loss. It aims to be more beneficial for liquidity providers by minimizing arbitrageur profits. After the platform's native token launch, Mooniswap was rebranded as the 1inch Liquidity Protocol.
How to Use 1Inch Exchange
Using 1Inch Exchange is straightforward. Here’s a quick guide. You’ll need a non-custodial cryptocurrency wallet like MetaMask or Trust Wallet to trade on 1Inch.
Step 1: Access the Platform
Open the 1Inch exchange website in your web browser.
Step 2: Connect Your Wallet
Click the "Connect Wallet" button at the top of the page. Accept the terms and conditions, then select your wallet. Open your wallet app and confirm the connection.
Step 3: Select Your Tokens
If you want to swap Tether for DAI, select USDT in the "From" box and DAI in the "To" box. Remember, you’ll also need some ETH or the native blockchain token to pay for gas fees.
Step 4: Grant Token Permissions
You’ll need to grant the platform permission to spend tokens on your behalf. You have two options: a one-time unlock or infinite unlock. Infinite unlock can save you some gas fees in the long run.
Step 5: Execute the Trade
Click the "Swap" button to execute the trade. Once confirmed, your transaction will be complete.
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The 1INCH Token
As mentioned, 1Inch launched its native governance token, 1INCH, in late 2020. Holders can use it to vote on crucial decisions governing the platform. The total supply is approximately 1.5 billion tokens, distributed over four years. As of early 2021, the token was valued around $5.10.
Following the success of its first airdrop, the exchange hosted another airdrop of 15 million coins in February 2021. This time, it expanded the recipient pool to include regular Uniswap users.
Where Can You Buy 1INCH?
You can purchase the token on popular exchanges like Binance, Uniswap, Huobi Global, and the 1Inch Exchange itself.
Conclusion
Since its launch in 2019, 1Inch has experienced exponential growth despite fierce competition. Given that the DeFi wave shows no signs of slowing, 1Inch's future looks bright, and it has the potential to become the next big thing in the crypto world.
Frequently Asked Questions
What is a DEX aggregator?
A DEX aggregator scans multiple decentralized exchanges to find the best trading rates and lowest fees for users. It simplifies the process by comparing options across platforms in one interface.
How does 1Inch make money?
1Inch charges a small fee on trades executed through its platform. It also benefits from the growth of its native token and liquidity protocols.
Is 1Inch safe to use?
Yes, 1Inch is generally considered safe. It uses smart contracts audited by security firms and operates without holding user funds, reducing custody risks.
What are the advantages of using 1Inch over a single DEX?
1Inch offers better rates by pooling liquidity from multiple sources, reduces slippage on large trades, and minimizes gas fees through optimized routing.
Can I provide liquidity on 1Inch?
Yes, you can become a liquidity provider on the 1inch Liquidity Protocol and earn fees from trades happening in your pooled tokens.
How often does 1Inch update its rates?
Rates update in real-time as the algorithm continuously monitors liquidity sources across the supported DEXs and networks.