What is 1Inch Exchange? Beginner's Guide
5 min readTable of Contents
Decentralized exchanges are cryptocurrency exchanges that don’t require a third party to govern it all. The clue’s in the name, after all: on a decentralized exchange, there is no single company maintaining the order books, custodying funds or calling the shots. (Hypothetically, in principle, and often with some major caveats).
Anyone can trade on a decentralized exchange; traders need only connect their wallets, never giving up access to their funds or personal information to companies.
There are a few such exchanges. The main ones are Uniswap, Oasis, Kyber Network and 0x. But all of these exchanges, each of them relatively new and structured in different ways, sell cryptocurrencies for slightly different prices (incidentally, creating opportunities for arbitrage). So Ethereum might sell for a different amount on Uniswap than it would on Oasis, not to mention that each platform may charge different fees.
If only there were some way to work out how to get the best price of a decentralized exchange! Thankfully, there is, and it’s called 1inch.
What is 1inch?
1inch is a so-called DEX aggregator, which means that it scrapes a handful of decentralized exchanges for the cheapest prices and reroutes its customers’ trades between them to try and ensure that they’re getting the best prices.
As of November 2020, when 1inch launched ‘V2’, a major update to its platform, swaps were split between 21 decentralized exchanges, including newer ones that sprouted from the decentralized finance (DeFi) boom of 2020’s stinking hot summer, such as SushiSwap and 1inch’s own liquidity protocol, Mooniswap.
We are thrilled to announce the next generation AMM protocol #Mooniswap powered by @1inchExchange!
https://t.co/n2soc00F8k #DeFi #1inch
— Mooniswap (@mooniswap) August 10, 2020
1inch was founded by Sergej Kunz and Anton Bukov in 2019 during ETHNewYork’s hackathon. Since then, 1inch has raised about $15 million in funding from companies such as Binance Labs, Galaxy Digital and Pantera Capital. As of January 2021, 1inch’s exchange trades about $155 million a day.
How does 1inch work?
Say that you want to buy some Wrapped Bitcoin (a synthetic version of Bitcoin) using Ethereum on a decentralized exchange. Look at different DEXes and you’ll find that the prices vary, as do the fees.
1inch’s algorithm finds the cheapest way to place that trade using all the different exchanges and liquidity protocols that can facilitate this trade.
The cheapest way to place this trade may involve swapping your Ethereum between several different protocols and for several different currencies before it arrives at Wrapped Bitcoin. The advantage of doing this is that it may mean you can buy Wrapped Bitcoin at a cheaper price.
The launch of 1inch’s V2 platform in late 2020 made everything quicker and cheaper yet again. It added some more complex trades to keep prices low, such as rerouting money earmarked as collateral for loans on decentralized lending protocols Aave and Compound.
What is 1INCH token?
On Christmas Day, 2020, 1inch launched its own cryptocurrency, 1INCH token. It’s a “governance token,” meaning that you can use it to vote on the way that the 1inch platform is run. 1inch called this “instant governance”.
1inch distributed a lot of tokens in an airdrop at the end of 2020. You could claim 1inch tokens by providing money to 1inch’s own liquidity protocol (Mooniswap) or if you’ve used it before December 24, 2020.
1/ Delighted to announce that 1INCH Token is LIVE!
Learn more about the governance/utility token and the token architecture: https://t.co/6POyBLHmKO
— 1inch.exchange (@1inchExchange) December 25, 2020
The main way to earn 1INCH tokens is by providing liquidity to 1inch’s liquidity platform. This involves staking cryptocurrencies that other people can use when placing trades. You can earn other cryptocurrencies this way, too.
You can also trade 1INCH token on exchanges. As of January 27, 2021, the token is worth $2.41 and has a market cap of $175 million. There are 72 million 1inch tokens in circulation out of a total supply of 1.5 billion.
How do you use 1inch?
In this short guide, Decrypt will show you how to place a trade on 1inch.
To start, let’s open up the main exchange page in a web browser and connect our browser-based Ethereum wallet. We opted for MetaMask, although others, such as Ledger, MyEtherWallet and WalletLink are also available.
We’d like to trade ETH for Wrapped Bitcoin, so we select ETH in the “pay” box and WBTC in the “receive” box.
Note that we will also need some ETH to pay the so-called “gas” fee—the network fee we must pay Ethereum miners for processing our transactions. So, let’s load our wallet up with ETH. To do so, we are transferring some ETH we had previously bought on Binance to our MetaMask wallet.
Then we enter some money and hit swap.
The price changed:
Click confirm, and that’s done! Since Ethereum gas fees are, at time of writing, very high owing to increased demand, it’s not very economical; it cost $18.49 to swap $0.01 worth of ETH. A bargain!
How can you buy 1INCH token?
1INCH token is available on several major cryptocurrency exchanges as well on 1inch’s own exchange. Binance, KuCoin, Huobi Global, FTX and OKEx all support 1INCH. Binance is the biggest market for trading 1INCH for Bitcoin and the 1inch exchange itself is the largest market for Tether trading.
To buy 1INCH token on an exchange like Binance, you must first load up your wallet with the coin that 1inch is paired with (in Binance’s case, USDT (Tether) or Bitcoin) and then use the appropriate trading pair page to exchange it for 1INCH. On 1inch itself, follow the guide above.
The future
The future of 1inch depends on the future of decentralized finance. Decentralized exchanges are still expensive, slow and relatively insignificant compared to mighty centralized exchanges such as Binance. But if those fail and the market requires decentralized alternatives, then aggregators like 1inch will pick up the slack.
Some of the 1inch token supply is earmarked for development that will take the platform to new heights. We can expect that a V3, should it ever come out, would make trades more efficient, make greater use of DeFi protocols, and make things cheaper.
The exchange is currently integrating new liquidity protocols at a rapid clip and, so long as the market doesn’t bottom out, there is no reason to suspect that the pace will slow any time soon.
