[Company Watch] 1Inch, MooniSwap and Chi GasToken — Would the Triple Challenge to Uniswap work?
History and 1Inch Aggregator
1Inch was not exactly a nascent Defi project, it was founded in May 2019 by Sergej Kunz and Anton Bukov, two Russian developers whose business then was audit smart contracts. As that was not a sexy business back then, the two came out with an innovative idea of Dex aggregator. Back in 2019, Uniswap’s liquidity and volume was nothing compared to what it is today, and other AMMs were basically negligible. Aggregating volume of AMMs, in other words, separating a transaction into different exchanges, worked well for large trades. This has been 1Inch’s main value proposition since then and till today.
Let’s say you want to trade 10 renBTC for Dai. 1Inch will route your trades via two platforms, Curve and Uniswap, to minimise the slippage.
What it saves you is about $11,000, from reduced slippage; but the gas cost will be $500 plus. Still, a good deal.
This works for large trades. For small trades, the cost of gas fee for splitting transactions into multiple platforms will be overwhelmingly high. Secondly, if Uniswap dominates the market and draw all liquidities, and if Curve dominates stablecoins and synthetics, then it’s also not meaningful for 1Inch, as the optimised results will always be trade bulk of the transaction on Uniswap/Curve.
Mooniswap is the AMM product of 1Inch — with an innovative idea of a virtual balance. It was launched in August 2020. According to Boxmining, Mooniswap can keep most of the slippage revenue in the pool by maintaining virtual balances for different swap directions. When a swap happens, a market maker does not automatically apply the invariant algorithm and displays the new prices for upcoming trades. The AMM improves exchange rates for arbitrage traders slowly, over approximately a 5-minute time period. As a result, arbitragers can collect only a portion of slippage, while the rest remain in the pool shared among liquidity providers.
If you are interested in reading the maths behind Mooniswap and its difference from other AMMs, here is the whitepaper.
However, Mooniswap was no neither popular amongst liquidity provides nor traders. The liquidity at its peak was $142m and daily volume averaged a few million in Dec 2020. The lack of liquidity will cause a high slippage, dwarfing its efforts in the innovative virtual balance element. As the AMM is still in its infancy, it needs more time to prove its worth.
In Dec 2020, 1Inch has integrated Mooniwap to its main platform 1Inch, rebranding it into the Liquidity Protocol of 1Inch (vs. Aggregator Protocol). The virtual balance feature is inherited; and a price impact fee is added to further enhance earning of liquidity providers.
More flexibility is also given in the UI, where holder of the platform token 1Inch could vote on a number of parameters real time, such as swap fee, the virtual balances decay time, the extra fees on (arbitraguer) slippage, the referral incentives, etc. Letting the community decide on key features like swap fee might not be a good idea — as the protocol designers probably have a better idea as to the competitive landscape in the AMM market space. Nonetheless, it’s a great decentralisation experiment in the spirit of blockchain.
The mining program was also launched in last Christmas, a gift to long term supporters of 1Inch. The first round of platform tokens were distributed to 1Inch holders, and the current one encourages liquidity providers. Yield is about 60% to 80% for ETH-DAI (mining + trading fees).
Chi Gastoken is not an indigenous product — it’s an improvement of GasToken. The principal of GasToken is buying gas (like buying petrol) when it’s cheap, and use it when it’s expensive. The underlying goes this: The way GasToken works is simple: you create (or mint) GasToken tokens by saving data into the GasToken contract’s storage, when gas prices are low. When gas prices are high (during an ICO, during peak hours, whatever), you spend (or free) GasToken tokens by sending them back to the GasToken contract for destruction, freeing up the data saved in an earlier step. This new transaction now gets a refund, making it much cheaper to execute than the same transaction that doesn’t use GasToken.
Chi is an improvement of GasToken with better prices, saving more with the same principal. For now, Chi can be used for transactions on Curve and 1inch, when you toggle it on.
Chi is pegged to gas price and if you would like to trade on this, it’s available in AMM markets as well.
The design of 1Inch is innovative with the combination of virtual balance AMM, aggregator and Chi gas-saver. Aggregator appeals to whales or those who are price sensitive; Chi appeals to active traders; and 1inch appeal to liquidity providers. 1Inch has been always addressing the issue of AMM improvement from a user prospective, whilst Sushiwap from a project prospective (Onsen to appeal to nascent projects).
At the end of the day, no matter what marketing or maths behind it, AMM is a size game. The better the liquidity, the better the volume, and vice versa. It then forms a virtuous cycle. For now Uniswap is the incumbent but new players like 1Inch does have something to offer.
In any case, feast on the mining rewards while you can!
(Serenity Team, 11 Jan 2021, Twitter: https://twitter.com/SerenityFund)