State of 1inch Q1 2023

Key Insights

• 1inch processed an all-time high daily volume of $4 billion during the USDC depeg in March. This resulted in the third-highest daily Swap Surplus generated of $362,000.
• Fusion mode, launched in December 2022, processed $4.7 billion in volume in Q1. As a result, volume across 1inch Network’s protocols has begun to diversify.
• 1inch Network’s aggregator protocol dominance continues as it accounted for 59% of the volume measured across all aggregators in Q1, a 12% increase QoQ.
• Of the $31 billion in volume on Ethereum mainnet, 43% was routed to Uniswap, and 24% was routed to Curve Finance.
• Arbitrum has become the second most popular chain for 1inch measured by volume, accounting for 6% of 1inch Network’s total volume.
  

Primer on 1inch Network

The 1inch Network is an all-in-one decentralized finance (DeFi) service provider operating on Ethereum, Arbitrum, Optimism, Polygon, Avalanche, BNB Chain, Gnosis, Fantom, Klaytn, and Aurora. Launched in 2019, 1inch’s Aggregation Protocol (AP) allows users to route trades across various markets and realize the best available rate compared to any individual decentralized exchange (DEX). In late 2020, the 1inch Liquidity Protocol introduced a native automated market maker (AMM) to the network, which enabled users to provide liquidity and earn passive liquidity mining rewards. The network’s third product, the 1inch Limit Order Protocol (LOP), was introduced in June 2021 to support conditional limit and stop-loss orders with no fees. In late December 2022, the 1inch Swap Engine enabled Fusion mode, which is partially based on the existing tech, including the 1inch Limit Order Protocol and the 1inch Aggregation protocol. This new feature empowers DeFi users to place orders with a specified price and time range without paying network fees. All three protocols, and Fusion Mode, are governed by the 1inch DAO using the network’s native 1INCH token.

Note: This report includes data from Ethereum, BNB Chain, Polygon, Optimism, Arbitrum, Avalanche, Gnosis Chain, and Fantom. Data from Klaytn and Aurora are currently not included. We are working to improve access to this data.

Key Metrics

Performance Analysis

User Analysis

1inch Network experienced a 7% QoQ increase in users across its various protocols, bringing the total number of users in Q1 to 2.59 million. The Aggregation Protocol continued to dominate, representing 88% of the total users for 1inch Network in Q1. This protocol uses an advanced algorithm that enables token exchanges at the best market rates. It identifies the most efficient paths for a token swap by splitting between different protocols and even different market depths within a single protocol.

Since its late December 2022 launch, the Fusion mode has been making significant strides. This feature is a method of executing swaps without spending gas or risking front-running. While it functions like a swap, Fusion mode technically operates as a limit order filled by a third-party resolver; thus, its users and volumes are included within the Limit Order Protocol. The order's exchange rate decreases until it becomes profitable for resolvers to fill the order. Multiple resolvers then compete to ensure the order is filled before the rate falls to the minimal return amount.

The 1inch Liquidity Protocol, formerly known as Mooniswap, is an automated market maker that offers users capital-efficient liquidity positions and protection against front-running. The 1inch Limit Order Protocol consists of smart contracts that allow users to place limit orders and RFQ (request for quote) orders, which can be filled on-chain. The protocol offers flexibility and high gas efficiency, with a gasless limit order feature that reduces friction for new users. These two protocols combined for 263,000 daily active users (DAUs) in Q1, making up 12% of the total.

Despite the differences in user distribution among the protocols, the overall usage of the 1inch Network remained relatively stable throughout Q1. The 30-day moving average (MA) for DAUs ranged between 20,000 and 27,000 for most of the quarter, showcasing consistent engagement across the platform.

In Q1, the Aggregation Protocol’s volume share dominance began to decline noticeably for the first time. Historically, it has accounted for over 90% of the total volume processed by 1inch. During this quarter, however, its share dropped to a low of 64%. Meanwhile, the Limit Order protocol contributed 28% of the total volume processed on 1inch, up from just 6% in Q4 '22.

The growing success of protocols other than the Aggregation Protocol benefits 1inch significantly. Despite the increased volumes from the Limit Order Protocol and Fusion mode, the Aggregation Protocol still processed $28.9 billion in Q1, a $3.9 billion increase from Q4. This indicates that the rising volumes in the Fusion mode and the Limit Order Protocol did not cannibalize the volume from the Aggregation Protocol.

Ethereum maintained its dominance as the leading chain by volume traded. It accounted for 87% of the total volume in Q1, a 2% increase from Q4 ‘22. Arbitrum emerged as the second-largest chain by volume, contributing over 6% of the total volume traded in Q1 and doubling its share from 3% in the previous quarter. The surge in trading volume on Arbitrum can be attributed to the ARB airdrop on March 23, which resulted in $167 million in trading volume. This event accounted for a remarkable 37% of the total volume across all chains that day.

Execution Analysis

On March 11, amidst the volatility triggered by the USDC depeg, 1inch reached a new daily volume record of over $4 billion across all chains. Following this new record, on March 24, 1inch recorded its third-highest volume day, excluding Ethereum. It was surpassed only by the Terra/LUNA collapse in May 2022 and the FTX collapse in November 2022.

At the end of the quarter, 1inch had processed a total volume of $37 billion (excluding Aurora and Klaytn), marking a significant 42% QoQ increase. This strong Q1 performance showcases the platform's expanding user base and the increasing adoption of its diverse protocols.

Examining the average trade size across chains, Ethereum mainnet stands out with a daily average trade size of $17,000 for the quarter. This metric reinforces the notion that Ethereum is a "whale" chain, catering to users with higher net worths on average due to higher gas fees. The second-highest daily average trade size was on Avalanche at $2,300, while Polygon had the lowest at $583.

During the USDC depeg, the average trade size on Ethereum spiked to $100,000 on March 11, while Optimism saw a daily average trade size of $12,000, marking the largest daily average trade size for any chain other than Ethereum in Q1. Overall, Ethereum remains the primary choice for larger users, while other Layer-1 and Layer-2 networks tend to attract smaller users.

1inch checks over 358 liquidity sources for the best prices, yet it directed over 43% of the Q1 volume to Uniswap on the Ethereum mainnet. Curve Finance ranked second, receiving 24% of the volume routed from 1inch, followed by 1inch's Limit Order Protocol with 9%, and Balancer with 7%. During the USDC depeg events, there was a significant increase in total volume, largely dominated by Curve Finance and Uniswap. The increase was a result of the high TVL of USDC on these protocols and Curve’s specialization in stablecoin swaps. For instance, on March 10, Curve accounted for 53% of the total volume, more than double its quarterly average. On March 11, Curve and Uniswap represented 86% of the total volume. Their share can be attributed to their deep liquidity offering, which prevents excessive slippage during market panic and volatility.

Curve is expected to release updated contracts that should improve the gas efficiency of swaps on its platform, which may take some of Uniswap's volume share. This development could further impact volume distribution across decentralized exchanges. It could also enhance the competitive landscape within the DeFi ecosystem, ultimately providing a better product for 1inch Network’s users.

Despite Uniswap handling the largest volume share of trades, its average trade size for Q1 was only $8,000. In contrast, Curve's average trade size was $171,000, DODO's was $131,000, and Balancer's was $40,000. The dramatic difference can be attributed to the number of trades routed to each decentralized exchange (DEX). Uniswap received 1.3 million trades, Curve received 37,000, DODO 7,000, and Balancer 45,000. Another contributing factor could be the high gas costs of swaps on Curve Finance, as mentioned previously. These costs may explain why Uniswap receives a significantly higher number of swaps without a proportional increase in total volume.

The data suggests that different DEXs cater to distinct market segments: Uniswap is popular for smaller trades, Curve and DODO cater to larger trades, and Balancer seems to occupy a middle ground. Understanding these dynamics is crucial for assessing the evolving landscape of decentralized finance and identifying opportunities for growth and differentiation among platforms.

While Uniswap received the majority of volumes from 1inch, these volumes represented only 9% of Uniswap's total volume in Q1. In contrast, the volume exported to Balancer from 1inch accounted for a substantial 42% of Balancer's total volume in Q1. For Curve 1inch volumes made up 20%.

The additional volumes routed from 1inch constitute just a small fraction of Uniswap's total volume processed. However, less established DEXs like Balancer rely heavily on trades routed from 1inch. This demonstrates the strength of 1inch Network’s position, as it can provide substantial benefits for smaller or less well-known DEXs.

Market Share Analysis

1inch Network's aggregator continued to dominate volume. The platform accounted for 59% of the total aggregator volume in Q1, an increase from 47% in Q4'22. 1inch's dominance peaked on February 26, capturing 71% of the total aggregator volume that day, but it hit a low on March 2 at 48%. Overall, 1inch maintains a strong grasp on the aggregator volume market share.

Recently, DefiLlama, a popular data and analytics platform, launched DefiLlama Swap. The meta-aggregator searches for the best route for trades among various DEX aggregators. It's worth noting that the data collected covers only CoW Swap, 1inch, 0x API, and ParaSwap, leaving out other aggregators not listed here. In Q1, DefiLlama's meta-aggregator routed $1.4 billion to 1inch, representing 17% of the total $8.5 billion in volume routed by DefiLlama Swap during the quarter.

Among other changes, Fusion mode introduced adjustments to the governance and tokenomics of 1INCH. Users can now stake their 1INCH tokens for one month to two years, earning Unicorn Power. This can be used for network governance participation or delegated to other users or resolvers in exchange for rewards from resolver incentive programs. The 1inch Foundation has committed to distributing 10 million 1INCH to resolvers to reimburse gas expenses, improve user rates, and increase staking and delegation incentives. Additionally, 250,000 1INCH will be distributed to 1inch resolvers each week, offering delegators a lucrative APR.

Becoming a resolver, which can be thought of as acting as a market maker, requires staking enough 1INCH tokens to receive 100 Unicorn Power and passing a verification process that includes KYC by Synaps and account screening by TRM Labs. However, only the top five resolvers by Unicorn Power can bid on and process swaps. At the end of Q1, these resolvers were competing for just under 40 million Unicorn Power, of which the 1inch Labs Resolver has an 85% share.

The 1inch Labs resolver has processed $3.3 billion in volume, and the second-highest resolver by volume, Arctic Bastion, has processed $520 million. Since its launch, Fusion mode has already processed just over $5 billion in volume, demonstrating its growing influence within the 1inch ecosystem.

Treasury Analysis

The 1inch DAO generates revenues from Swap Surpluses that arise when prices change between the quote and transaction mining. These surplus funds are collected and distributed, with some being allocated to the referral program on the chain of the swap. The majority, however, is converted to USDC and sent to the 1inch Network DAO Treasury. Governance participants can control the revenue split through Instant Governance voting. No revenue goes to the 1inch Foundation, as the 1inch DAO controls the treasury.

During the USDC depeg, the third highest daily Swap Surplus of $362,000 was recorded, following only May 11 and 12 of 2022, when the Terra collapse led to Swap Surpluses of $970,000 and $1.7 million, respectively. Consequently, 1inch witnessed a 41% increase in revenues in Q1, marking the first quarter of revenue growth since Q2'22. To date, 1inch has generated just under $22 million in cumulative Swap Surplus. The revenue has benefited the 1inch DAO Treasury and contributed to the ongoing development and sustainability of the platform.

The 1inch DAO treasury experienced growth for the fourth consecutive quarter. It reached an all-time high of $18.2 million at the end of the quarter, representing an 11.8% increase QoQ. Currently, the DAO treasury increases due to Swap Surplus revenues. Originally, all Swap Surpluses were converted to USDC, but 1IP 08 made changes that allowed whitelisted assets (ETH, wETH, wBTC, DAI, and USDT) to be accumulated instead of swapped into USDC. Additionally, 1IP 09 started using Swap Surpluses to purchase 1INCH for the treasury when the price of 1INCH was below $1.30.

Qualitative Analysis

1inch Improvement Proposals

During Q1, there were a number of 1inch Improvement Proposals that were passed through governance. All proposals require snapshot votes for at least five days and must meet a minimum quorum of 10M votes.

• Improve Fusion Auction Resolver Competition (1IP 12): This proposal modified the Fusion mode to allow the top five resolvers to fill orders. Prior to this proposal, only the top resolver, which is maintained by 1inch Labs, was able to execute orders.
• Governance Process Improvements (1IP 13): Two minor changes to the 1inch governance process were introduced, reducing the temperature check voting period from five to three days and the Snapshot voting period from seven to five days.
• Increase the Number of Whitelisted Fusion Mode Resolvers to 10 (1IP 19): In this proposal, the number of whitelisted resolvers for the Fusion mode was increased from five to ten.
• 1inch Fast Track Proposal (1IP 20): This proposal introduced an alternative streamlined governance process for emergency situations. This new governance process includes a 24-hour discussion phase and a 48-hour Snapshot vote. The fast-track proposal process highlights that proposals cannot spend more than $100,000 and can only be implemented during an emergency where time is of the essence.
• 1inch NFT Marketplace MVP (1IP 21): This proposal requested $387,022 to fund the development of a 1inch NFT Marketplace that can aggregate NFTs on Ethereum, Polygon, and BNB Chain.
• Voting Parameter Adjustments (1IP 26): Within this proposal, a number of governance processes were changed following the introduction of Unicorn Power in December. st1INCH (V1) voting and delegation strategies were removed from the 1inch Snapshot space, and the st1INCH (V2) voting and delegation strategy to use Unicorn Power instead of token balance was implemented. Additionally, the proposal replaced the 20% weighted v1INCH strategy with a strategy that emulates the power decay of Unicorn Power. Finally, the Snapshot proposal creation requirement increased from 25,000 to 100,000 voting weight.

General Updates

In Q1 2023, the 1inch Network reached a number of important milestones. In January, the 1inch Foundation allocated 10 million 1INCH tokens to the newly launched Delegation Incentive Program to help kick off the launch of the Fusion mode. This program encourages users to stake their 1INCH tokens, receive Unicorn Power, and delegate it to Fusion mode resolvers for rewards. Also, the 1inch Hardware Wallet, a cold crypto storage solution, was unveiled with the waiting list now open.

Notable integrations in January included partnerships with Beefy, allowing users to easily access Beefy vaults, SwapFish, a decentralized exchange on Arbitrum and BNB Chain, and CoinStats, enabling users to track assets on their 1inch Wallet. The 1inch Network continued its DeFi Visions series, featuring an interview with Fredrik Haga, co-founder, and CEO of Dune. The main event was the World Economic Forum Annual Meeting in Davos, Switzerland, where 1inch hosted a meetup focused on Institutions and DeFi in 2023.

In February, the Delegation Incentive Program continued with 250,000 1INCH tokens distributed to 1inch resolvers weekly. The European Blockchain Convention 2023 was the primary event, featuring a keynote address from Sergej Kunz, 1inch co-founder, discussing how better user experience could attract mass users to DeFi.

In March, the 1inch Network reached a new milestone, as the 24-hour trading volume hit a $4 billion mark for the first time. The 1inch Wallet for Android was updated to provide a quicker and more secure way to interact with Ledger, the popular hardware wallet. Support for WalletConnect V2 was also added. March also offered opportunities for 1INCH stakers to earn rewards through various Web3 quests and games, with rewards from 1inch, Cheelee, Planet IX, and Protocol.art.

Several integrations were announced in March, including Zyberswap V3 Liquidity, Civilization Network, JulSwap, and The Mises Browser. A new blog was launched here, while Medium posts will continue. The 1inch Network participated in Paris Blockchain Week, featuring Fusion of Aggregation, a fireside chat with 1inch co-founder Sergej Kunz, and 1inch's party, Cirque De La Lune.

Closing Summary

The 1inch Network had a strong performance in Q1, with a 7% QoQ increase in users across its various protocols, bringing the total user count to 2.59 million. During this period, 1inch reached a single-day high in volume of over $4 billion, while the total volume for the quarter amounted to $37 billion. The Aggregation Protocol remained dominant, while the Limit Order Protocol, which enables gasless swaps through Fusion mode, made significant strides in user adoption.

A significant 42% QoQ increase in total volume processed was observed, which shows that the platform’s user base and adoption of its protocols continue to increase. Ethereum continued to dominate as the leading chain for users by volume traded, while alternative chains like Arbitrum experienced notable growth.

1inch Network's aggregator volume dominance persisted, with the protocol accounting for 59% of the total volume across all aggregators in Q1. The Fusion mode introduced several key changes to the 1inch Network, including adjustments to governance and tokenomics. The 1inch DAO treasury experienced its fourth consecutive quarter of growth, reaching an all-time high of $18.2 million.

Throughout Q1 2023, the 1inch Network reached important milestones, unveiled new products like the 1inch Hardware Wallet, and announced notable partnerships and integrations. These developments, combined with the overall growth of the platform and its protocols, demonstrate 1inch Network's continued commitment to improving the decentralized finance landscape and catering to a diverse range of users.