In a rapidly evolving blockchain landscape, decentralized finance (DeFi) has taken center stage, offering innovative solutions for users looking to access financial services in a decentralized manner.
1inch, a leading decentralized exchange (DEX) aggregator, has been at the forefront of this movement, providing users with a seamless experience to swap tokens on-chain.
During an exclusive interview with Sergej Kunz, the co-founder of 1inch, held at the Dubai Harbour as part of the Future Blockchain Summit 2023, the discussion revolved around the platform’s history, foundational principles, and forthcoming initiatives.
1inch Pioneering DeFi Aggregation
1inch’s journey began as a simple idea with the vision to provide users with the best token swap rates across various protocols. In fact, it all started with a fundamental question: why should traders rely on a single exchange when liquidity is scattered across various protocols?
To address this challenge, the team hatched the idea of creating an algorithm capable of aggregating liquidity sources and executing trades exclusively on platforms offering the best rates.
Over time, the project rapidly evolved from its humble beginnings, now utilizing multi-algorithms to provide optimal results.
A Robust Suite of Products
Over time, 1inch has expanded its offerings, introducing products like “NASDAQ DEX.” This product, akin to a NASDAQ for decentralized exchanges, operates by bringing together order creators and professional market makers who source liquidity from various platforms. The result is a decentralized yet highly efficient system that ensures users secure the best possible rates for their transactions.
This flagship product exemplifies 1inch’s commitment to pushing the boundaries of decentralized finance. Nevertheless, their ambitions don’t stop there. 1inch is making significant strides in the development of a hardware wallet, designed to be an enticing alternative to existing hardware wallets like Ledger. With a focus on security and user experience, this new wallet aims to provide a cutting-edge solution for crypto enthusiasts.
Moreover, 1inch is working on a developer portal, facilitating the onboarding of traditional web2 developers into the web3 world. This portal leverages their APIs and software services to enable the creation of web3 applications, bolstering the growth and adoption of the decentralized ecosystem.
In addition to these exciting projects, 1inch is venturing into regulated products, targeting the Middle East, Switzerland, and Europe. Collaborating with VARA and other regulatory bodies, the company is paving the way for more secure, compliant, and efficient financial services in these regions.
Navigating DeFi Fees and Regulations
When asked about the matter, Sergej offered his insights on the evolving landscape of DeFi and the introduction of fees. He pointed out that fees within DeFi are not a novel concept, as they play a crucial role in incentivizing liquidity providers, particularly in platforms like AMMs, Uniswap pools, and Balancer pools.
He acknowledged the recent drama on Twitter surrounding Uniswap Labs’ decision to introduce fees as a move towards sustainability. However, Sergej highlighted the unique advantage that 1inch enjoys.
The 1inch Foundation, a non-profit entity, alongside funds raised from 1inch Labs, currently allows the company to provide such services without fees. Sergej acknowledged that sustainability is an essential aspect of any DeFi project and hinted at 1inch’s alternative path, which involves offering software services to enterprise customers.
This strategic move mirrors the traditional model employed by industry giants like AWS and Google Cloud. He also mentioned the evolving regulatory landscape, where companies might need to explore options like KYC.
While acknowledging these shifts, Sergej emphasized that the essence of DeFi lies in its promise of freedom, and 1inch remains committed to providing users with fee-less transactions. This perspective underlines 1inch’s dedication to maintaining the core principles of DeFi while adapting to the evolving industry dynamics.
User Funds Come First
Security is of paramount importance in the world of Web3 and DeFi, and 1inch places it at the very core of its operations.
Sergej elaborated on the rigorous measures undertaken to secure users’ funds and transactions. 1inch has consistently subjected its smart contracts to multiple security audits, involving reputable firms such as ConsenSys, among others.
Sergej emphasized the criticality of diverse security audits, as it ensures a comprehensive assessment of the smart contracts.
Given 1inch’s substantial daily trading volume of $200 to $500 million and its commitment to a permissionless, self-custodial model, trust and security are paramount. Users rely on 1inch to execute transactions without needing to entrust their funds to a third party, which intensifies the importance of airtight security.
Sergej encouraged other DeFi projects to adopt a similar approach, including seeking feedback from various security experts.
Decentralized vs. Centralized
Sergej shared his insights on the current landscape of decentralized exchanges (DEXs) compared to their centralized counterparts. He painted a vivid picture with his words, likening traditional centralized exchanges to a massive bubble, while DEXs and aggregators appeared as smaller entities on the chart.
This visual analogy underscored the dominance of centralized exchanges in the market. However, Sergej also highlighted the significant room for growth in the DEX space.
Despite their relatively modest presence on the chart, Sergej explained that DEXs have immense potential. This perspective emphasizes the ongoing development and transformation of the DEX sector, even in the face of stiff competition from CEXs.
Thoughts on UAE Regulations
In the realm of decentralized platforms, 1inch operates across various jurisdictions, presenting a unique challenge when it comes to regulatory compliance, especially in the UAE, even though the necessity for licenses is not as prevalent in decentralized finance.
Sergej explained that 1inch operates as a community-driven project under the umbrella of an autonomous organization, known as 1inch DAO, and the non-profit 1inch Foundation, which is based in the Cayman Islands. This decentralized structure is one of the key reasons users do not encounter fees on 1inch for swaps, as introducing fees would require dealing with the regulatory complexities associated with operating as a dealer-broker.
The team at 1inch is actively preparing for increased regulation and compliance. They are collaborating with regulators in the Middle East, particularly in the UAE, and have already acquired licensing in Switzerland. Their aim is to establish a highly regulated platform for swaps, building on their open-source technology. This approach will ensure that users can continue to trade directly from their personal wallets without needing to entrust their funds to an intermediary. However, to meet regulatory requirements, users will be required to complete Know Your Customer (KYC) and anti-money laundering (AML) screenings.
Sergej also commended the regulatory environment in the United Arab Emirates, emphasizing how the government’s strategic initiatives have successfully attracted talents from various sectors, including the blockchain and cryptocurrency space.
He praised the government’s open and proactive stance, fostering an environment where innovative technologies can thrive, making the UAE an increasingly appealing destination for cutting-edge projects like 1inch. As a result, 1inch feels well-supported in the UAE, working closely with local regulators to develop and introduce regulatory-compliant products.
What’s in the Pipeline?
As 1inch looks ahead, the company is open to collaborations and partnerships. Sergej sees opportunities to work with both crypto-native companies and traditional businesses, including banks.
He highlighted the possibility of offering services that would enable traditional financial institutions to embrace web3 technologies more efficiently, providing a range of benefits for users and the industry as a whole.
In an ever-changing DeFi landscape, 1inch continues to innovate and adapt, embracing new opportunities and adhering to a commitment to provide users with a solid DeFi experience.