Abstract

This proposal introduces key updates and improvements to 1inch Protocols to enhance Protocol adoption and usage while maintaining competitiveness. By implementing technical capabilities that recognize and support technical contributors, the 1inch Network fosters long-term adoption, resilience, and efficient operations.

Incentive 1: KYC/KYB-Based Order Fulfillment in LOP: introduces KYC/KYB-based order settlement in the 1inch Limit Order Protocol (LOP), ensuring that only verified resolvers can participate. This strengthens competition among verified participants and enhances security and trust within LOP.

Incentive 2: Technical implementation of incentives in the operational model of the Protocols: introduces a technical capability that enables incentivization for infrastructure and product integrators in Aggregation, Limit Order, Fusion, and Fusion+ protocols, driving adoption and aligning with market practices. This upgrade allows technical contributors to implement programmatic costs at the protocol or user-facing product level, ensuring sustainable participation. Additionally, leveraging inherent protocol features such as swap surplus allocation and incentivization in third-party integrations further enhances network efficiency.

Intro: Global Motivation

The success and reach of the 1inch Network depend on technical contributors who maintain and optimize its core protocols. These contributors—infrastructure and product integrators—play a vital role in shaping infrastructure that powers the Network and driving Protocol usage and adoption. To ensure long-term sustainability, it is essential to introduce technical capabilities that foster a competitive and balanced ecosystem. This Protocol Upgrade introduces targeted improvements that support structured incentivization of technical contributors and enhanced protocol participation.

While this proposal presents multiple initiatives, we believe it is beneficial to introduce them as a unified step toward a more sustainable and efficient 1inch Network.

Incentive 1: KYC/KYB-Based Order Fulfillment in LOP

We propose to limit the takers in Limit Order Protocol (LOP) only to KYC/KYB-compliant resolvers.

Motivation and Rationale

The proposal fulfills the general goal of preserving integrity and promoting organic incentivization in the following way:

1. Fostering healthy competition between verified resolvers in LOP, while enhancing security:

In LOP, only resolvers who have passed KYC/KYB should be allowed to fill orders, increasing market efficiency and fostering greater competition between the resolvers. At the same time, the obligatory requirement of UP threshold is removed, allowing more resolvers to participate in order settlement (details in Incentive 2), leading to better rates for users.

The end-users of the LOP are provided with greater security as the limit order takers are limited exclusively to identified sources.

2. Incentivizing infrastructure contributors.

Mandatory verification for LOP order fulfillment may also encourage greater adoption of LOP by integrators, and institutional market contributors who value a trusted and secure environment.

Specification

Requirements to participate in order filling:

• Orders within LOP can only be filled by resolvers who have successfully completed the KYC (Know Your Customer) or KYB (Know Your Business) processes. The same process is currently enabled in Fusion and Fusion+.

• This ensures that only verified contributors can interact with the LOP at this level. Any entity or individual who has passed the KYC/KYB requirements and security process will be eligible to fulfill orders in LOP.

• The tiers currently applicable to resolvers in Fusion protocol will be equally applicable to resolvers in LOP. More details are described in Incentive 2.

Incentive 2: Technical implementation of incentives in the operational model of the Protocols

We propose implementing the technical capabilities that enable incentives for infrastructure and product integrators (the “technical contributors”) in the operational model of Aggregation, Limit Order, Fusion, and Fusion+ protocols (the “Protocols”).

The proposed change is a technical upgrade that enables technical contributors to implement the programmatic costs on the protocol level or user-facing product level as an incentive. This Protocol upgrade drives widespread adoption and usage of the Protocols, meeting the market practices.

Additionally, another inherent Protocol feature that can be used for incentivization of technical contributors is swap surplus. A structured approach to swap surplus allocation could enable contributors to benefit, while maintaining network efficiency. Expanding protocol functionality into third-party applications also necessitates incentivising the technical contributors in such integrations.

These changes strengthen the Protocols’ competitiveness, foster their greater adoption and attract more contributors.

Motivation

By implementing this technical upgrade, 1inch DAO enhances the Protocols' functionality while also ensuring infrastructure providers and the community are recognized for their contributions.

One of DAO's fundamental objectives is to drive widespread adoption of the Protocols. Third-party integrators and infrastructure participants looking to adopt the Protocols are often discouraged by a lack of technical capability to benefit from their interactions with the Protocols on infrastructure or user-facing level.

Through the technical implementation of the incentives, allowing the technical contributors to benefit from protocol usage on various levels, we create a framework that enables broader adoption and long-term sustainability.

Additionally, swap surplus within the Protocols is a built-in mechanism that presents an additional avenue for contributors’ incentivization. A structured approach to allocating surplus could ensure that technical contributors, community participants, and integrators receive recognition for their role in maintaining network efficiency. As Protocol use is also expanded to third-party applications through UI-integrated iframes the incentivization is also beneficial for the contributors maintaining such integrations.

As competitors are already utilizing similar approaches to attract integrators, the Protocols must prioritize this initiative to maintain its competitive edge in the evolving market, drive Protocol adoption and strengthen the ecosystem in general.

Lastly, if the technical capability that enables incentives are in place, some of the value derived on the protocol level could be allocated to the DAO or st1INCH holders for sustainable development and/or incentivization as decided by the DAO. However, this would require further community feedback, technical development, and careful consideration before implementation, to ensure that any decisions reflect the broader Network’s priorities and long-term sustainability goals.

Specification

When implementing incentives on a protocol level any technical contributor is required to comply with the following tiered structure for resolvers, as infrastructure integrators:

• Tier 1: meeting KYC/KYB requirements; meeting the 5% UP requirement - subject to discounted protocol costs implemented by technical contributors for deeper engagement with the Network.

• Tier 2: meeting KYC/KYB requirement; not meeting the 5% UP threshold - subject to regular protocol costs implemented by technical contributors.

Considerations

1. Rate Influence. While incentives enabled by technical contributors may impact rates, increased competition from lower entry barriers is expected to counterbalance this effect, ensuring continued market efficiency.

2. Technical Challenges. Changes must be implemented without disrupting existing infrastructure, preserving protocol usability and minimizing integration adjustments for contributors and resolvers.

Conclusion

The Protocol upgrades brought through the initiatives introduce key improvements to the Protocols, ensuring competitiveness and broader adoption while incentivising the technical contributors. By implementing targeted technical upgrades, the DAO strengthens the Protocols' long-term viability and ensures continued innovation.

• Incentive 1: KYC/KYB-Based Order Fulfillment in LOP

  Ensures that only verified resolvers can settle limit orders, fostering healthy competition and lowering entry barriers for compliant resolvers, while enhancing security and trust for end-users.

• Incentive 2: Technical implementation of incentives in the operational model of the Protocols: introduces a technical capability that enables incentivization for infrastructure and product integrators in Aggregation, Limit Order, Fusion, and Fusion+ protocols, driving adoption and aligning with market practices.

Requests for key contributors:

• The 1inch Foundation, as a liaison with resolvers and other third-party contributors, is requested to communicate potential changes, collect feedback, and ensure smooth implementation of any upgrades.

• The 1inch Limited, as a key technical contributor, is requested to facilitate any necessary technical developments, ensuring that proposed gateways are implemented efficiently and securely.

By adopting this proposal and the Protocol updates, the 1inch DAO commits to a forward-looking strategy that enhances Protocol adoption, aligns with market standards, and fosters a thriving, decentralized ecosystem. The continuous involvement of the community and infrastructure contributors will ensure the long-term success of these initiatives.