Summary

1inch is a network of decentralized protocols designed to provide the fastest and most efficient operations in the DeFi space. 1inch Network was launched in May 2019 with the release of its Aggregation Protocol V1. Since then, 1inch Network has developed additional DeFi tools such as the Liquidity Protocol, Limit Order Protocol, P2P transactions, and 1inch Mobile Wallet.

This proposal seeks to onboard the 1inch Network token (1INCH) as a collateral asset in Aave.

Motivations

Launched in 2019, and with over 60% of the market share 1, the 1inch Aggregation Protocol is both the oldest and most trusted DEX aggregator in the DeFi space. The 1inch Network’s metrics are below (source 1):

Total trading volume: $160B Total swaps: 5.91M Total users: 1.25M

1INCH token is the governance and utility token for the 1inch Network. 1INCH has a circulating market cap of $500M 1, a daily trading volume of $50M+, and is currently listed on highly liquid centralized exchanges including Coinbase, Binance, FTX, Gemini, and Kraken. In addition to the spot markets, 1INCH also has perpetual markets on the centralized Binance and FTX exchanges, as well as the decentralized dYdX exchange.

The mint function for 1INCH was recently burned 4 by the 1inch Foundation – the future supply of 1INCH will not exceed the 1.5 billion amount described in the original distribution schedule 4.

In December of 2021, 1inch Labs completed a $175M funding round 2 for 1inch Network Pro development. This was done via a direct token sale to accredited and institutional investors.

Benefits to Aave Community

1INCH is highly liquid. 1INCH is not yet listed on any decentralized lending platforms, so Aave will have a first-mover advantage. 1INCH is listed on several perpetual markets – there are robust centralized and decentralized price oracles for 1INCH. 1INCH has a wide set of token holders ranging from early adopters, who were airdropped the token for free back in December 2020, to accredited and institutional investors, who bought the token in the subsequent funding rounds.

Resources

Website: 1inch.io Token: 0x111111111117dc0aa78b770fa6a738034120c302 4 Governance Forum Discord Chat Github Documentation Blog Twitter Coingecko Dune analytics

Specification

1. What is the link between the author of the AIP and the Asset? RoundElephant is a community and governance Core Contributor for the 1inch Network.

2. Provide a brief high-level overview of the project and the token 1inch Network is a decentralized set of protocols that aim to improve the efficiency of the DeFi space. The 1INCH token is used to govern the protocols and is also in control of the protocols’ revenue stream. 1INCH has the added utility of providing stakers with subsidized transactions via the gas refund program. 3

3. Explain the positioning of the token in the AAVE ecosystem. Why would it be a good borrow or collateral asset? 1INCH governs the largest aggregation protocol in the EVM space.

1INCH is highly liquid in the spot market and has perpetual markets on Binance, FTX, and a decentralized perpetual market on dYdX.

1INCH has a wide set of token holders ranging from early adopters, who were airdropped the token for free back in December 2020, to accredited and institutional investors, who bought the token in the subsequent funding rounds. Currently, none of these holders have a way of tapping into their equity without selling.

On the demand side, users can borrow 1INCH to participate in the gas refund program, or support specific governance proposals.

4. Provide a brief history of the project and the different components: DAO (is it live?), products (are they live?). How did it overcome some of the challenges it faced?

The 1inch Network was founded by Sergej Kunz and Anton Bukov over the course of the ETHGlobal New York hackathon in May 2019 with the release of its Aggregation Protocol V1. Since then, 1inch Network has developed additional DeFi tools such as the Liquidity Protocol, Limit Order Protocol, P2P transactions, and 1inch Mobile Wallet.

1inch Aggregation Protocol: The 1inch API v4, Pathfinder, is a cutting-edge discovery and routing algorithm, which offers asset exchanges at the best rates on the market. Pathfinder finds the most efficient paths for a token swap, able to split between different protocols and even different market depths within one protocol in the shortest possible time.

1inch Liquidity Protocol: 1inch Liquidity protocol (previously called Mooniswap) is an AMM that aims to offer capital-efficient liquidity positions while protecting users from front-running.

1inch Limit Order Protocol: 1inch limit order protocol is a set of smart contracts that allows users to place limit orders, and RFQ Orders, which later can be filled on-chain. Both types of orders are a data structure created off-chain and signed according to EIP-712. Key features of the protocol are extreme flexibility and high gas efficiency.

P2P Transactions: 1inch Peer-to-Peer allows two users to make an over-the-counter style trade of any ERC20 token. 1inch Mobile Wallet: The 1inch Mobile Wallet is a fast and secure crypto wallet with a built-in DEX aggregator and an easy interface for secure storage and transactions.

Supported Networks: 1inch protocols are deployed on the following EVM networks: Ethereum, Binance Smart Chain, Polygon, Arbitrum, Optimism, Gnosis chain, Avalanche, and Fantom.

How is the asset currently used?

1INCH is currently used as a governance and utility tool for the 1inch Network. Since November 2021, all revenue collected from the 1inch Aggregation protocol is sent to the 1inch DAO Treasury 1. The 1inch DAO has full control over the treasury and the 1INCH token is used to govern the decisions made by the DAO.

Holders of the 1inch Network token may stake it in the 1inch DAO governance contract and participate in general proposals, Instant Governance, or benefit from the gas refund program. 3

#Emission schedule

The 1INCH distribution and token unlock schedule can be seen here 4.

Of the 1.5B total future supply, 415M 1INCH are currently in circulation. The remaining tokens will be gradually unlocked until December 2024 (when the maximum supply of 1.5B is reached).

Uncirculated 1INCH is held in on-chain vesting contracts. v1INCH is the non-transferable ERC-20 which represents 1INCH tokens currently locked in the vesting contract. There are 1.07B v1INCH (these are included in the 1.5B total future supply).

Token & protocol permissions and upgradability

The smart contracts of 1inch Network are immutable and cannot be upgraded – new versions of protocols require the deployment of new contracts. Specific protocol parameters can be dynamically changed by DAO participants via Instant Governance.

The 1INCH token is non-upgradable. The token’s mint function, previously controlled by a mutli-sig, was recently burned 4 – there will never be more than 1.5B 1INCH.

Market data (Market Cap, 24h Volume, Volatility, Exchanges, Maturity)

Market Cap: $548M circulating, $1.98B FDV 24h Volume: $50M Exchanges: CoinGecko | CoinMarketCap DEX: Uniswap V3 1 | $9.9M TVL | $176k 24h Trading Volume 1inch Liquidity Protocol | $3.4M TVL Uniswap V2 | $0.5M TVL

Social channels data (Size of communities, activity on Github)

Twitter 2: 1.0M Discord: 15.8k Telegram [EN]: 25.9k Reddit: 7.9k Github

Contracts date of deployments, number of transactions, number of holders for tokens

Date of Deployment (Token): Dec-23-2020 Number of Transactions: 580k+ Number of Holders: 87k

Risk Factors

1INCH - Risk Assessment

Smart Contract Risk Counterparty Risk Market Risk Overall Risk

General

The 1inch Network was launched at the ETHGlobal New York hackathon in May 2019 with the release of its aggregation protocol v1. Since then, the 1inch Network has also launched the Liquidity Protocol, Limit Order Protocol, P2P Transactions and 1inch Mobile Wallet. The 1inch Network is composed of three independent entities, the 1inch Foundation, 1inch Core Contributors and 1inch DAO that each operate separately.

• 1inch Foundation is a non profit organisation with the goal of fostering 1inch Network growth and support initiatives that benefit the 1inch community. The foundation issued the 1inch token, however the 1inch DAO has control over the smart contract. The 1inch Foundation holds around 28,188,355.56 1INCH tokens via a 2 of 3 multisig.
• Core Contributors are a decentralised group of 1inch Network technical contributors dedicated to building out the 1inch Network. The largest contributor of the Core Contributors is 1inch labs.
• 1inch DAO governs the 1inch Network through a set of on-chain smart contracts. The 1inch DAO has control, amongst others, over the 1INCH token, DAO Treasury, 1inch Network Protocols and the revenue streams generated by those protocols. Do note the 1inch Treasury only holds USDC at the time of writing.
  • 1INCH: The un-staked version of 1INCH does not have the ability to vote on governance proposals.
  • st1INCH: A non transferable ERC-20 which represents 1INCH staked within the 1inch protocol’s governance contract. This has a Voting Weight of 100%. There is no time commitment or waiting period upon entering or exiting the contract respectively.
  • v1INCH: This is an ERC-20 which represents 1INCH tokens that are currently locked in the vesting contract. These tokens are held by backers, advisors and core contributors but are not yet fully-vested. Each v1INCH has 1/5th (20%) the Voting Weight compared to st1INCH.

The 1inch DAO earns its revenue in the form of USDC via the Swap Surplus collector which deposits the funds in the DAO’s treasury. A Swap Surplus occurs when a User performs a swap and the price terms change between when the swap was quoted and when the transaction was mined on the network. The majority of the Swap Surplus is swapped for USDC and sent directly to the 1inch Network DAO Treasury.

Relevant addresses are linked below:

DAO Treasury: 0x7951c7ef839e26F63DA87a42C9a87986507f1c07 1inch Foundation: 0x5E89f8d81C74E311458277EA1Be3d3247c7cd7D1 1INCH: 0x111111111117dc0aa78b770fa6a738034120c302 st1INCH: 0xA0446D8804611944F1B527eCD37d7dcbE442caba v1INCH: 0x03d1b1a56708fa298198dd5e23651a29b76a16d2 Chainlink Oracle: 0x72AFAECF99C9d9C8215fF44C77B94B99C28741e8

1INCH Smart Contract Risk:

The 1INCH token was launched on 23rd December 2020. Since then it has done over $250B in trading volume with the number of Users approaching 3M

The 1INCH token is an ERC-20 token with no governance influence held by around 88,475 wallets and the staked INCH token, st1INCH, used for governance is held by around 5,391 wallets. The staking contract holds 20,218,800.81 INCH tokens at the time of writing.

The 1inch Foundation, although a 2 of 3 multisig has transferred out the vast majority of 1INCH token from the wallet. The current value of the 1inch Foundation wallet is approximately $15M and all 3 signers are on at least one other wallet which is also 2 of 3 which holds a similar value.

On April 6th, 2022 the 1inch Foundation burned the mint function of 1INCH.

There is an extensive list of audits available on Github.

Relevant addresses are linked below:

Audits: https://github.com/1inch/1inch-v2-audits 1inch Genesis: 0x9825b9f083ba43112afd66dbcfbbf770e24bc21ff4128ce24ddbda171d79ae2f Burn 1INCH Key Transaction: 0x8799998e32cf58f4939a1fb21b3e679f1cc4598b26b73bfea6f265fa5426d511

1INCH Counterparty Risk:

1inch is a permissionless protocol where 1INCH holders do not have a say in how the protocol or DAO is governed.

Holders of the 1inch Network token may stake it in the 1inch DAO governance contract and participate in general proposals, Instant Governance, or benefit from the gas refund program.

The st1INCH token is used for governing the DAO and although there is no revenue sharing like with xSUSHI there are economic rewards/incentives for those who hold the token. st1INCH token holders receive up to 100% of gas expenses refunded, depending on your stake size. Under this program, 1INCH tokens are distributed as a gas refund to Ethereum users who stake 1INCH tokens through the 1INCH dApp. Borrowing 1INCH with the intent to receive a gas refund is a useful utility.

Users who stake 1INCH receive st1INCH which is non transferrable and used for governance. If a malicious actor was to borrow 1INCH, stake to receive st1INCH and then try attack the DAO’s treasury, then the Treasury Multisig 7 of 12 can veto the proposal during the 72 hour timelock period post successful Snapshot vote. This measure provides a level of protection for the DAO’s Treasury funds which are nominated in USDC. Any malicious attack on the DAO Treasury would not lead to the actor selling 1INCH on-market and this scenario would not create bad debt by moving the spot price of 1INCH.

Risk Parameters

Risk parameters can be found on the forum thread linked below.