This week the total value locked in decentralized finance platforms reached a new high at $26.2 billion, and this record high was achieved even as Bitcoin (BTC) price appeared to be slipping into a downtrend.
This asymmetrical performance from DeFi tokens suggests the sector has staying power and the ecosystem built up around DeFi platforms is likely to have a far-reaching impact that may even alter the way traditional finance operates.
As DeFi protocols gain traction, decentralized exchange (DEX) aggregators have also emerged among the thriving trading and staking market. The 1inch protocol sources liquidity from different DEXs and executes the token swaps at the best rate in one single transaction. This saves users from having to pay high gas fees on each asset swap that might occur as the transaction from, take for example, Bitcoin to Wrapped Bitcoin (WBTC) then to the desired asset takes place.
Over the past two weeks, 1INCH, the exchange's utility and governance token, has rallied more than 135%, and the current trading volume and total value locked (TVL) suggest that there is room for further price appreciation.
Upon listing, 1INCH price fell from $2.85 on Dec. 25 ,2020 to $0.75 by Dec. 29, 2020, but the current features offered by the exchange are clearly underpinning the current interest seen in the token.
By offering an entirely noncustodial service, 1inch is backed by smart contracts that are seamlessly integrated with the most popular DEXs, including Uniswap, Balancer, Kyber Network and more. Currently, 1inch does not charge fees for its service, apart from the gas cost of transactions.
Moreover, transactions on 1inch are up to 40% cheaper due to its Chi GasToken (CHI) by taking advantage of the Ethereum network’s "storage refund" on gas costs. Other projects such as Curve have also adopted this ERC-20 token to cover Ethereum transaction fees.
Launched on Dec. 25, 2020, the 1INCH token behind the 1inch DEX aggregator currently holds the ninth position in total value locked in DeFi. It is worth mentioning that the Mooniswap decentralized exchange also belongs to 1inch.
Mooniswap is 1inch’s version of Uniswap, and as an automated market maker (AMM), its smart contracts are responsible for the ERC-20 tokens-based liquidity pools.
Although currently set to 0%, stakers of 1INCH will benefit from the eventual spread surplus. Whenever a trade gets executed with prices better than the initial quote, this generates a potential gain for 1INCH stakers. Other parameters such as swap fees and a price impact fee might be changed later, but this depends on the platform's governance voting protocols.
It is worth noting that only 6.5% of the 1INCH tokens have been distributed, while another 30% will be allocated over the next four years.
Data from Dune Analytics also reaffirms the projects' strength in the fast-growing DEX sector. At the moment, 1inch processes $6 billion in monthly volume, and given that one day, token holders may benefit from capturing fees, there’s little stopping this rally from continuing.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.