From messari by AJC

Key Insights

Primer

The 1inch Network (1INCH) is a decentralized finance (DeFi) DEX aggregator and intent-order protocol operating on Ethereum, Arbitrum, Optimism, Polygon, zkSync Era, Avalanche, BNB Chain, Gnosis, Fantom, Klaytn, and Aurora. Launched in 2019, 1inch 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 second 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 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, Fantom, and Base. Data from zkSync, Klaytn, and Aurora are currently not included.

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Key Metrics

Protocol Analysis

Aggregation Protocol

As the leading DEX aggregator for most EVM-based Layer-1 chains and Layer-2 rollups, 1inch’s trading volumes are mainly influenced by wider market activity. According to DefiLlama, DEX volumes decreased in Q3, down 24% QoQ from $650.58 billion to $493.57 billion.

Across its three protocols, the Aggregation Protocol is responsible for the majority of volume routed through 1inch. In Q3, daily average volume on the Aggregation Protocol was down 28% QoQ from $374.5 million to $269.4 million.

Broken down by blockchains, Ethereum still represented the majority (66%) of volume on the Aggregation Protocol. However, Ethereum’s volume share fell by 3% QoQ as its daily average volume fell 30% QoQ to $176.6 million. Ethereum’s volume share fell primarily due to the increase in volumes on popular L2s. Daily average volume on Arbitrum was down 15% QoQ from $45.9 million to $39.1 million, yet its volume share increased 18% QoQ to 12%. After emerging as a top L2 for trading in Q2, Base’s daily average volume pulled back in Q3, decreasing 18% QoQ from $31.8 million to $26.1 million. Base’s volume share, however, increased by 14% QoQ to 10%. Combined, Ethereum, Arbitrum, and Base accounted for 90% of the volume on the Aggregation Protocol.

Notably, the Aggregation Protocol’s highest volume day occurred on August 5, when $1.60 billion in volume was routed through the protocol. This came as a result of the Japanese Yen carry-trade unwinding, which resulted in over $1 billion in liquidations in crypto markets.

In Q3, the execution destination on the Aggregation Protocol became less concentrated. Last quarter, 42% of all volume was routed through Uniswap V2 and V3. In Q3, only 39% of volume was routed through Uniswap V2 and V3, a 6% QoQ drop. Other top DEXs also saw a decrease in market share. Curve’s volume share fell 11% QoQ from 17% to 15% while PancakeSwap’s volume share fell 11% QoQ from 7% to 6%. The biggest gainer in terms of volume share was Aerodrome, a ve(3,3) DEX on Base. In Q2, 2% of volume routed through the Aggregation Protocol was executed on Aerodrome, but in Q3, this number increased to 6% (up 192% QoQ).

Daily average transactions on the Aggregation Protocol pulled back in Q3 after two straight quarters of growth, decreasing 35% QoQ from 177,200 to 114,900. Broken down by blockchain, Base averaged the most daily transactions at 38,100 (down 35% QoQ from 58,500). Ethereum surpassed both BNB Smart Chain and Arbitrum in daily average transactions in Q3, yet still experienced a QoQ decline (down 3% QoQ from 24,000 to 23,200). Gas fees on Ethereum have come down since EIP-4844, making it more affordable for smaller trade sizes.

Daily average active addresses on the Aggregation Protocol fell in Q3, decreasing 38% QoQ from 79,400 to 49,200. BNB Smart Chain averaged the most daily active addresses of any deployment at 13,500 (down 35% QoQ from 20,700). With Aggregation Protocol volumes relatively low on BNB Smart Chain (daily average of $10.5 million in Q3), most active addresses on BNB Smart Chain were likely smaller retail users. No deployment of the Aggregation Protocol saw an increase of active addresses in Q3.

Limit Order Protocol

Daily average volume on the Limit Order Protocol increased in Q3, up 2% QoQ from $85.6 million to $87.6 million. Similarly to the Aggregation Protocol, its highest volume day came on August 5. The majority of volume on the Limit Order Protocol occurs on Ethereum (86% of all volume in Q3). Daily average volume on the Ethereum deployment increased by 5% QoQ from $71.6 million to $75.5 million. Other deployments that experienced QoQ increases were Polygon (up 8% QoQ to $1.8 million) and Optimism (up 21% QoQ to $1.5 million). As Ethereum progresses through its L2-centric scaling roadmap, 1inch should expect trading volumes to shift from its Ethereum deployment to its L2 deployments.

Orders on the Limit Order Protocol trended lower, despite the increase in volume. Daily average orders were down 16% QoQ from 9,000 to 7,500. This decline was primarily due to all non-Ethereum deployments. Ethereum’s daily average orders were up by 48% QoQ from 2,200 to 3,200. Additionally, its share of orders increased by 79% QoQ from 23% to 42%. The daily average size of a Limit Order Protocol transaction on Ethereum was down 29% QoQ from $32,800 to $23,400, signaling increased adoption amongst smaller retail users.

Daily average orders on the Limit Order Protocol finished Q3 lower, decreasing 21% QoQ from 3,300 to 2,600. Each deployment of the Limit Order Protocol had a QoQ decrease in daily average active addresses.

Fusion Mode

Fusion mode routes volume through both the Aggregation Protocol and Limit Order Protocol. The daily average volume associated with Fusion was essentially flat QoQ, decreasing from $62.0 million to $61.8 million. The vast majority of volume (85% of all volume in Q3) occurred on Ethereum. Daily average volume on the Ethereum deployment increased by 1% QoQ from $52.2 million to $52.5 million. The biggest gainer in percentage terms was Polygon, which saw its daily average volume increase by 23% QoQ from $1.2 million to $1.6 million. All other notable deployments had a QoQ decrease in Fusion volume.

Resolvers are a key part of 1inch’s Fusion mode, an intent-based DEX standard, as they execute the orders placed by users. In Q3, a new resolver, Flowmatic, went live and quickly cemented itself as one of the top resolvers on Fusion. Approximately 20% of all volume on Fusion was executed by Flowmatic. Rizzolver regained the top spot in Q3, accounting for 26% of the volume executed through Fusion. The remaining top four resolvers (1inch labs, Seawise, The T, and Artic Bastion) all lost volume share to Rizzolver and Flowmatic.

Despite volume remaining steady, orders through Fusion mode fell in Q3. Daily average orders decreased 18% QoQ from 5,800 to 4,800. Despite the overall decrease in orders, two deployments did see an increase: Ethereum (up 8% QoQ to 1,400) and Arbitrum (up 12% QoQ to 1,100). Combined, Ethereum and Arbitrum accounted for 53% of Fusion mode orders in Q3. All other deployments of Fusion mode had a QoQ decrease in orders this quarter.

Market Analysis

Market Cap and Staking

Similarly to the broader crypto market, 1INCH’s circulating market cap declined in Q3, decreasing 24% QoQ from $500.7 million to $378.7 million. Despite this correction, 1INCH is still up 36% from Q3’23. As for staking, there was a significant increase in total 1INCH staked, increasing 28% QoQ to 260.1 million. Staking 1INCH gives Unicorn Power (UP), which can be used to vote in governance and delegate to resolvers. Staking and delegating to resolvers create an important value accrual pathway for the token: resolvers give 1INCH rewards to attract delegates so the resolvers can compete in completing Fusion transactions.

Treasury

The 1inch DAO continues to be mindful of spending while still allocating to growth opportunities for all 1inch users and participants. In Q3, the DAO approved one payment for a total of $400,000:

Outside of these disbursements, treasury allocations did not change, and the DAO continues to benefit from interest earned from the $1 million in aETHUSDC. By Q3 end, the treasury was valued at $13.4 million, down 6% QoQ from $14.2 million.

Market Share

1inch has historically been the top DEX aggregator by volume within the EVM ecosystem. Q3’24 continued this trend as 1inch accounted for 43.1% of all DEX volume routed through an aggregator on chains 1inch is deployed on. However, 1inch’s market share fell 13% QoQ, mainly due to CoWSwap’s increasing market share. CowSwap accounted for 12.3% of the market, increasing by 38% QoQ. Other notable market share gainers included Odos (+12% QoQ to 12.9%) and Paraswap (+25% QoQ to 10.4%). Combined, the top three aggregators (1inch, Odos, and CoWSwap) accounted for 68.3% of volumes.

Similarly to volume, 1inch has also historically been the top aggregator by users within the EVM ecosystem. 1inch expanded upon its plurality in Q3, increasing its share of users from 45.7% to 45.9%. Paraswap (9.1%) and OpenOcean (7.3%) saw the biggest gains in relative users, with both increasing by double-digit percentage points QoQ.

Qualitative Analysis

Triangle Accelerator Program

In early July, it was announced that 1inch, Notcoin, and Sign partnered to launch Triangle, an accelerator program for the Telegram and TON ecosystem. Triangle aims to support builders and developers making consumer-focused apps on TON. Applications for the program closed on August 10, and selected projects will have a 6-week mentorship program. Furthermore, a curated group of venture capital firms and angel investors will provide access to capital.

Fusion+

In early September, 1inch unveiled its whitepaper for Fusion+, a solution for cross-chain atomic swaps. It uses an intent-based model, where users submit trade intents that solvers can fulfill, rather than conducting instant transactions. The protocol employs a Dutch auction mechanism, in which the price gradually decreases until it becomes favorable enough for a solver to fulfill the trade. A critical component of Fusion+ is its use of Hashed Timelock Contracts (HTLCs) to facilitate trustless and secure cross-chain transactions. HTLCs allow trades to be executed only when specific cryptographic conditions are met, such as revealing a pre-agreed hash within a set timeframe. If these conditions are not met, the assets are returned to their original owners, preventing loss due to incomplete transactions. Fusion+ also allows for partial fills, where solvers can complete a portion of the trade if full liquidity isn’t immediately available. The 1inch DAO oversees parameters for the Fusion+ protocol, including settings like auction configurations, resolver participation rules, and minimum trade requirements.

On September 18, a beta version of Fusion+ went live, allowing some early users to test it. It is live on all chains currently supported by 1inch, and nearly $573,000 in volume was processed through it in September.

Integrations, Partnerships, & Upgrades

The 1inch protocol has made significant strides in expanding its ecosystem and enhancing its utility through a series of strategic integrations, partnerships, and upgrades:

Closing Summary

In Q3, 1inch navigated a challenging market with strategic advancements and ecosystem growth. Although overall DEX volumes decreased across the crypto sector, 1inch maintained a strong presence, especially through its Aggregation Protocol, which led in transaction volume across multiple chains. The protocol’s focus on L2 solutions, including increased activity on Arbitrum and Base, highlighted its adaptability to evolving user preferences. Meanwhile, 1inch’s Fusion+ launch showcased a robust step towards cross-chain interoperability, bringing enhanced security and trustless swaps to users across blockchains.

On the ecosystem front, 1inch’s Triangle accelerator and various integrations, like OKX Wallet and Nicegram, strengthened its ecosystem, expanding its reach and utility. With proactive initiatives in wallet enhancements, DeFi tools, and global partnerships, 1inch continues to support a growing user base, solidifying its position as a leading aggregator and innovator in the DeFi space. Looking ahead, 1inch’s commitment to user-centric improvements and cross-chain capabilities positions it well for sustained growth.

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