8btc Interview | How Mooniswap Brings Security and Innovation
Decentralized exchange (DEX) is arguably one of the oldest DeFi applications. Curve, Balancer and Uniswap are currently the top three in the DEX market, with more than $1.6 billion locked in as of press time.
DEX can process transactions in a permissionless and decentralized way, with users hold their own private keys, giving them a sense of security. However, since DeFi is still in its infancy, the diversified choice of DEX also causes problems like liquidity diversification and insufficient trading depth. In order to reduce price slippage, users need to switch from one DEX to another and often more, which will more or less bring some inconvenience.
To solve these problems, 1inch is here. 1inch’s DEX aggregator 1inch. Exchange can find the optimal trading path for users and simplify smart contract operation.
According to CoinGeck, 1inch has traded nearly $26 million in the past 24 hours, putting it in fifth place.
1inch announced $2.8m funding earlier this month, about the same time it announced the launch of its own decentralized trading platform – Mooniswap.
The new AMM DEX improves the design of Uniswap, redistributing some of arbitrageurs’ gains to the liquidity pool and protecting traders from front-running attacks. Mooniswap is expected to generate 50 to 200 percent more revenue for liquidity providers (LP) than Uniswap V2, according to simulations.
Sergej Kunz, 1inch’s CEO and co-founder, spoke exclusively to 8btc’s “How We DeFi-ing” program about Mooniswap.
8btc: 1inch’s token launch will enable yield farming. How will the rules differ from existing DeFi platforms?
Sergej Kunz: Since inception, our focus at 1inch has been on decentralization and permissionless network operation. We have looked into several approaches and designs, and have landed on one we are proud to share – the 1inch network token (1INCH).
The security provided by the token model is crucial for the successful further development of the DeFi ecosystem. More specifically the 1INCH token drives safe participation in the protocol and its future innovations.
The 1INCH token is not an investment, it is an instrument that will help us build a decentralized permissionless network.
1INCH token holders should be people that interface with the protocol in some way, are committed to its future development, maintain a sense of responsibility and belonging to the 1inch community.
The 1INCH token is a utility token that serves several network needs:
- to ensure a permissionless fashion of interaction with the protocols;
- to secure funds for further ecosystem development;
- to incentivise participation in governance of specific network functionalities (still under consideration);
- to stake for network security.
To learn more about how the 1INCH token will work, please, see the blog post.
1inch will enable yield farming based on the provided liquidity from Mooniswap.
8btc: According to a blog post from 1inch, the AMM 1inch team designs “enables liquidity providers to catch a portion of price slippage profits”. Can you briefly explain how this works?
Sergej Kunz: With price slippage, users lose significant amounts of their funds to arbitrage traders. When a user swaps a substantial amount of coins, price slippage can deplete user’s funds by anywhere from 2% to infinity. To solve this, at 1inch we implemented a five-minute period during which the exchange rate improves for arbitrage traders after each deal with a price slippage, and they can make a profit on a reverse auction.
1inch’s automated market maker Mooniswap improves the issues of impermanent loss by reducing arbitrageurs’ earnings while increasing liquidity provider earnings.
In addition, Mooniswap deals with front-running attacks, whereby a malicious node observes a transaction after it is broadcasted but before it is finalized and attempts to get its own transaction confirmed before or instead of the observed transaction. The malicious observer then sells for a better price after the user’s transaction in order to earn on that.
8btc: Along with Mooniswap came the price oracle VWAP. Compound has also announced the release of its own oracle Open Price Feed. Why do you think you need your own oracle? Will there be a similar trend in the future, with most of the DeFi platforms turning on their own oracles?
Sergej Kunz: The 1inch team delivered the first on-chain VWAP (volume weight average price) oracles. Mooniswap’s unique architecture made this type of oracle infrastructure possible. Based on our and other industry leaders’ analysis, VWAP is the best oracle infrastructure for the Defi ecosystem. VWAP is less manipulatable and more responsive to fast price changes. These features make VWAP a clear choice.
We need these oracles for further 1inch innovation. The current available oracle infrastructure on the market prior to VWAP is not good enough for our future products.
8btc: Can you briefly introduce 1inch’s trading path algorithm? How does 1inch find the optimal trading path? What is the biggest difference between 1inch and other DEX aggregators?
Sergej Kunz: Soon the team will release a game-changing algorithm that utilizes 1inch APl to respond in less than a second to find the best trading paths and is completely free for B2B integrations. 1inch will continue to optimize the aggregator’s API and integrate with transformative technologies in DeFi and blockchain. Key differences between 1inch and other DEX aggregators are:
- unique algorithm that uses smart contract technology to split a single trade transaction across multiple DEXs – enabling users to optimize and customize trades;
- high number of liquidity sources;
- our gas accounting and transaction costs in determining the best trading paths;
- the Chi GasToken which lowers the cost of the trades on 1inch.
8btc: For small traders, is 1inch only a “price comparison tool”? Is it possible for you in the future to provide more value and better serve small traders?
Sergej Kunz: We are working on a solution that reduces the amount of overhead on the aggregation and lowers the cost of small trades with direct liquidity sources.
8btc: Can you share the business model of 1Inch? What’s new with the plan to issue 1inch’s native tokens?
Sergej Kunz: Mooniswap is very important as we earn on the provided volume. On other AMMs it is not possible to earn on exchange volume. Any project that integrates Mooniswap can earn on user volume. This is game-changing for Defi.
With the launch of our native 1inch token we plan to incentivise people to provide liquidity on Mooniswap.
8btc: Yam, which may be the hottest DeFi project recently, has not actually been audited, but there are still people out there who are willing to put millions of dollars into it. Then we saw a rebasing contract bug hit Yam. What do you think of Yam? Do you worry about the current DeFi mania?
Sergej Kunz: We value audits. As DeFi is growing on crazy APR which some products might use irresponsibly, we believe that users should educate themselves on the products they wish to use rather than placing funds into tech they do not understand.
But of course there will always be people who are not that concerned about safety and stability.
8btc: DeFi mania also get people to think about some risks and limitations, such as gas price hitting new highs, smart contract security concerns and DeFi being more like a whale’s game: to solve the problem of the high cost of gas, 1inch once proposed Chi gas token. How has it been applied so far? How to solve this gas problem thoroughly?
Sergej Kunz: The Chi GasToken is an ERC20-standard token that is meant to be used on 1inch.exchange to partially refund transaction costs. The idea is similar to the GasToken concept but 1inch team introduced some improvements. Chi price depends on (but not pegged to) the Ethereum network’s gas price. When the gas price is low, the Chi price is also low, and the opposite. Just like GasToken, Chi is tokenized gas on the Ethereum network. The difference between Chi and GasToken is efficiency and implementation details – Chi is a more efficient version of the GasToken and Chi is implemented only on 1inch. Chi token could be used to leverage high gas prices, by minting (or buying) it when gas prices are low and burning (or selling) it when gas prices are high.
8btc: With DeFi getting popular, the security of smart contracts will be the key of its future development, especially for aggregators like 1inch, which need more complicated smart contracts design. What do you think is the best way to minimize the risk of smart contracts?
Sergej Kunz: There are several smart contract design primitives that could introduce additional risks. The risks to be avoided or handled properly are: 1) upgradeability; 2) admin keys; 3) delegate calls – which means that your smart contracts could use logic from an external contract; 4) re-entrancy – which a smart contract calls a different smart contract and makes sure that this smart contract could not get called again.
8btc: Nearly half of CRV tokens were awarded to the 20 whales in the just past Curve initial yield mining, which made some think DeFi is a whale’s game. How do we make sure that DeFi applications achieve maximum fairness? What plans does 1inch have for this part?
Sergej Kunz: The CRV token distribution could be considered fair in the case the whales that participated were not aware of a vesting reward before public announcement. In December 2019, the CTO of 1inch Anton Bukov wrote a smart contract for fair rewards distribution which is used by numerous different projects including Synthetix, YFI, YAM.
For example, if you were to put rewards into Uniswap for some smart contract token then you could get rewarded for all these tokens. Gas efficiency does not depend on the number of participants. If you are going to distribute rewards to Uniswap liquidity providers you can achieve fair distribution by using this smart contract.
**Contributed to yield farming by writing this smart contract that enables fair and efficient reward distribution (Synthetix repo called Unipool).