Give 1inch to take a mile
1inch co-founder Anton Bukov talks DeFi
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임준혁
임준혁 2022년 2월14일 09:05
1inch co-founder Anton Bukov
1inch co-founder Anton Bukov. Photo provided by 1inch

1inch co-founder Anton Bukov describes the 1inch network as a "distributed network of decentralized protocols that benefit from synergy with each other, with the aim of making the DeFi space better."

I talked to Bukov via Zoom to get a better understanding of 1inch and its role in DeFi.  

 

1inch origins

During a hackathon in 2019, Bukov and co-founder Sergej Kunz "created a project for aggregating multiple DEXes in a single transaction," which offered users the best possible prices, and 1inch was born.

"We actually didn't win many prizes for our DEX aggregator solution, compared to other hackathons, but we continued improving upon the solution throughout the next year," Bukov says.

For the first year, Bukov and Kunz worked on the project alone in their spare time, while maintaining their day jobs. During this time Bukov worked at NEAR protocol, where he developed a major portion of the Ethereum-NEAR Rainbow Bridge, which connected the two blockchains.

"Both Sergej and I have strong technical backgrounds, which is what allowed us to work together without outside help for the first year."

Bukov says the two developers started focusing full-time on 1inch around May 2020, when they realized that a growing number of users were using their service. He and Sergej met many of the team's current core developers during the various hackathons they participated in.

"We partook in around 15 hackathons around the world in 2019 -- before COVID," he says with a laugh.

Less than a year ago, the 1inch team was around 40 people but has since expanded to around 100.

"Now we have several departments, from mobile and algorithms to PR and designers."   

Bukov says that while 1inch's various teams all have different skills, they are united by their interest in and understanding of DeFi.

 

1inch's role in the DeFi ecosystem

Up until recently, 1inch was mainly known as a DeFi aggregator. A DeFi aggregator collects data from multiple decentralized exchanges (DEXes) and tools and pools them into a single interface, allowing the user to determine which exchanges offer the most optimal prices, trading pairs, and liquidity conditions at a given time.

But 1inch has launched additional services like 1inch Earn and 1inch Limit Order Protocol.    

1inch Earn is an earning tool for liquidity providers. Its liquidity is optimized for stablecoins like USDT and USDC. He points out that many people flock to protocols like Uniswap because they provide specific pools for stablecoins.

"The reason we continue to develop liquidity protocols is our quest to solve the trilemma of price, volume and profits," Bukov says.

"For instance, if you make the price too good for consumers, you don't make as much profit. But if you raise the price too much, your volume diminishes. However, if your price is low, you can compensate if you have a lot of volume. If your fee is zero, you'll have a lot of volume, but your profit will also be zero."  

Limit orders allow users to set specific price targets and trade terms. Orders are placed in a centralized 1inch database via 1inch's user interface (UI).

A taker can fill the order when the market price matches the price set in the limit order.

"Every time we release a new protocol, we are trying to invent, to solve a significant issue."  

Bukov adds that the newest version of Limit Order Protocol allows outside developers to build on top of it and create their own products.

"These protocols are like public goods. Anybody can copy and modify them," he says.

Bukov says that 1inch is currently working on a money market protocol that will allow people to list assets permissionlessly. He expects to release it in as soon as two months.

Recently, there seems to be a lot of talk about cross-chain compatibility and bridging different chains. Bukov, however, is somewhat critical of this enthusiasm.

Bukov explains the inner-workings of 1inch.
Bukov explains the inner-workings of 1inch. Photo: Screenshot of Zoom interview

Cross-chain vs. multi-chain

"As far as I'm aware, from the middle of 2021 to this past January five cross-chain bridges were hacked, resulting in around $1 billion being stolen. Vitalik Buterin has mentioned that he believes in a multi-chain future, but not a cross-chain future."

A key advantage of 1inch is that everything happens at the atomic level. All your swaps are atomic. Bukov says that trying to make something work cross-chain would sacrifice this atomicity. If you're swapping from UNI token to CAKE on another chain, you have to swap via a mediator asset like ETH or USDC. This doesn't happen instantly, but takes at least 10 minutes or so, which requires the users to stay grounded in this mediator asset. But considering the volatility of ETH or BTC, you could lose a lot of value during the transaction.

"Professional market makers (PMMs) bridge liquidity from DEXes across different chains and aggregate them on 1inch. They also compete among each other to optimize prices for users, so from my perspective cross-chain liquidity is already aggregated on 1inch."

 

What does DeFi need for mass adoption?

Compared to the "DeFi Summer" of 2021, it feels like the industry isn't getting that much attention these days. Bukov says that this feeling is deceptive.

"From a technical perspective DeFi is continually improving, and more people are using DeFi services right now than the DeFi Summer of 2020. But DeFi is not receiving as much media attention relative to NFTs and the metaverse, which are the current buzzwords."

Despite DeFi's continued growth, however, it still feels like a niche industry. What do we need to see for mass adoption? Bukov points to transaction fees and speed as the major roadblocks for mass adoption.

Bukov points to zero knowledge (ZK)-SNARKs and zk-rollups as potential solutions. He says Layer 2 gas prices can drop as much as 100 times the level of main chain gas fees.

"Layer 2 solutions can also process thousands of transactions per second, as opposed to the Ethereum main chain, which can only process around 20 to 30 transactions per second."

Bukov thinks that once transaction fees drop to minimal levels and transaction speed becomes convenient, most people will be able to easily access and use DeFi services.

"If Ethereum never had issues with transaction speed and fees, I don't think chains like Polygon and BSC would have ever gotten as much traction."

 

DeFi can be regulated too

1inch is preparing a service for institutional investors called 1inch Pro. As DeFi stands for "decentralized finance" and is supposed to combat the centralized financial power of institutions like those that line Wall Street, some might say DeFi for institutions is contradictory, or even oxymoronic.

Bukov, however, thinks that regulated DeFi is just another part of the freedom that DeFi offers. DeFi is about choice. You have the freedom to make something as decentralized or as centralized as you want or need it to be.  

"If there is a demand for regulated DeFi products that are suitable for institutional investors, I don't see why we shouldn't build it. DeFi gives you the freedom to not only free yourself from restrictions but also play with self-restrictions."

Bukov points out that institutions want DeFi services that apply the KYC and AML systems of traditional finance. Many institutions also want to trade within certain preferred DeFi pools, as opposed to all of them. Also, when institutional clients provide liquidity to a pool, they don't want interference from other liquidity providers or arbitrage traders who swap funds using their pool.

This type of curated DeFi experience is preferred by not only institutional investors but many individual users as well.

"Some users prefer swaps based not in all sources but only in a subset of sources which they and their KYC providers consider 'clean.'"

I ask Bukov about what 1inch has planned for 2022, but he calmly explains that 1inch doesn't believe in public roadmaps. He believes long-term roadmaps are often rendered moot by rapid changes in the DeFi industry. Obviously, the company has its own internal roadmaps, but he says they're flexible.

"We align our targets with the market and its conditions. One year in DeFi is maybe like five to 10 years in fintech, so you have to remain adaptable."

제보, 보도자료는 contact@coindeskkorea.com



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