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1inch review and guide: How to trade and stake
Get the most out of the 1inch exchange aggregator by learning how to trade, stake and supply liquidity.
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What is 1inch?
The 1inch Network is a decentralised exchange (DEX) and liquidity aggregator that enables users to trade digital assets across several exchanges, giving access to a wide range of trading options through a single interface.
It's not just a standard automated market maker (AMM) which prices assets based on a mathematical formula, but rather a liquidity aggregator that enables users to simultaneously gain access to pricing from a number of liquidity providers (LPs) and pools.
The 1inch Network does this by using smart contracts to reroute user trades between various DEXs. This allows 1inch to leverage the most optimal token and gas prices for transactions on the Ethereum, Polygon and Binance Smart Chain (BSC) blockchains.
1inch and other DeFi protocols are experimental works in progress. Funds deposited into 1inch or DeFi protocols in general can be at risk of smart contract vulnerabilities, malicious developers and hacks.
How 1inch prevents price slippage
To grasp the advantages of using 1inch, you need to understand the concept of price slippage. Slippage is the difference between the price you thought you bought a token for and the actual price you paid.
For instance, let's say you want to buy $2,000 worth of ABC tokens on Uniswap, currently priced at $1 each. Problem is, the exchange only has $4,000 worth of ABC tokens in its pool. Since you want to buy nearly 50% of the exchange's supply, you probably won't be getting your 2,000 ABC tokens, as the $1 price will likely surge due to the spike in demand on the limited supply. In the end, you will be paying well over $1 per token (let's say $1.05) as the exchange's supply gets depleted. This is why Uniswap users must often set their slippage rates to 5% to ensure their transactions get executed.
However, 1inch exchange's trading protocol easily fixes this problem. By splitting orders across various exchanges, the 1inch protocol prevents the transaction from moving the market and causing slippage, thereby helping the buyer get a better overall price compared to a regular DEX.
The process is impossible to do manually since it requires several individuals who can execute transactions at lightning speed. Luckily, 1inch's arbitrage bots can do this for you in a single transaction.
Another noteworthy feature of the protocol is the Chi Gastoken, an ERC-20 token pegged to the gas price of Ethereum, allowing users to save on network gas fees. Users can buy CHI when Ethereum gas prices are low and consume them when gas prices are high, allowing them to trade at a low cost even during network congestion.Back to top
How to use 1inch
The DEX aggregator and liquidity protocol offers 3 main services to users: trading, staking and liquidity mining. Let's explore each of them.
How to place a trade with 1inch
- Create a wallet. The 1inch exchange supports several web3 wallets but we recommend using MetaMask since it is the most widely used.
- Link your wallet to 1inch. Head over to https://1inch.exchange/ and tap the "Connect wallet" button and choose MetaMask. Once your wallet is linked, your Ethereum address should be found on top of the page.
- Trade. Choose which coin you'll pay with and which one you want to purchase by clicking on each drop-down menu. You may choose between "Maximum return" and "Lowest gas cost". The former option allows you to buy at the most favourable prices while the latter focuses on finding swap routes that provide the best gas cost savings. The "Lowest gas cost" option is typically useful for small trades.
- Advanced options. 1inch exchange has an "Advanced Settings" option that can be activated by clicking on the "Settings" button in the upper right corner, which allows users to tinker with a trade's slippage tolerance, gas price, exchanges to be routed to, etc. As a beginner, you could skip this step.
- Swap. After inputting the token and amount, click on "Swap". Your trade will automatically reflect in your MetaMask wallet in a few minutes or when the transaction is confirmed.
How to stake 1INCH tokens
Staking 1INCH offers 2 main benefits:
- You'll have a say in the future updates of the 1inch protocol.
- You'll receive 1INCH token rewards.
Staking requires a web3 wallet like MetaMask, some ETH to pay for gas, and of course, 1INCH tokens. We've already covered how to connect your MetaMask with the 1inch exchange in the previous section, so let's assume that your wallet is already linked.
- Unlock token. Click on "DAO" on top of the page to be directed to the staking interface on the right side of the screen. If you have 1INCH in your MetaMask, there should be an "Unlock Token" button on the staking interface under "Stake token". Click it.
- Specify approval type. You can choose the one-time lock or the "Infinite Lock", which enables the wallet to interact with the staking contract perpetually, which would allow you to save on gas costs in the future in case you want to conduct multiple staking interactions.
- Confirm approval request. After specifying your approval type, you will be prompted to confirm the approval request on MetaMask. Unless you want to change anything, click "Confirm".
- Confirm the transaction. Input the amount of 1INCH you plan to stake before clicking the "Stake Token" button. You will be prompted on MetaMask to confirm the transaction.
- Done! Your 1INCH tokens are now staked, which means you will be receiving rewards regularly. You are now also part of the governing community and can vote for different proposals concerning the protocol's development.
How to add liquidity with 1inch
Like most competitive DEXs, 1inch also offers liquidity mining schemes, which present a way for users to potentially earn yield. Liquidity mining is the process of depositing cryptocurrencies in an exchange's liquidity pool to enable trading and receive token rewards in return.
Before you begin your liquidity mining journey, make sure you understand the concept of "Impermanent Loss", which is one of the risks involved in the scheme.
- Connect your MetaMask to the 1inch web portal.
- Click on "DAO" at the top of the page and then click on "Pools" on the left side.
- Pools. You will be directed to a list of available pools. Choose which pools you want to deposit liquidity into. You can also use the search bar to find specific pairs. Once you have found your chosen pair, click on "+" at the right of the pool.Note that you will need to deposit equal amounts in the USD value of each pair. For this example, we'll deposit liquidity into the 1INCH/DAI pool.
- Unlock. Enter the USD value or token amount you are willing to deposit, then click the button at the bottom to grant permission to use your tokens. You will also be prompted to confirm the transaction on your MetaMask.
- Approval type. Choose between the one-time approval option or the "Infinite Unlock" (refer to the "how to place a trade" section to learn the difference between the 2). Confirm it in your MetaMask. Note that this process must be done twice, once for each token pair.
- Provide liquidity. Once everything is in place, click on "Provide Liquidity". You will be prompted to confirm on your MetaMask.
- Done! Congratulations, you are a liquidity provider for the 1inch exchange. All you have to do now is let your funds sit and collect transaction fee payments.
What does the 1INCH token do?
1INCH is an ERC-20 governance token that can be used to vote on proposals concerning the system parameters of the DEX aggregator protocol, including trading fees, governance rewards, price impact fees, etc. It also incentivises holders to participate in governance through its staking rewards. Another way to earn 1INCH is to deposit them in the protocol's liquidity pools.
Risks of using 1inch
Smart contract risk
While 1inch has never been hacked, we can't rule out that possibility in the future. Furthermore, the "Infinity Unlock" feature is a double-edged sword, which saves you time and gas fees but it may also be an attack vector since it is a less secure process compared to unlocking each transaction separately.
Impermanent loss, which is the temporary depreciation of a liquidity provider's funds due to volatility in a trading pair, seems to be unavoidable when participating in liquidity mining. Luckily, traders and stakers do not face this risk.
Exchanges that offer 1INCH
Our verdict: Should you use 1inch?
Whether to use or not use 1inch comes down to you and your needs. If you are only interested in trading major high-cap coins like BTC, ETH and ADA then a centralised exchange like Binance or Coinspot should suffice. In fact, they would likely offer better payment methods and lower fees. Ethereum-based DEXs tend to be more expensive due to network gas fees at the moment.
However, if you want to have sovereignty over your money or buy low-cap coins that aren't available on centralised exchanges (CEXs), then DEXs would be more favourable as they allow you to keep your assets in your wallet. In this case, 1inch could offer huge benefits since it leverages multiple DEXs to offer more token choices, better prices and lower fees.
- Best prices for buying some tokens. While it can't compete with centralised exchanges in terms of overall fees yet, it does allow you to buy new low-liquidity tokens, which aren't listed on most exchanges, for a favourable price.
- Low slippage. The protocol aggregates multiple DEXs, leveraging their combined liquidity to offer drastically lower slippage for each trade.
- Excellent security track record. To be fair, the DeFi industry sets the bar low considering the countless exploited protocols in the last 2-3 years. Nevertheless, the fact that 1inch has never been compromised since its launch in 2019 is a testament to its robust security features.
- User-friendly interface. 1inch is very easy to use, even for beginners. Some users might find its interface more user-friendly than centralised exchanges.
- Low gas costs. Chi Gastokens allow users to pay with low gas fees, even during peak hours.
- Fiat is not supported. 1inch does not offer fiat on/off-ramps.
- Can be risky. As stated in the "Risks'' section, using 1inch poses some dangers for investors.
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