The need for an aggregator: Overwhelming opportunities — limited skills & time
Going forward, as the internet of value reduces the barriers of entry to create financial products in a similar way the internet reduced the barriers of entry to create content, it is to be expected that there will emerge a plethora of products that quickly becomes overwhelming for users. What is more, there is a need for verifying the security of new protocols and smart-contracts before using them, which is difficult for individuals to perform (lack of skills or time). Thus, there is a huge opportunity for an aggregator to build the “search engine” for on-chain financial products and liquidity, that not only provides the best prices and deals, but also abstracts away the complexities involved in verifying the security of individual smart-contracts.
A product that continuously provides the best prices on the internet, while maintaining high levels of user experience as well as security, will be able to build a defensible brand moat around their reliable service, even though lock-in effects through data ownership and custody are expected to be substantially weaker than in web2.
Brand, trust, continuous innovation & community as a moat
As a first-mover, 1inch has been able to build a leading position amongst competitors, showing considerably stronger traction. While web3 is defined through full open-source auditability and trustless interactions if one verifies all software components, one interacts with, it is hardly possible for everyone to do so (even if an open source community as a whole watches out for, warns about and patches security vulnerabilities in a far superior fashion as centralized entities could do so). Most users will need to trust the interfaces they interact with to implement with only secure protocols.
Thus, 1inch can build a defensible product and brand by scaling their security expertise, as they continue to integrate the best DeFi protocols and optimize offerings for their users. Aggregating supply (liquidity) and maintaining direct relationships to users in a world with lowering barriers of entry for financial innovators and liquidity providers might prove to be a strong strategic position in the web3 ecosystem. What is more, as 1inch will decentralize the project further over time, they will be able to leverage a strong community of believers and supporters, which has been starting to form over the last year.
New product launch — Mooniswap: Yield optimized Automated Market Maker (AMM)
Bancor first implemented an automated market maker, which holds the proportion of a trading pair constant by a constant product pricing formula. As a result, liquidity providers have their portfolios automatically re-balanced to a 50/50 ratio by arbitrage traders, while at the same time earning trading fees (which is likely to turn out as a revolutionary building block of next generation ETFs and robo-advisors, as now investors get paid to have their portfolios rebalanced). Traders, on the flipside, have always available on-chain liquidity, while developers can integrate the mechanism into their products for automated swaps. The concept has been framed a 0 to 1 moment in decentralized finance, with various projects launching optimized versions for specific use-cases.
1inch’s core aggregation product taps into liquidity of all main AMMs in existence and allows optimized swaps in a single transaction, in order to minimize the amount of slippage a trader is experiencing. In addition, they provide an interface and smart-contract to filter as well as deploy tokens in the best performing liquidity or lending pools.