EP - 15
1Inch: a Google for DeFi? w/ Sergej Kunz
with
Sergej Kunz
Co-founder of 1Inch
Nov 02, 2021
On this episode of The Ledger Podcast, host Mo Sayed welcomes Sergey Kunz, Co-Founder of 1inch Network, and Fabrice Dautriat, Ledger’s Head of Platform.
The discussion centers on 1inch’s role as a decentralized exchange aggregator and automated market maker, aiming to simplify DeFi, enhance security, and navigate the evolving Web3 landscape.
Key Highlights:
Understanding 1inch: Aggregation and Automation
1inch functions as a decentralized exchange aggregator and automated market maker, combining all liquidity sources into one. Sergey Kunz compares this aggregation to Google for news or Kayak for flights.
“It makes sense just to use the aggregator because you get the best rate and best prices.” – Sergey Kunz
Regarding the Automated Market Maker (AMM) aspect, Sergey describes it as a bank in the format of a smart contract. He highlights that AMMs operate with no man in the middle, eliminating traditional middlemen through code, and everything is transparent for everyone” on the blockchain.
Fabrice Dautriat adds that services like 1inch are crucial for helping people use Defi products by simplifying their usage and the complexity of all the underlying logic.
“The smart contract and everything you don’t need to know and you don’t need to understand how that works to actually use the product and that makes it really really useful for bringing new users to this place”. Fabrice Dautriat
The Pathfinder Algorithm: Optimizing Swaps
The algorithm has evolved significantly, aggregating across markets and over 25,000 smart contracts on Ethereum, Binance Smart Chain, Polygon, Optimism, and Arbitrum. It creates multi-paths for transactions, splitting swaps across markets or connector tokens for optimal rates.
A “partial fill” feature refunds users if a portion of a multi-path swap fails. Sergey claims this system offers the best rates due to its comprehensive liquidity discovery in DeFi, mathematically proven.
Mitigating Blind Signing for Enhanced Security
Blind signing is a major DeFi security risk where users approve transactions presented as unreadable code. The 1inch team mitigates this with a Ledger wallet plugin that decodes these complex operations into a simple, human-readable summary.
This empowers users to verify transaction details on their device, enhancing security and preventing them from signing malicious operations directed at fraudulent smart contracts.
Decentralized Governance: The Role of the 1inch Token and DAO
Last year, the 1inch foundation released its token, enabling community participation in protocol governance through instant governance.
Sergey Kunz explains that staking 1inch tokens allows users to directly participate in protocol settings, voting on aspects like liquidity protocol fees, with changes applied based on a weighted average.
More advanced governance features include voting on proposals and an upcoming Gnosis-based treasury governed by the DAO. Sergey notes the DAO is still an experiment, aiming for a future where users can directly set specific parameters, and more complex things could be handled by discussions in forums.
The Journey from Bootstrap to Global Network
According to co-founder Sergey Kunz, 1inch began as a demanding passion project. He and Anton Bukov spent their weekends “hacking on new features” while maintaining other full-time jobs, operating without any income from the project for the first eighteen months.
This early perseverance has since transformed 1inch into a major DeFi protocol, now supported by a decentralized team of more than 70 contributors worldwide.
The project’s success has also attracted significant investment from industry leaders, including Binance, Libertas, Dragonfly, and Pantera.
Ledger’s Evolving Approach to Web3 Integrations
“[In Web3, you will be in control, (and Ledger’s role is to) offer a way for our users to keep control of their keys” – Fabrice Dautriat
Ledger’s new strategy empowers builders to add hardware wallet support and integrate directly into Ledger Live. Fabrice Dautriat notes Ledger can’t do everything alone, so this shift supports wider Web3 adoption while reinforcing crypto’s core principle of self-custody.
Preparing for DeFi Regulation
Sergey Kunz highlights the push for DeFi regulation, noting institutions need compliant solutions. 1inch is building permissioned pools, exploring licensed entities with KYC/AML to unlock benefits like bank-backed loans, while still maintaining permissionless options.
Watch the episode here:
Reading List
Learn more about these topics mentioned in the episode, or explore our library of articles on Crypto, Security, and Regulation on Ledger Academy