The 1inch team has released the third iteration of its Aggregation Protocol, a tool that routes trade orders across all decentralized exchanges on Ethereum and, as of recently, Binance Smart Chain.
The Aggregation Protocol calculates the most profitable trade for a given token and size of the order, potentially splitting a large order into several chunks across several decentralized exchanges. Previously, the tool was mostly useful for wealthy traders for whom slippage was an important factor when trading in decentralized finance. The system consumed more gas than using a DEX protocol directly, which meant that the product was unattractive for smaller traders.
The V3 release introduces gas optimizations that the team claims make the protocol cheaper than using either Uniswap or 0x directly. In tests conducted by the team, the 1inch V3 aggregator was about 10% cheaper in terms of gas than the same trades done via Uniswap, and about 5% cheaper than on 0x. Compared with 1inch V2, gas costs decreased by up to 30%.
Anton Bukov, chief technology officer of 1inch, told Cointelegraph that Uniswap is the cheapest protocol to use in terms of gas fees. This resulted in many copycats appearing on Ethereum and other blockchains, the most notable of which is SushiSwap. However, it appears that Uniswap’s trade router is not as efficient as it could be, with Bukov noting:
“Our router is more effective than theirs. The same goes for SushiSwap and other forks.”
Thus, 1inch's router merely replaces Uniswap's while using the same pools, which explains how an aggregator can be cheaper than direct use. The higher effectiveness on Uniswap has been the result of targeted optimizations, Bukov said. Sergej Kunz, CEO of 1inch, added: “We just optimize where we can, sweeping the dust, so to speak, after the other DeFi guys.” This wouldn’t be the first time that 1inch targeted Uniswap in its actions, having recently launched a “vampire airdrop” for active Uniswap users. In this case, however, the targeting makes the most technical sense. Since Uniswap’s codebase is so popular, optimizing for it gives the best return and the most liquidity.
The new V3 has been already deployed, and it has replaced the previous iteration, which will remain available for use. Switching platforms would require setting new token allowances, which would cost gas. Nonetheless, it appears that the migration could quickly pay for itself.