The 1inch Network launched a new investment tool called 1inch Earn, in hopes of incentivizing liquidity providers. The protocol asserted in a press release shared with CryptoPotato that the new feature will provide more efficient use of capital compared to AMM pools.
A set of liquidity pools optimized for stablecoins, 1inch Earn’s operating model is similar to Uniswap V3 range orders. “Earnings come from fees on swap trades in the pool,” says the press communiqué from 1inch Network.
Individual users, algorithmic trade bots, and arbitrage traders will perform the swaps. 1inch Earn provides “deep liquidity at any point” because of its integration in the 1inch Pathfinder algorithm.
The DeFi protocol said the earnings from the new investment tool would be “in the range of 5-10% APY” at the time of its launch. Later, the profitability will depend on how the market behaves.
The concept of 1inch Earn has been in practice in the 1inch Network Treasury since September 2021. Earlier, it was called Trading Strategies.
The popular aggregator of decentralized protocols believes 1inch Earn will improve decentralization and governance across the network. Besides, it will prove to be an attractive earning tool for the users, the project said in its PR.
“The launch of 1inch Earn is set to be a major step towards improving the sustainability of the entire network and stepping up its decentralization and community-led governance, while also working as a lucrative earning tool for users,” reads the PR from 1inch Network.
1inch Earn uses capital in the AMM pools more efficiently, said the team. “In a standard pool, all liquidity is distributed equally along with the entire price range between zero and infinity. As a result, most of the liquidity is never used,” the PR explains.
To overcome this anomaly, 1inch Earn lets liquidity providers leverage smaller price intervals. “For instance, it could be in a range between 0.99 and 1.01. In that case, traders get deeper mid-price liquidity for swaps, and liquidity providers earn more fees,” it reads.
This scenario looks more appropriate for stablecoin pairs where “liquidity outside their typical price range is hardly ever used.”
Besides, 1inch Earn uses small movements in stablecoin prices to help liquidity providers perform extra swaps and bring additional earnings.
“Once a transaction has been confirmed, a user immediately begins earning yield in the form of both tokens deposited to the pool. Regularly updated stats are viewable on the 1inch Earn dashboard,” the PR from 1inch Network explains.
Continuing with its aim to “conquer the DeFi space,” the DEX aggregator announced on January 20 the deployment of its cross-chain aggregation and limit-order protocols on Gnosis Chain and Avalanche.
In early December 2021, 1inch completed a $175-million funding round that it said would spend to improve products and services targeted at institutional investors.