The 1inch Network has introduced a new investment tool.
According to an update shared with CI, this investment tool “takes advantage of more efficient use of capital than in regular AMM pools.”
As explained in the announcement, the 1inch Network is consistently working on solutions enabling users to “make the most of their assets and is happy to introduce 1inch Earn, a new investment product offering liquidity providers attractive APYs.”
As mentioned in a release, the concept of 1inch Earn – previously called Trading Strategies – was for the first time introduced in the 1inch Network Treasury proposal in September 2021. 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.”
As explained in the update, 1inch Earn is “a set of liquidity pools operating on a model similar to Uniswap V3 range orders and optimized for stablecoins. Earnings come from fees on swap trades in the pool.”
At the time of launch, users’ earnings from 1inch Earn are “estimated to be in the range of 5-10% APY and, in future, profitability will depend on market conditions.”
The update further noted that swaps in the pool will be carried out by arbitrage traders, algorithmic trade bots and individual 1inch users, “as 1inch Earn pools are integrated in the 1inch Pathfinder algorithm as a liquidity source, ensuring deep liquidity at any point.”
The idea behind 1inch Earn is “the more efficient use of capital in AMM-based pools.” In a standard pool, all liquidity is “distributed equally along the entire price range between zero and infinity.” As a result, “most of the liquidity is never used.”
The update also mentioned that this is especially typical of stablecoin pairs, “in which the two assets’ relative price stays constant most of the time.” In a pool consisting of two stablecoins, “liquidity outside their typical price range is hardly ever used.”
The announcement added:
“So, 1inch Earn enables liquidity providers to concentrate their assets to smaller price intervals than between zero and infinity. 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.”
The update further noted:
“In addition, 1inch Earn uses slight movements in stablecoin prices to facilitate extra swaps and, consequently, bring additional earnings for liquidity providers. For instance, in a USDC/USDT pair, the strategy would sell USDC if it costs more than 1.002 USDT and buy USDC if it costs less than 0.998 USDT.”
After 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.”
At this point, the first pool has been “launched on the Ethereum network, featuring the USDC/USDT pair.”
Pools consisting of stablecoins are “most suitable for conservative investment strategies at a time of volatility in crypto markets.” In addition, stablecoin pools are “better protected from slippage.”
The update also confirmed that in the future, more pools “will be added, including those featuring tokens other than stablecoins.”
As clarified in the update, 1inch Earn is viewed as “fully open-source and available for various integrations.”