What is 1inch Earn?

In September 2021, the concept of 1inch Earn (previously known as a trading strategy) was first proposed in the 1inch Network Treasury proposal. The launch of 1inch Earn will move forward in the direction of increasing the sustainability of the entire network, 1inch Earn will also help to further its purpose of strengthening its decentralization and community-led governance, and it is also a tool that provides users with a way to earn money. one.

1inch Earn is a set of liquidity pools that operate similarly to Uniswap V3-wide order books and are optimized for stablecoins. The income comes from the fees of swap transactions in the capital pool.

In the initial stage, users' earnings from 1inch Earn are estimated to be in the range of 5-10% APY, and future profitability depends on market conditions. Swap transactions in the pool will be done by arbitrage traders, algorithmic trading bots, and 1inch individual users. The 1inch Earn pool is integrated into the 1inch Pathfinder algorithm as a liquidity source, ensuring deep liquidity at all times.

How is 1inch Earn different from regular liquidity pools?

The idea behind 1inch Earn is based on how to use capital more efficiently in AMM's funding pool. In a standard pool, all liquidity is distributed equally along the entire price range from zero to infinity. Therefore, most of the liquidity is never used.

This is especially typical in stablecoin pairs, as the relative prices of the two assets remain unchanged most of the time. In a pool of two stablecoins, little liquidity outside their typical price range is used.

1inch Earn enables liquidity providers to pool their assets into a smaller price range than between zero and infinity. For example, it can be in the range between 0.99 and 1.01. In this case, traders can get liquidity at deeper swap mid-price levels, while liquidity providers can earn more fees.

In addition, 1inch Earn leverages small fluctuations in stablecoin prices to facilitate additional swaps, resulting in additional benefits for liquidity providers. For example, in the USDC/USDT pair, the strategy will sell USDC if the price of USDC exceeds 1.002 USDT, and buy USDC if the price of USDC is below 0.998 USDT.

Once the transaction is confirmed, users immediately start earning in the form of two tokens deposited into the pool. Regularly updated statistics can be viewed on the 1inch Earn dashboard.

At present, the first fund pool based on USDC/USDT currency pair has been launched on the Ethereum network. When the cryptocurrency market fluctuates, it is most suitable to adopt a conservative investment strategy such as a capital pool composed of stablecoins. Also, stablecoin pools can better prevent slippage.

In the future, 1inch Earn will add more pools, including those denominated in cryptocurrencies other than stablecoins.