Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Sergej Kunz: 1inch – The DEX Aggregator

Episode Date: April 7, 2021

1inch Exchange is a DEX aggregator routing cryptocurrency purchases through different DEXs to reduce slippage and get a better conversion rate for the user compared with just using a single DEX. The platform launched its governance token, 1INCH, in December 2020.We were joined by Co-founder of 1inch Sergej Kunz to chat about how 1inch works, how the 1INCH token provides liquidity to their liquidity platform, its integration with platforms such as Uniswap, and the roadmap from here.Topics covered in this episode:Sergej's background and how he got into blockchainHow slippage is used in the 1inch protocolThe liquidity protocol usedThe integration between Uniswap and 1inch network and the new restrictions with Uniswap v3Their AMM protocol, MooniswapThe aggregation that 1inch has focused on and its defensibilityThe function of the 1inch token and where it is headed in terms of governanceHow 1inch plan to implement DAOHow 1inch deal with the regulatory impacts of DEXes1inch's stance on Ethereum gas costsEpisode links: 1inch website1inch blog1inch on TwitterSergej on TwitterThis episode is hosted by Brian Fabian Crain & Friederike Ernst. Show notes and listening options: epicenter.tv/386

This is Brian Crane. Welcome to the episode. I'm Fridireka. How are you? I'm good. How are you? Good to be here. Yeah. So today we are going to speak with Sergei about one inch. So one inch is sort of decentralized exchange aggregation application, defyce, that's gotten a lot of traction. So we're really excited to to dive into that. Maybe Sergei, just to start off, do you mind introducing yourself and tell us a little bit about how you got involved in the blockchain space? Yeah, thanks. Hi, everyone. It's a pleasure to be here. So to my person, my name is Sergei. I'm coming from Germany.

Originally, burned in Russia and Siberia, moved with my parents, 1999 to Germany. I'm here like for 20 years. My professional background is software engineering architecture in almost all fields, front and back end DevOps. And I'm a co-founder of one-inch network together with Antoine Bukov. Saga, can you tell us how you came across blockchain for the first time and when you realized that this was going to be a bigger topic that you would spend a lot of time on? Yeah, the first touch point with the blockchain was 2012, I guess. I was working in an aggregation startup. It was about aggregating product information among a lot of online shops, stores. And one of my colleagues mentioned that, oh, there's a blockchain and you can actually earn with your, like, MacBook by mining tokens and coins.

And I did some research, really small research. I did some mining with light coin. And later in end of 2016, I found my wallet with LTC and thought, oh, okay, maybe something worth. And I sold it like, it was like 10 bucks. And then I started to discover what is Ethereum, what is the blockchain, what are small contracts and so on and so on. Early in 2012, I didn't recognize that this is the future of finances of tomorrow, maybe already today.

And I didn't discover anything from 2012 to 2016. And in 2016, 2017, I started to mine Ethereum. I just bought some graphic cards. It was funny to build mining rigs, funds on YouTube videos. And yeah, this are my first steps in the blockchain world. And how did you meet Anton, your co-founder? Yeah, I was introduced to Anton by a common friend who moved to Germany from Russia. It's actually a good friend of Anton.

He moved with his wife here to Stuttgart. And his wife was talking with my wife and we met together. and I talk a lot about cryptocurrencies and this guy said, I'm not interesting in cryptocurrency, but I have a friend who is talking to me in the same way you do all the time and almost the same things. So maybe I will introduce you to him. So he introduced me. It was early 2018.

He didn't speak a lot with him, just small chat and telegram and. Anton started to join my live streams on YouTube. I created a YouTube channel Cryptomanic. It was in Russian language. I was talking about mining, about cryptocurrency. And I started in September, August 2018 to do security audits of smart contracts. I opened just a project, which was looking like a pyramid with snowball. system. I started to discover, oh, what is behind that? Okay, I found a smart contract. It was

compiled. It was not published as open source. There was no code. I started to decompile that in a live stream and tried to understand, okay, he could be maybe a buck or something like that. I had no experience in smart contracts. Of course, I did a look to the specification. So as a software engineer, from my point of view, you have to be able to develop in any language. Because if you have enough experience, you can't write and rust and go. Of course, you need small onboarding, but it normally works. And Anton gave me some hints, and I put him into the live stream. And since that day, we recorded more than 100 security audits in live stream.

Each security audit took like three hours. We had a really great community. A lot of people, sometimes 1,000 people were watching us on live stream. We were like in the top positions of Russian YouTube. This is our story here with Anton. And, yeah, in December 2018, Anton, Anton wanted to go to Hackathon. I didn't participate in Hackathon before. He asked me to join and I did it.

And in the first second time, ATH, Singapore was really successful. We won three prizes without having, doing a lot. They had almost no effort to build a small application and got three sponsor prizes, one from MakerDAO from Kiber Network and from set protocol. And then we understood, okay, we will do it every month, maybe twice a month. And we did it. We participated on more than 15 hackathons. We won in Stuttgart, the Smart Mobility Prize from Daimler, by hacking over two nights and one day.

We thought almost sleep, without leaving the rooms there in the university where it happened. And yeah, we won a lot of main prizes with Anton. And one of these hackathons we came to what we have right now. So this is super interesting, like as a semi-professional hackathon participant. So I assume you build a lot of different prototypes and MVPs as, you know, in the participation during those hackathons. What made you think, oh, wow, this tax aggregator, this is it. This is what we have to build for real. So back in February 2019, when Anton was here in Germany, participated in the hackathon.

After the hackathon, we had some discussions. We came to an agreement together that we will build something, something, what would change something in the world. We had some couple of ideas. And these ideas, we have. we implemented on the hackathons. And first we have, we had like kind of airdrop tool for real world where you can print cards with QR code and merckly proof on that to withdraw tokens which you got on the

conference, for example. We had some other, other small hacks in ETH New York. we thought, okay, why not to implement the app where you as user, actually it was an idea from Anton to see all the dexes and to see all the prices, rates, and to swap on one of the single sources. And based on my small experience before the hackathon, where I was working on arbitrage bots and played around with some approaches and discovered all the kind of cool hacks from the arbitrarists traders, for example, gas token.

We can also come to it later. I suggested Anton on the ETH New York Akaton to introduce kind of algorithm, which can split the swap amount from your source token among different exchanges based on the rate. So when you swap a huge amount on uniswap, you have really bad rate. If you swap a little bit, you have really great rate. But if you swap on multiple sources in the same time, you get really great rate. Gas costs were like really small in the time. And we had the gas token as also a help for that.

Anton lived the discussion on the hackathon for like two, three hours and came back with the algorithm, which we were able to split and, find the best distribution among liquid resources and we showed that for example Liam Holmes from from a TH global and he said this is the next big thing I was also talking with Vitalik Boutterian there and about the idea before we started and Vitalik said okay it sounds great someone else tried to do the same like total I guess he said but we didn't know about them and I was also maybe it's funny part about logo. I was sitting and looking for a logo.

Normally, we just bought a logo on theme forest, for example, on the hackathons, if you have just an idea. And in the same time, I have seen Hayden Adams living, like walking around my table. I catch him. I explained him the idea and he said, well, sounds great. And I thought, okay, why not unicorn, but like more angry? Because like our team was, the name of our team was Cryptomaniacs based on our YouTube channel.

So we were the Cryptomaniacs and we created an angry mad maniac unicorn logo. I chose one actually. I found one. It was really perfectly that what we were looking for. Right now our logo is a little bit different. It's like Android, angry unicorn. It's a good, good proposal. our designer.

So there's a lot to unpack here. So basically, let's talk about what exactly the offering is for one inch. Let me maybe rephrase it in my own words. And you can tell me whether I'm hitting the nail on the head. So basically, when I trade on a dex, there's two ways that I pay fees in effect. So one is slippage, meaning the price that I'm being shown is the incremental price for the very first bit that I exchange and then the price moves. So basically, that's the slippage.

So basically, if there's not a lot of liquidity, then the slippage is typically high. And then the second thing that I pay is gas, the fee to the network itself. So can you explain the dynamics of how much I pay in gas and how much I pay in slippage and how you take that into consideration for routing me through different decentralized exchanges that you're integrated with. So, yeah, every kind of liquidous source, I don't speak about taxes anymore because a lot of those liquidity source

are just automated market makers and just liquid sources. Some of them don't have any front ends because they don't need any. Like, there are also private market makers which are working also with smart-com. contracts and set kind of ranges. Yeah, if you take Unuswap, for example,

uniswap, for example, unisov design in a version 1 and 2, it has weak points, I would say. It's not efficient enough. There are a couple of things like it's not efficient in the terms of for liquidity providers in providing liquidity and earning on the trades you have. So you will meet impairment loss. then you have the of course the fees for the transaction itself depends of course of the environment

where it runs for example on Ethereum or gas cascos are right now very high and it jumps sometimes to the moon where you have to pay for one single swap like $1,000 it's insane and then of course you have the price impact or price slippage you call it based on the liquidity you have in your QEDD pool, like just you take your uniswap. The mathematical formula is simple. Yeah, X multiplied with Y is equal constant. And if you put more tokens, it get cheaper. If you get tokens from the from the pool, it's going to be more expensive because there's less of those tokens and how one inch solve a couple of these problems there are several protocols in the one each network when maybe basically from from the beginning what is one inch one inch in the first

steps was actually an aggregation protocol and nowadays it's a set of decentralized protocols And it's kind of network, distributed network of decentralized protocols. And we count the aggregation protocol and we count the liquidity protocol for high efficient AMM. I can also explain a little bit later about that. So aggregation protocol save you time and money and also the detransaction costs. In a case, you have to swap like one million of dollars or maybe $100,000 of dollars of if to die or to SDC, you don't really know where the best prices because, you know,

like unioswap don't have the whole liquidity. The balancer don't have the whole liquidity. Sushi swap don't have the whole liquidity. But one each it has, yeah. So they're like around 49, 50 liquidity stores already integrated in the Puffinder implementation, which is run by our team. It's just an API, aggregate informational service. It provides the best access to the whole liquidity of Defi in multiple networks.

So basically what you do is off-chain, you compute how trading on each of the integrated liquidity providers would change the price and hence what the effective price would be and then find me a linear combination of these. Is that it? This is more complex, complex than what you have? you described, but this is how we started here. We calculated based on the math, the best distribution among liquidous sources by getting into account of the price slippage, which happens based on the amount you swap on each liquid source. And we also introduced by the taking into account of gas costs as well a little bit later after the start of the protocol back in 2019. Do you mind sharing?

So you mentioned also liquidity protocol. What's the liquidity protocol? Is that you guys creating your own AMM and sort of adding a service on that level? So our team is mission driven on fast moving team. And we don't like to copy someone and so on like sushi did with UNISWAP. We had some discussions in the team last year in summer. 2020. And we came to the idea how can we solve an additional problem in Diffas space. So the first problem which we solved with one inch aggregation protocol back in May 2019

on the hackathon, we combined all small liquidity pools into a single one and provide the best, highest, accessible liquidity on the market by using algorithms. And in summer 2020, we came to the idea how to cut the earnings from arbitrage traders and let the liquidity provide us earn much more. And in the same step, we recognized that we solved additional problem, the front-running attack problem, which happens all the time on uniswap, sushi-swap, balance and other protocols, which are not protected. I have seen a Twitter post last week.

someone really analyzed it and found a guy who do all the time sandwich front running attacks how it works is if you swap on unuswap like Vitalik did Vitalik had Ethereum and he needed USDC to I guess he sent the money to charity company something like that so Vitalik swapped like $100,000 in if to you to use DC. And in the front end of Uniswap, there's a default settings of, I guess, one percentage of maximum price impact. So when you swap in a new swap, you agree for rate, which is below the return amount what you see in the interface by one percentage. So we have the similar settings on our front end. You can also set zero on our front and you can set 0.1 based on the architecture

and of the dexes and the Ethereum machine. You need to do that because someone can be faster than you and change the rate a little bit and you can maybe get less than expected. So that's why you need this like one percentage of price impact. And when the Vitalik swapped with one percentage, the front runner recognized his transaction and what can happen if the Vitalik

would get still the same potentially, yeah, what he has seen in the front end. The front runner can still swap before him and swap after him and take up to one percentage of the price impact. And it's a lot of money, really a lot of money. And we were able to mitigate it. We introduced virtual balances. Vitalik was talking about that already back in 2017. in one of his blockbos or discussions, I guess it was discussion.

And actually, we solved the problem with the earnings of the liquidity providers. We improved the efficiency of the automotive market maker. In the same step, by introducing virtual balances, we just eliminated front running on the one-inch liquidity protocol. Can you describe how this works in detail? Yes, I can. Yeah, I already said we call it first Mooney Swap. Like this was just fun. And we launched it like we had one week of work in the code and one half weeks of security audit from some auditors.

And then we released it just. And how this works, it's like that you have virtual balances. And if you have a swap with 10% price slippage, for example, example, Vitalik swap $100,000 in Eif to use DC and the price impact, the rate is worse by 10 percentages. Then these 10 percentages are going going to be sold by the automatic market maker by the protocol in the reverse direction for a bad rate and the rate improves in time. This is similar. Actually, today explained the same to Coin desk, Korea in an interview.

This is like a spread. If you look on the spread on the centralist exchanges. So Uniswap is like really tight spread between both sides. And in our case, the spread is growing if you have this price slippage. And it's reducing the size. in time. So that means it's like an auction, which happens in the reverse direction. And by that, we create a competition between arbitrators traders and every arbitrator's trader would try to make a trade in a reverse direction when it's getting to be profitable for the for the arbitraris

arbitrator's trade. It can be also five bucks. Yeah. For example, if by one swap in one direction, the pool got like $10,000 of this. is slippage. In UNISOP, the arbitrator would take the most of the money, like 90%, maybe more. And on our side, we try to sell it in time for a versus rate for the, for the arbitrator's trader. So, and that means liquidity provider earn a lot on that. So, but does that mean that the profit that otherwise the arbitrage trader would have made

goes to the liquidity provider, but the user is equally bad off? It has nothing to do with the user. So liquidity provider earned the money which is cut out from arbitrarist traders. The user have the same situation as on uniswap in this direction. They just swap, make the spread bigger. Yeah. And the spread decrease over time in the reverse direction. So instead of actually giving your money to an arbitrage trader as a user, you're giving your money to the liquidity provider.

Yes. I think I can kind of see the benefit of this, no, because if you give it to the liquidity provider, also you make it more profitable to provide liquidity. And then if the liquidity increases, that should again help to decrease slippage and actually help the end user. That's a fair point. This is the case. Also on huge pump and dumps, our protocol performs very well, since we improved that approach, what I explained before, by introducing a dynamic fee based on the price slippage. So just think the liquidity pool, it doesn't know about the market price.

See that someone would like to swap, for example, with huge price slippage or it gets normal swap, like with small price slippage. So in the case of big price sleep, price slippage, this is potentially the case that the market price moved in one of the directions. And if it's there a huge price sleepage,

then the pool can charge a lot of money because anyway, the arbitrator would try to balance the pool and would make anyway the swap, but for verser rate than on uniswap or other where else. And based on our analytics And also if you look at our

analytics charts of the liquidity protocol under the Dow Analytics, you will see huge jump of earnings for liquidity providers on the huge last dump what happened like a month ago. That's useful to learn about

and very interesting. What's the status of this Mooney swap today? Is that integrated in one inch? So I already said it was like a jog start. We tried to joke a little bit Direction Hayden Adams and Uniswap team because we created something more efficient than they.

Actually, we respect them fully. They did really great job. We didn't copy anything, but they wrote something we copied from Uniswap on Twitter publicly. It was really uncle, uncle. But we just, released it because we were able to do that and we solved again a problem.

And we rebranded it on the start of the one-inch token governance, the system. We were rebranded it to one-inch liquidity protocol. We introduced the new thing, the price impact fee. And we introduced instant governance. This is really a new thing, unique in the market. In the different space, one year in the defense space is 10 years in the traditional finances. and you have to go fast. Otherwise, if you halt, you catch fire.

You have to go fast and long proposals makes no sense. To set to change, for example, amount of fees, which should be charged in the pool. And just instant governance improves that. So everyone who stake on each token can vote for specific settings and the value is the weighted average of everyone based on their amount of their stake. amount of tokens.

But the Mooney Swap is now a part of one inch exchange. Is that correct? One inch network. One inch network. Okay. So I can still provide liquidity on Mooney Swap? No. If you go to, so we are right now in a rebranding process.

The domain will change one inch. Exchange cover actually the whole one inch network. It has the aggregation protocol. It has the instant governance, the token staking thing, the governance for the liquidity protocols. And we have under DAO liquidity pools, we have the liquidity protocol integrated there. It's not very well designed yet. We will move it maybe to the top of the navigation so everyone can see that there is also liquidity pool, liquidity protocol there.

And if you click to the liquidity pools, you will see a bunch of liquidity pools already. A couple of projects did bootstrapping on one-inch liquidity protocol. For example, kind of initial liquidity providing, I guess VASP did it. And it went very well. The protocol performed very well in the first day. The protocol collected one millions of dollars by 10 millions of liquidity. That's pretty good. Can we maybe zoom out a little bit and take a look at,

the bigger decks and AMM space. There's a lot of protocols out there that do a very similar job for the user. How do you think the average user decides where to go?

What are the stickiness elements? We are looking on the statistics and we as team we don't understand why people are still swapping on Uniswap. Since Uniswop already said, don't have the whole liquidity in the market can't provide the best rate.

And there's also on the Binance Marcheon, for example, pancake swap. There's a lot of people who are swapping on pancakes swap directly by getting the best rate. From my point of view, taxes are kind of out since we from our team introduce an aggregator for liquidity sources. and the future could be for the teams who just work on liquidity protocols. They will have just liquidity protocol, not the UI, not the kind of entry point for the users. Unswap is that is cool, it's simple, but you don't never know that you get the best rate. Yeah.

And gates, like entry points for all the people, can be only aggregators. A good example is here, Google. Think in the beginning of Internet. It was a pain to find a resource. And nowadays, you just use Google or maybe some other search engines. I see the rationale. But if you look at the numbers, so basically I look at, I look up the numbers before this recording, and currently 90% of Dex volume goes to trading venues

directly and not through aggregators. So aggregators only cover 10%. One inch gets the biggest cut of that, but if you look at the number of unique traders, that's even worse. So basically Uniswap gets, for the last seven days, Uniswap had 187,000 unique traders and one inch at 9,000. So if there's that big a difference in the result for the user, why don't they vote with their feet? Yeah, this already said, we don't understand why do people still sitting in on UNICEF because maybe they never heard about the other projects. If you look on our numbers and other projects, then it looks similar. Like, for example, here, one issue on a smart chain, 4,260,000. people in the last 24 hours.

On the Ethereum, 1,572 people in 24 hours. Curve, 225. It's a small amount, but most of the traffic is coming from aggregators. Also, Uniswap volume, what you mentioned, include our volume as well. We tip sometimes three, four times in a pool of Uniswap. That means we produce three, four times. more volume for UNICEOP compared to what we get from the user. For example, if users were one million of dollar and we tap in a path multiple times in

different pools of UNICEF, we can produce three millions of dollars volume for UNICEF. This is very important to understand. And if when we are talking about volume on direct volume for for USWF, we should maybe remove the volume from aggregators and then speak about. apples and not about oranges yeah I mean I mean comparing apples with apples not apples with oranges if you look also to to balancer 70 millions of dollars volume and in the last 24 hours and 1,400 users it's similar to us you know and I guess these are kind of the real numbers of normal users who are who know about

different products and those people People who are using uniswap, they maybe never heard about other products like aggregators. But the market will move to be very efficient. And this is only the way and this is the way to use just an aggregator. So one thing I'm curious about, you know, if the things go there and I think it makes perfect sense, right, that if you have different liquidity sources, then having some sort of aggregation thing, you know, provides a better product for the end user. But if things are heading there, you know, where will there be the sort of the

defensibility in the modes? Do you think there's going to be around, more around these aggregation protocols, or will there still be big incentives to go and create something like, you know, liquidity protocol like uniswap and try to get a lot of volume there? Or like, how will the kind of market structure change? of course community is very important unisopas really great community big community they started really early got support from vitalik botarian and other big people but they can't keep all the people on on side because they are not like the only one single point of entry for the defy and don't

keep the whole liquidity. All right said, community is very important and the community can stick to you project and maybe after after airdrop what Uniswop did. A lot of people love to

use Uniswap because they just got for free a MacBook. We did similar approach as of the foundation distributed one-inch token for free. A lot of them actually, really a lot. to make the token more decentralized in the first release.

I guess if you calculate it to S dollars, it was like $1,200. And now this is like, I don't know, $2,000 to current price. But we are from team, we are thinking about one inch. One inch is equal one inch, not more and less. We don't see any financial value behind that. We see only a value for our network, which can be governed by a token and can be used also as connector token in the liquid protocol. So the one-inch token, what are exactly the governance capabilities that it has?

So we started with the first step, and that was to introduce this instant governance, so you can stake one each token. And you can set, you can vote for the settings of their default. settings of the liquidity protocol. You can vote, for example, to charge additional governance reward, what happened also, to also get earnings from the liquidity protocol when the user swap and the liquidity protocol charge fee for this swap, similar to uniswap. It is splited, and part goes to liquidity provider and part it goes to those people who

stake one each token and do votes for governance. Also, there is a way for liquidity providers who provide only in a liquidity protocol, they can vote also with own share of liquidity in the same liquidity pool. So it makes no sense to govern a specific liquidity protocol where the people have no skin in the game. Also in an aggregation protocol, the people can vote for, we call it, we call it, Spreads are plus or positive sleepage.

I like this first naming. They can vote to share the earnings with the referrals. Where do you see the one inch token going in terms of governance? So I assume you as one inch, the company will minimize your own role? Yes, we are core contributor. So we invented that here with Anton and worked a lot, a very long time for free. And the idea is to build a fully decentralized network of decentralized, kind of distributed network of decentralized protocols.

And the governance process is very important in that case. So right now we have, however it said the first step, we did the first step with the instant governance since you need to move fast. You cannot wait two, three weeks to change a setting in a liquidity protocol. It needs to be kind of instant. Who has the skin in the game, they have more voting rights and so on and so on. The second step would be to introduce a full governance, advanced governance, similar to compound uniswap.

we didn't have enough time to finalize it here and it would kind of make a lot of things really complicated but it's still required since the DAO should decide which modules should be added or removed from the governance system so right now it's like modular-based we have the one module is the liquidity protocol and the second model is the aggregation protocol in a couple of weeks the new protocol will popping up will join the system two more independent teams right now working on additional product and protocols for the one-inch network there will be also additional announcement regarding that so here comes here one-inch foundation in a role to make everything possible to make the one-inch network fully decentralized

and, for example, providing grants for people who participate in the protocol like external teams. And right now, the One-Inch Foundation can decide on adding or removing those modules, like governance models or liquidity or other protocols to the network or remove that. It can't break anything. So it's not, there are no admin keys where someone can steal the money or something like that. This is like written in the stone. It's not possible to to actually change anything.

If you have a new update for Liquidity Protocol, we create just a new version and let the people migrate. This is the way how it should work without admin keys. We have seen a lot of facts based on the admin keys of full Chrome BZX were hacked. Because they just deployed with an admin key, a new implement. of the protocol and got hacked. So I and Anton, we actually discovered the first vulnerability in BZX back in 2020. And yeah, we reported that, of course, but after that, two weeks later, it happened. Someone stole the money.

And this is a bad approach. And we try to improve that. And in a fully dismalized organization, it should be as simple as possible. and for sure the Dow should have the possibility to add a new smart contract to join it to let it join the network and also maybe execute something in a blockchain. For example, we think to maybe it makes sense to introduce a treasury. So maybe the first vote in the advanced governance will be introduced a treasury where all the rewards which are right now collected.

This is like right now around almost $5 to $700,000 every week, what is collected from the protocols and distribute among the stakers. This can be maybe collected in a Dow Treasury, and based on awards, something can be done with that. Maybe it can be sent to a new team which would build something new, or something else can be done with that. This should be done by the DAO. The front end is right now is run by the foundation.

Since there's no profit model behind that, so foundation is non-profit organization. And it has only the tokens to distribute it among the people to make the token as decentralized as possible. It's impossible to run kind of domain by the DAO. Because DAO is not a physical organization. If you need to pay for a domain, a real domain, you need an entity behind that. And for that case, we have right now the foundation. And I don't think so that it would change. The DAO could hold an ENS domain, right?

And then basically if you use ETH.Link, you can even access it from, you know, regular browser. Yeah, sure. The DAO can change the settings in the ENS for sure. So for this, again, we need advanced governance. system and then we can execute from the Dow commands on the blockchain. But there are some weak points like it can take like three weeks, four weeks to change something. So you need to quorum. You have an entry barrier.

You need a lot of tokens, a lot of money to create a proposal. Of course, there are delegations there, but it's still difficult to create something. If you look back, what happened with uni? I don't have, I didn't see a lot of. proposals there and a lot of some of the proposals were declined for example to distribute additionally uniswap tokens to those people who used proxy contracts through Dharma to arch and through one inch and it was just declined this is still an experiment from my point of view here at what kind of infrastructure are you going to use for the one inch dow do you know because it sounds

like you've given the attention and the bandwidth and the latency problem a lot of thought I guess compound did really great job. Uniswap take the implementation from compound. We, from our side, from team, we think about also compound. We will discuss it in the governance forum. So in our governance forum, you can propose something and can be discussed. And if someone would like to implement it, they can that. For example, an independent team can implement something, a new protocol,

and they can ask the foundation to join the one-inch network. And maybe to get a grant, it's also possible. So we from our side, from core contribution side, we can do analysis. We can do kind of code review and look that everything is good and ensure that there are audits and very well audits, kind of from Open Zeppelin, for example, and so on. So we can act as a consulting part. Can we talk about the regulatory angle for a little bit? So Dexas generally operate in a regulatory fraud space. how do you deal with this as a Dex aggregator?

Because I assume you face much of the same problems that Dex's face. So I personally, I'm just a core contributor. I've write code here. I talk with a lot of people, make interviews, and I don't run the system. So I introduced it, yeah, with Anton. We can kind of pull it from the beginning and we keep to contribute on that. right now we have the foundation which is non-profit organization which run the front end which is partially governed by the DAO we try to keep these discussions and improvement proposals

in the forum also on GitHub and I personally have nothing to do with the front end part so and I have software engineer and architect I write my code and deliver it as open source And the pathfinder? Because that's the other thing, right? That's the other centralized thing. Yeah. This is a centralized thing, similar to other teams as well. Xerox, for example, they run also on API.

Actually, the aggregation protocol is built in that way that also X. API results can be used to do the transactions over aggregation protocols, since it ensures that it's very fast that who provide the data is not lying and also that the return amount that the user get what what they expected so in our case we run an aggregated informational service which don't touch the money we just provide aggregated data which is used by several parties Miramask use it coinbase wallet use it my myzer wallet use it the one inch frontend run which is served by by the foundation, use it.

So just the way. Is there some plan in the future that this would be decentralized? Is that something that makes sense? Or is that something that should be continued to be run as a sort of API service?

So this is already kind of decentralized. Every team can run on API and let it add to the front end of one inch aggregation front end. There's no plan for us to publish this open source since we had already the experience at the beginning.

Dex IG, Scott just have stolen our source code of the first implementation of the smart contracts. I provided the proofs on Twitter. And they just said, okay, you are no one, you have no name, and we just take you

code and we say it's ours. And this is true how I say here. And this is really bad approach. We had no name back in 2019. We were no one. Just two Russian guys were working in the nights, having normal jobs in parallel. Roads cool thing, which was directly used by kind of, I would say like the market leader or like people who had kind of higher level in the community. So and we got a lot of shitstone because like I published this tweet with the proof. Here's a function.

This is one to one to ours. And this is Russian English in the name. And this is exactly what we published. Here's a proof on the blockchain. Here's a proof in the blockchain that you use it after that. Just add our names to the source code that Sergei Kuntz and Anton Bukov wrote this part of code. Just do it. And they said no.

You are lying. You are no one. I didn't do anything based on the IP right and so on. We don't have time to waste on that. And yeah, that's, yeah. On that topic, I know one thing we haven't really touched on, we've talked about Uniswap, but, you know, Uniswap V3 is out. And actually one interesting thing there is that they do have this license

that basically, I think, prohibits others from using it commercially for two years. And I guess this is a kind of tricky area, right, where we have on the one hand, sort of IP rights or the hand of hand like no blockchain decentralized systems that are explicitly meant to be able to function despite that. What are your thoughts on that? I can just say this is a centralized piece of shit. So if you look, this is really a bad approach to introduce this business license since the uniswap team act as a disinter, like a, as a core contributor to a decentralized protocol.

They renamed the Twitter from Uniswop to Uniswold Labs. They have now the labs and the labs have the IP rights and the code. From one side, I can fully understand. So we follow the similar part with the PopFinder, but we argued that everyone can use, yeah, create new API and offer it to use in the front end. Of course, we don't publish our source codes. We have our IP right. This is kind of secret because we used a lot of resources to improve this algorithm.

We were working with Russian University, MGO, to improve that algorithm as well. And on a UNICEW site, we see, oh, they say we are dull. Oh, we have our team tokens, but we will not vote. Okay. And now they develop such a software. And from my point of view, we should have a proposal in the DAO to add this protocol to Uniswap, Dow, to the front end, which is run by the team. The team run the front end, how I can see. They own the domain, and they can change the IPFS endpoint.

So they change the IPFS hash on Cloudflare. are by themselves. So Dow don't own the front end. There's no foundation, independent foundation, which controls that. So, and from my point of view, it looks like a centralized piece of software with a fake governance, which aims to be kind of decentralized. There are a lot of investors who can vote in this governance. In our case, we have don't disadvance governance. It will come. but it will come only for unlocked tokens. So that means the first unlock will happen some day in December. The people who have these tokens in the hand, they can vote,

not those people who are locked. I understand that move Hayden has fear that aggregators will take over. They have fear that like sushi will copy everything. And they try to protect them. And this is a really bad approach from my point of view. should run with MIT smart contracts. So like we did it with our AMM. We don't protect them. We just published because we solved something. And they can get more success by doing it more like open source. Actually, we can, our team can rewrite the whole code, make it more efficient.

It's not efficient enough from our point of view. And we can publish this open source. The same approach, but written in our own words, I would say, and more efficient. Then what they have from that? Nothing, yeah, from my point of view. If they would just publish this open source, then they can get maybe from other contributions. We have, we found some parts where we can actually contribute, but we will not contribute because this is the wrong license in DFI space. But you also have some parts that are not open source, right?

I mean, you said that earlier. Yeah, sure. Our puff finder is not open source. The implementation of some gas-efficient implementations on an Ethereum virtual machine is not open-source, which depends to the algorithm of power finder. But the protocol itself, the main layer, is open-source on the MIT license. Everyone can use it. Everyone can use our special implementation, which we released with the V3 of the aggregation protocol which saved 10 percentages of gas costs by using Uniswop like pools.

Actually, I offered Uniswap to use the source code or our smart contract to offer cheaper, cheaper transactions, but they didn't react on that. Yeah, some parts are not necessarily to publish because no one would get benefits except to competitors. in the competitors in that way that they just copied it like Dexaget did and use it for own profits and earn money with that. Speaking of profits, so there was a controversy earlier this year, late last year, when one inch pocketed the amount that prices slipped in the positive direction. So basically whenever there was positive slippage on the one inch protocol, that went to one engine instead of just giving the user a better price, right? So how did that play out?

And why did you implement it this way? Actually, it was like a bug. And we found out it's actually really late. It happens only on really huge volumes. And one day, the kind of the wallet, which was set as kind of emergency receiver, if something goes wrong to have a protection layer behind that, just got additional money from trades, which happened in the case that the user committed for specific rate and the rate changed in the process when the transaction was already sent to

the MAMPool and the price improved a little bit on a huge volume. it can happen that something drops on the wallet. This kind of earning, unexpected earnings, we call it, spreads of plus, is distributed right now among governance participants. People who participate in the governance and vote to receive these amounts of this kind of leftovers. They get it every week. So was it like this from the get-

go? Did the governance participants get this surplus fees? Yeah, they get it. Yeah, they get it. We as team, we don't get anything. And so we got our investment from two rounds, as team to develop on the protocol. And there is also support from the foundation. They provide grants for people who join the network, for example, in the community space. There are people who are explaining people how it works or try to solve some issues. They get grants from the foundation.

And we can work very, very well a long time with that money, what we have. Plus, we got team tokens. And right now, team tokens are locked. My personal tokens as well. And in the next four years, like almost three and a half years, we will get those tokens and will be committed for sure. Cool. So maybe let's step back a little bit.

So one of the most important issues on Ethereum layer one currently is gas costs and scaling. What's your view on that? Are you looking at layer two? I mean, you certainly do since recently you also set up one inch exchange on Binan smart chain. So what are your thoughts on other maybe more scalable? chains or layer 2s and where do you think will move as the Ethereum space? What we have seen is a huge jump of the gas cost in Ethereum. And for us, it was logical step to expand the one-inch network to deploy everything

what we have in Ethereum to a Binance smart chain to offer the people, possibility to reduce the gas cost for the swap. Since we have seen a lot of volume, a lot of people training on Binus Smart Chain, great support from Binance, also invested in the first round, a lead investor in one inch. But we had no requirements to do that. We just reacted on the people who also came to us and asked us to expand to Binan smart chain. For sure, Bin Laden smart chain is not the solution for the scaling problem since they just copied Ethereum and just used the specific mode of staking, kind of, been.

me the solution would be of course if you're into dot oh but we need like two three years for that and then we have to rethink everything we have to rewrite everything because everything would work asynchronically in a short blockchain and based of this architecture we have to rewrite any applications there are some solutions right now i have seen a near protocol they have actually already the staking Charate blockchain architecture implemented in the mainnet with the rainbow bridge which can bridge

the tokens. There are some approaches to make the calls synchronally you have a kind of isolated state and you put smart contracts there and work inside of this state, kind of of virtual machine in a virtual machine. Layer 2

is a great solution but only layer 2 which allows composability Here, optimism will start already May, I guess. We are also looking in this direction. We are working closely with the team of optimism. Uniswop committed. Synthetics is committed later to optimism.

But there are some trade-offs. Optimism is not the best solution, I would say. ZK Snarks is from my point of view. Really great solution from the Matters team. This is our friends. We also invested in strategically, invested in, this team to have the possibility to early also join join the network and deploy everything what we have kind of expand again we have deployment on the binocene smart chain if you're in

bin a smart chain then all the layer two's which would have the traction and later we will be ready for if you're into that all and when you guys let's say deployed one inch on binance smart chain or if you're going to go to other chain Are these like totally separate and, you know, let's say the one inch token, maybe there's another token on Binance smart chain. Is there some sort of link? Are you, you know, is there one inch as a governance token reused in some way there? Yeah. So the foundation created the original one inch token physically created on Ethereum back in Christmas night, 2020 last year.

And what happened here in a Binon Smart chain? So the foundation created the same token on Binance smart chain, minted 25 millions of tokens, how I know. Move these tokens to the bridge of Binets. That means if you move tokens from Ethereum Mainet to Binet to Binus Mainet, you lock on one side of the bridge Ethereum tokens and unlock on the other side. means there are not more tokens of one inch printed it's just as liquidity provided to Binance bridge and also for the other for the other change would be the same from my point of view lock on one side unlock on the other side and then it's great i wish more the centralized

bridge than what we want to have right now on binance chain but it is what this is and it's very And regarding the governance, so what was happened, the whole network was replicated in the other chain. So if you stake there, you vote for their settings in the Binon Smart chain right now. And if you get rewards in the Binance Smart chain, only use stake in the Binance Smart chain matters. And you can move the tokens through the bridge in both directions. And, you know, at the moment we still have, you know, let's say you have this Binance, one inch on Binance smart chain, you don't have one inch on Ethereum. You know, maybe there's going to be, you know, ZK, roll-ups, all kinds of stuff coming, all kinds of new chains. And, you know, we are starting to see some attempts at having decentralized exchanges that are like across different chains.

So I think like Thor chain connects maybe two examples. of that is that something that you can also envision for one inch that you know you're able to basically aggregate liquidity across you know many different blockchains as well as like many layer twos we can do it already but we don't see us in the role to play the bridge for like blockchain cross swaps we ensure that we do the protocol ensures that the transaction is done in one single transaction, the trade is done in one single transaction. I have seen Andreik Cronier publishing,

oh, there's a better rate when you use curved together with synthetics and virtual scenes and then I swap to somewhere else. But you have to wait six minutes, but you can't wait six minutes on a market pump or dump, right? So and to ensure 100 percentage protection for those people who are using it, you need to do it atomically in one single transaction. So, Sergei, were you planning to take one inch? What are your plans for the foreseeable future? So for the future, we are right now as team talking with banks, Switzerland banks, for example.

and we offer an enterprise endpoints for them for the integrations. And I guess other people try to do that, X-Rex try to do the same, I guess, from a point of view. But what I heard as well. I see banks and fintech companies as gates for normal people. For main kind of mainstream adoption, we need partners and this can be banks. more and more banks in Switzerland, they are open for staking compound. If you look on the current bank system, this is highly inefficient for those people who have money and would like to put the money on the bank account. You have to pay minus kind of API here to you have to pay to have money on the bank.

And this is uncle. And some banks offer you to exchange in crypto, like you use DC. And you can stake on compound and get you five percentages, API. This is great. You don't get it anywhere here in a bank system for sure. So if there's a lot of influx from the bank system, which obviously has a way larger volume than the entire decentralized space, don't you think that interest rates are going to go down and approach the interest rates of the traditional financial system?

Sure, sure. It will go down when more people will join and lend the money. But also in the same step, more people, traders will come to borrow that money. So to borrow, to speculate, to create leverage positions. Right now, you don't need any middleman's here to create leverage position compound. You have just, it's quite complicated because like low level. I see components like first layer. And one of the hackathons would like 2020 in February in H.

In HGH Denver, we have built a leverage platform based in compound to create like up to 5X short or long position for Ethereum. And it's happening without any person in the middle or banks in the middle. And more and more people will come and doing. do that because they have the control in our hands and they can just jump and jump out any time when they won't and they can do it in one single transaction and this is this is not possible in the banks if i buy here financial products and um our investment in the form uh i have kind of to wait a specific period of time and i need to wait when the market is open open and uh

And so on. And here's in the defy space, it's all the time. Everything is open and you can trade all the time. I think these are really nice words for wrapping up. So Sergei, where can people find out more about one inch? So you can join our telegram, follow telegram, channel, chat, Twitter. We are on Twitter with 140,000 people already subscribed. We have Discord as well.

We have a blog at Medium. Also, we have a great help center. And we have also support. If you are on one inch, you can on the right bottom corner, you can find the support chat. And you can ask anything you want, if you have any question. Cool. Thank you, Sergei. And thank you for coming on.

Yeah, thank you. It was a pleasure. Thank you for joining us. on this week's episode. We release new episodes every week. You can find and subscribe to the show on iTunes, Spotify, YouTube, SoundCloud, or wherever you listen to podcasts. And if you have a Google home or Alexa device, you can tell it to listen to the latest episode of the Epicenter podcast. Go to epicenter.tv slash subscribe for a full list of places where you can watch and listen. And while you're there, be sure to sign up for the newsletter, so you get new episodes in your

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