Wisdom and Wisdom: A Quick Look at the Key Points of 1inch’s Ecological Progress Report in the Second Quarter

Author: Ryan Celaj

Original source: Messari

Key points:

• 1inch DAO voted to stop collecting Swap Surplus and return it to users, while DAO plans to explore other sources of income.
• Ethereum accounted for more than 70% of 1inch's total aggregated volume in Q2, continuing its dominance.
• The diversity of Fusion Resolvers and the total transaction volume processed by Resolvers continued to increase, exceeding $11.7 billion in the second quarter.
• The development of the 1inch Network hardware wallet is still continuing, and 2 million USDC has been approved to complete the product transaction version.

*Note: This report includes data from Ethereum, BNB Chain, Polygon, Optimism, Arbitrum, Avalanche, Gnosis Chain, and Fantom. Data from zkSync, Klaytn, and Aurora are not currently included. *

Key indicators

Performance Analysis

User Analysis

The user base for the 1inch Network aggregation and limit order protocol has been growing over the past year. The first quarter reported 3.3 million total users of the Aggregation Protocol, which rose to 4.5 million in the second quarter. Similarly, the limit order protocol (Limit Order Protocol) user base increased from 261,000 in the first quarter to 438,000 in the second quarter, and the number of users increased by 68% quarter-on-quarter. **On average, 1inch Network serves an average of 54,300 users per day. On June 22, the indicator's 30-day moving average peaked at 64,800. **

**Ethereum continued to maintain its status as the "whale chain" in Q2, with an average transaction size of $31,000. **After Ethereum, Arbitrum and Optimism follow with average transaction sizes of $4600 and $4200 respectively. Fantom has the smallest average deal size at $1,200. Across all chains, the overall average transaction size is $6,800. This was a 28.9% decline from the first quarter average of $9,600, indicating smaller transaction volumes in the second quarter.

On Ethereum, the spike in average transaction size in Q2 was due to the Shanghai upgrade and the enablement of ETH staking withdrawals. While the upgrade occurred on April 12, Lido did not open withdrawals until May 15. Therefore, the next two largest peaks in average Ethereum transaction size were on May 23 and June 15, when 96,000 stETH and 46,000 stETH were exchanged via the 1inch limit order protocol.

Perform Analysis

In the second quarter, 1inch Network’s total transaction volume exceeded $28 billion, a 37% decrease from the first quarter. However, this decline is not only due to the decrease in transaction volume in the second quarter, but also related to the inflated transaction volume in the first quarter caused by the USDC unanchor event in March 2023. Removing the volume during the unanchored week of March 10-16, and substituting the average volume for the rest of Q1, total volume for the quarter should be $34.5 billion,** implying only A decrease of 19% from the first quarter. **

In terms of average transaction size, the transaction size of the limit order protocol is larger than that of the aggregation protocol. The difference becomes more pronounced on days of higher volume and heightened market volatility. This creates more opportunities for limit order triggers as greater volatility results in more significant price movements and more uncertainty about price execution.

Uniswap continues to lead in terms of 1inch exported volumes processed by the underlying decentralized exchange (DEX). ** Of the $18 billion in export volume, Uniswap accounted for 34% with $6 billion. **This is down about 9% from Q1, when Uniswap accounted for 43% of total exit volume.

1inch Network's proportion of transaction volume remained consistent with the first quarter, accounting for 9% in both quarters. "Other" DEXs saw notable shifts in Q2, which included hundreds of origins. These DEXs accounted for 12.9% of total transaction volume in the first quarter, but that number shot up to 44% in the second quarter. This market share came primarily from Uniswap and Curve, which declined 9% and 14% quarter-over-quarter, respectively,** highlighting the diversification of volume distribution. **

**Fusion Resolvers is making positive progress in Q2 2023 and is now processing an average of $1.3 billion in transaction volume per month. **

Volumes in the first quarter were boosted by the USDC unpegging event, driving more than $2 billion in volume in just two weeks. Excluding March 6 to March 19, the average weekly volume in the first quarter was $265 million, compared to $293 million in the second quarter, an 11 percent increase.

According to Unicorn Power's ranking, only the top five Resolvers are eligible to handle Fusion transaction volume. According to Unicorn Power statistics, as of the end of the second quarter, 1inch Labs accounted for 30.6% of the entire network. Other major Resolvers include Seawise, The T Resolver, Arctic Bastion and OTEX, accounting for 28.9%, 16.1%, 11.1% and 6.9% respectively. Laertes followed with a relatively small 4.3 percent share.

Market Share Analysis

On a quarter-to-quarter basis, the market share of aggregators remained largely stable. Aggregators in the “Other” category saw the biggest increase, at 5%, while 1inch saw the biggest decline, at 6%. Despite this, **1inch is still clearly ahead of other aggregators, accounting for 49% of all aggregators' direct users in the second quarter. **

1inch is followed by ParaSwap, which accounts for 11% of all direct users. The "other" category, which includes more than 15 different aggregators, accounted for 15% of direct subscribers in the second quarter. The aggregator landscape appears to be expanding, with a slight reallocation of market share this quarter.

** Throughout the second quarter, the 1inch aggregation protocol maintained a large share of the total transaction volume, accounting for 81%, a slight decrease compared to the first quarter (83%). **The transaction volume of the 1inch limit order agreement reached its peak on May 16, contributing 32% of the total transaction volume on that day, because it was affected by the withdrawal of Lido stETH on May 15. In contrast, May 27 was the lowest-volume day in the second quarter, with limit orders accounting for just 10% of the day's total volume.

Conceptually, the dominance of aggregation protocols in transaction volume is logical. The limit order protocol operates on the basis of price changes triggering swaps, while the aggregation protocol's swaps occur instantaneously, resulting in higher transaction volumes.

**In Q2, Ethereum maintained its leading position in 1inch Network, accounting for 70% of the total aggregated volume of 8 chains. Arbitrum came in second, contributing 12% of the total aggregation. **Interestingly, this marks the second quarter in a row that Arbitrum has been the top choice (by volume) for aggregators. This achievement follows an airdrop of Arbitrum's native token, ARB, at the end of March 2023.

**However, further analysis of Ethereum's performance shows that its dominance is declining. **Ethereum accounted for 81% of total aggregated volume in January, and its share dropped to 71% by June. This trend suggests that user activity will shift to more cost-effective chains as other networks improve and mature.

**Overall, aggregated volumes for all chains decreased in Q2 compared to Q1. Ethereum saw a notable drop of 42.5% in total transaction volume, with Arbitrum seeing the smallest drop of just 0.3%. In contrast, Fantom saw the biggest decline, with its aggregation volume plummeting 53.3%. **

Treasury and pledge analysis

**As of the end of the second quarter, 1inch DAO treasury assets decreased by 10.8%, and the settlement was $16.3 million. **This decline can be attributed to several factors, including the approval of the allocation of 2 million USDC for the 1 IP 30 proposal (to complete the production of the 1inch hardware wallet) and the approval of the allocation of 100,000 USDC for the 1 IP 31 proposal ( for 1inch Community Builder Program).

Additionally, the termination of swap surplus collection, previously the main source of income for 1inch DAO, also contributed to this drop. In response, DAOs are exploring other avenues of income. One such initiative is to deposit 1 million USDC into AAVE V3, which will generate an estimated APR of 1-2%. **Going forward, the company plans to further explore how the Fusion model can generate additional revenue. **

**As of the end of the second quarter, the number of 1INCH V2 pledges reached 184 million, a significant increase of more than 20% compared to the previous quarter. **Staking incentives leading to this growth include the accumulation of Unicorn Power, which can then be used to vote on proposals in the 1inch DAO, or delegated to Resolvers for yield. Delegating incentives started at the end of January, which led to a large staking inflow in February.

However, the amount of pledges fell slightly by 1.2 million in May, recording for the first time that the outflow of 1INCH V2 pledges was more than the inflow. The drop coincided with a broader downturn across the cryptocurrency ecosystem at the time, with total cryptocurrency market capitalization down 11% as of May 30 from its peak in April 2023. In June, the pledge inflow increased to 29.3 million 1INCH.

Compared with the V1 pledge contract, the V2 pledge contract attracted more pledged 1INCH tokens. However, the staking dynamics have changed as a percentage of circulating supply. The V1 staking contract peaked at 31.5% of 1INCH staking in September 2021, while V2 staking currently accounts for 19.8% of the circulating supply. It should also be noted that the circulating supply in September 2021 was 165 million, compared to 943 million today.

Summarize

In the second quarter of 2023, 1inch Network continues to improve user engagement while undergoing a series of changes. Aggregation and limit order protocols have seen significant growth in daily user numbers, demonstrating the platform’s growing influence in the DeFi space. While Ethereum continued to account for the majority of its aggregated volume, users gradually migrated to the more cost-effective network during the second quarter. The network also processed $28 billion in transactions during the quarter. Governance changes, specifically the end to swap surplus collection, will also push 1inch to explore other revenue streams. Collectively, these changes reflect the platform's response to changing market conditions and user needs.