The popular Decentralized Exchange (DEX) aggregator 1nch.exchange has now launched its Automated Market Maker (AMM) called Mooniswap. For many regular DEX traders and DeFi product users, 1inch will surely already be a bookmarked tool in their repertoire. This is simply due to the sheer amount of liquidity providers and tokens 1inch has integrated into their aggregator.
Before entering any swap, it is always a good idea to check what 1inch can find. Generally, they will find you swap rates between different tokens at cheaper prices. Furthermore, the aggregator has gone the furthest into the realm of gas optimization. With the release of CHI Gas Token to save their users on Ethereum network fees. Thus, you can still save money with 1inch even if the rate for executing the swap is the same price as on a major protocol such as Uniswap, Balancer, Bancor, or Kyber Network.
Automated Market Maker Problems
With the current explosion and interest in DeFi by the cryptocurrency market as a whole. We see several protocols go through design upgrades to improve the price curve for traders and earnings for liquidity providers. Essentially, we are witnessing an innovation war between protocol developers. All attempting to create the design that is most attractive to liquidity providers and traders alike. Mooniswap is a new player in this race of creating the perfect Automated Market Maker platform.
1inch has been quick to critic some of the flaws found in popular AMM designs. After all, they have studied them deeply to integrate them. For example, Uniswap doesn’t implement any external pricing feeds. Consequently, token pricing updates only happen when trades are executed in the pool. This can lead to unfavorable conditions where liquidity providers suffer losses when they withdraw (known as impermanent losses). Which has led to the creation of enhanced AMM models such as Curve or Balancer. Both propose different ways to solve this major flaw. Now, 1inch aims to further improve on AMM design with its unique implementation. One that solves notorious problems such as high slippage and front-running attacks.
What is Mooniswap?
The next generation of an automated market maker which makes use of virtual balances. A solution proposed by Vitalik Buterin for dealing with front-running attacks. The platform will also improve the earnings of liquidity providers. Because it captures some of the profits that would otherwise always go to arbitrageurs. It works by introducing a 5-minute time-delay to lower the profit margins of arbitrage traders. Instead of the price being adjusted immediately after a trade, Mooniswap improves the market exchange rates slowly.
What this does is create a highly competitive environment among arbitrageur traders. They will not want to afford to lose profit completely by waiting out the full time of the delay. As a result, arbitrageur traders will collect a smaller portion of the slippage. The rest stays in the liquidity pool to be shared amongst liquidity providers. Another great decision by the 1inch team is to fork Uniswap’s loved user interface. Given that Uniswap is currently the most used protocol by swap count and crypto traders. It makes sense that having a familiar interface will make the migration easier from a user perspective.
What are Mooniswap’s trading fees?
The Swap Fee for trading is set at 0.3% which is in line with the industry standard for decentralized markets. However, 1inch does mention that the Swap Fee can be adjusted. So if they need to provide more competitive prices to gain market share. Then the Swap Fee may be lowered. Mooniswap also introduces a Referral Fee as a way to incentivize the integration with third parties. This can greatly help drive volume through the protocol. It is a win-win because as Mooniswap is integrated into wallets or dapps, the more liquidity providers can earn. Because the trading volume will go up.
We have seen how widely Kyber Network has been integrated into other dApps, wallets, and services. Simply off the back of paying out referral fees in KNC tokens. Uniswap currently offers no incentive for developers to integrate the protocol into their DApps. With Mooniswap offering an improved AMM design plus referral fees, we could see the new protocol growing rapidly.
Higher earnings for liquidity providers
Compared to Uniswap V2, 1inch expects Mooniswap to generate from anywhere between 50 to 200% more income for liquidity providers. This is due to the design transferring some of the price slippage profits to the liquidity providers. Mooniswap also implements on-chain volume-weighted average price oracles which will make the protocol very secure against manipulation. As there is always a risk when pooling your funds into a smart contract, this feature will definitely reassure users.
With Bancor V2 launched last week and now Mooniswap, it feels like there are new pools launching everyday. Time will tell which decentralized exchange protocol design comes out on top. Currently, it is amazing to see that healthy competition continues to drive incredible innovation in the blockchain space.
Stay safe and trade well!