How does 1inch find the best prices?
2023-05-24 21:48:12 UTC
1inch is a decentralized exchange aggregator, which means it aggregates the liquidity and prices from various Decentralized Exchanges (DEXes) to find the best possible trading routes and prices for users.
The way it finds the best prices involves a few steps:
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Integration with Multiple DEXes: 1inch is integrated with multiple DEXes, like Uniswap, Sushiswap, Balancer, Kyber Network, and many others. These DEXes each have their own liquidity pools, which consist of various crypto pairs.
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Price Discovery: For any given token swap, 1inch fetches the prices available on all these different exchanges.
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Pathfinding Algorithm: Then, it uses an algorithm (akin to a pathfinding or routing algorithm) to find the best possible trading route. This might involve trading across multiple DEXes and multiple pairs. The goal is to minimize slippage (the difference between the expected price of a trade and the price at which the trade is executed) and maximize the amount of tokens the user gets.
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Gas Optimizations: 1inch also uses various strategies to optimize gas costs, which can be a significant part of the total cost of a trade on Ethereum network. It uses a complex algorithm known as the 'Chi Gastoken' which helps to mitigate the impact of Ethereum's high gas fees.
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Partial Fill Optimization: Lastly, 1inch has a feature called 'Partial Fill' which allows splitting a single trade across several DEXes. This gives a chance for the user to get the best rate in case of large trades where a single DEX can't provide sufficient liquidity at the best rate.
It's important to note that while 1inch does an excellent job of finding the best prices, there is no guarantee that it will always find the absolute best price due to the rapidly changing nature of prices in decentralized finance.