DEX aggregators have become an essential part of the DEX economy.
While it is difficult to ascertain which DEX aggregator offers the most value, the following table does offer some clarity:
As of 31 May
2021 1inch Matcha ParaSwap
Sources of
Liquidity 80+ 20+ 48
Token 1INCH + CHI None None
Routing
Algorithm Pathfinder 0x API Hopper
Limit Orders Yes Yes No
Staking Features Yes No No
As of 31 May
2021 1inch Matcha ParaSwap
Protocol Fees Variable. At time of writing is 0.25% fixed fee on all trades.
70,000 gwei * Gas price of the transaction (where applicable)
None for users but third-party integrators are charged a 15%
fee on facilitated swaps
Blockchains
Supported Ethereum and Binance Smart Chain, and Polygon
Ethereum, Binance Smart Chain, and Polygon
Ethereum, Binance Smart Chain, and Polygon Transfer of
Positive Slippage to User
Variable - At time of writing (May 2021), about 20%
of positive slippage is given to referrers and 80% for 1INCH stakers.
100% 50%
1inch has a lot of first-mover advantages. As of 31 May 2021, the protocol has the most sources of liquidity, with over 80+ sources. 1inch is also the only DEX aggregator with its own native tokens, giving it a distinct advantage over other protocols and allowing users to stake 1INCH tokens and earn protocol fees. 1inch is also more decentralized than other protocols which lack a DAO. All these advantageous are reflected in trading volume, the most basic metric:
Source: Dune Analytics
The total trading volume for Q1 2021 is dominated by 1inch. In March 2021, 1inch had 84.2% of the total market share and $7.76 billion worth of trading volume. Of course, this could also be caused by a variety of reasons, including user loyalty and information asymmetry. However, when taken a whole, high-user retention rates suggest that the market recognizes 1inch’s benefits.
Associated Risks
It is good practice to not treat quoted prices on DEX aggregators as gospel.
While DEX aggregators aim to ensure that the executed transaction conforms to the quoted price, this does not always occur.
Another point is the size of the transaction. Although DEX aggregators offer better cost savings for larger transactions, it may sometimes be better for smaller traders to interact directly with a DEX.
DEX aggregators are usually reliable, but there have been instances where transactions are routed through small and illiquid pools. As a user, you should always check that your slippage is not too high before approving a transaction.
Notable Mentions
● DEX.AG (rebranded to Slingshot)
DEX.AG is one of the smaller DEX aggregators which uses its own proprietary routing algorithm, X Blaster. The project rebranded itself to Slingshot in November 2020. At the time of writing (1 April 2021), the protocol is integrated with 18 liquidity sources, does not take any trading fees and has yet to release a live version of their update.
● Totle
Totle is another small DEX aggregator which relies on their native API (Totle API). At the time of writing (1 April 2021), there are 15 liquidity sources.
Conclusion
DEXs are the lifeblood of DeFi. However, for many power users (whales especially), DEX aggregators are even more important as DEX aggregators can offer better cost efficiency for large transactions. DEX aggregators have even evolved to a point where they have their own liquidity pools, further blurring the line between DEX aggregators and DEXs.
The DEX sector is a prime example of DeFi composability. DEX aggregators are built on top of DEXs, to serve different user profiles. Thus, we benefit from a more comprehensive suite of innovative products borne out of increased competition and mutualistic integration.
Recommended Readings
1. Overview of DEX Aggregators
https://www.delphidigital.io/reports/defi-aggregators/
2. Comparing Different DEX Aggregators
https://medium.com/2key/defi-dexes-dex-aggregators-amms- and-built-in-dex-marketplaces-which-is-which-and-which-is-best- fba04ca48534
3. 0x’s October 2020 Study on Dex Aggregators
https://blog.0xproject.com/a-comprehensive-analysis-on-dex- liquidity-aggregators-performance-dfb9654b0723
4. 1inch’s v3 Upgrade and Comparison with Other Dex Aggregators https://blog.1inch.io/introducing-the-1inch-aggregation-protocol- v3-b02890986547
CHAPTER 5: DECENTRALIZED LENDING & BORROWING
The capital market in the traditional financial system is not accessible by many - only the rich have the VIP card to access it.
Imagine you are a venture capitalist looking to finance your next business venture. You can take a loan and offer your assets as collateral. The collateralized capital will remain untouched and continue to grow over time, and can be redeemed at a later date. Of course, this is not a risk-free strategy.
If you are not careful, you may default on your loan payment and lose your collateral.
Lending protocols in DeFi have now democratized access to debt for everyone. Using your cryptocurrencies as collateral, you can borrow from these protocols and leverage upon it. As one of the largest DeFi categories, decentralized lending and borrowing has grown exponentially, with borrowing volume reaching $9.7 billion in April 2021. That is an increase of 102 times compared to the year before!
The leading DeFi lending protocols are Compound, Maker, Aave, and Cream.
Source: DeBank