Ep.60E Sergej Kunz: The One-Inch Punch that disrupted DeFi
Cryptoria｜说Web3和加密世界
In this episode, we welcome Sergey, co-founder of the DEX aggregator 1inch. He shares his entrepreneurial journey starting from 2019 - from traveling the world participating in hackathons to identifying a market gap in liquidity aggregation, which led to the development of the breakthrough Pathfinder algorithm.
Sergey explains how 1inch optimizes user experience and trading efficiency through smart Dutch auctions and intent-based swaps. He emphasizes the importance of decentralization and non-custodial trading as the core value proposition of DeFi. Currently, 1inch commands 70-75% of the DEX aggregator market share.
Interestingly, the name "1inch" is inspired by Bruce Lee's "one-inch punch" concept - generating tremendous power within a minimal distance. This reflects 1inch's approach of integrating different liquidity sources to achieve optimal execution in a single transaction. The team has recently established a partnership with the Bruce Lee Foundation.
During the conversation, Sergey shares several startup stories, including his experience of staying awake for 56 hours during a hackathon. He believes failure is an essential part of growth, and the key is learning from these experiences. Looking ahead, he sees improving user experience while maintaining decentralization principles as crucial for the industry's future.
The discussion also covers the team's commitment to security, their innovative approach to protocol development, and their vision for DeFi 2.0 through intent-based design.
Key Takeaway
Intent
At the interview, Sergey detailed the "Intent" trading mechanism launched by 1inch in December 2022. This innovative approach allows users to trade as easily as on centralized exchanges without initiating on-chain transactions - they simply sign an off-chain message with their wallet, without paying gas fees. These trading intents are shared within the 1inch network, where professional market makers and arbitrageurs execute the trades.
The mechanism centers around a smart Dutch auction system. Each order typically has a 6-minute validity period, with the price curve starting at spot price and adjusting intelligently based on market liquidity. Rather than a simple linear price decline, it's a sophisticated curve considering multiple market factors, ensuring optimal execution through market maker competition. Sergey shared an example where a user trading $12 million in assets saved $135,000 compared to traditional methods.
This design maintains the core principles of decentralization and non-custodial trading while significantly improving user experience. Users no longer need to worry about complex transaction execution details to get better prices. Since its launch, $36 billion in trades have been executed through this mechanism, demonstrating its broad market acceptance. This is why Sergey sees "Intent" as a crucial evolution in DeFi - it shows how decentralized finance can provide better user experience without sacrificing its core values.
Pathfinder
The Pathfinder algorithm, 1inch's core technology, was born from Sergey's inspiration in a German forest. At its essence, the algorithm finds optimal trading paths for token swaps, much like discovering the most efficient route through a complex pipeline system.
Unlike traditional methods that search for the best price within a single exchange, Pathfinder simultaneously evaluates multiple decentralized exchanges and liquidity sources to find the optimal combination. For instance, when a user wants to swap ETH for USDC, the algorithm might determine that converting ETH to USDT first, then USDT to USDC, yields a better price. On the Ethereum network alone, the algorithm has integrated over 40,000 liquidity sources, including even small liquidity smart contracts.
This approach mirrors large-trade strategies in traditional financial markets. Just as an investor buying $200 million in Tesla stock might trade across multiple markets (Singapore, Frankfurt, etc.) and potentially convert some dollars to euros first for better overall execution, Pathfinder brings this sophisticated multi-market trading strategy to cryptocurrency. What began as an experimental idea has evolved into an algorithm that can now operate almost at hardware level, securing 1inch's dominance in the DEX aggregator market. The algorithm ensures atomic execution through blockchain technology, maintaining both security and efficiency.
Timeline
00:36 Why founded 1inch
03:19 What is Dex Aggregator
27:27 Dex Aggregator competitive landscape
34:34 What Dex Aggragator industry looks like in next 5 years
37:25 56 hours awake record during EthGlobal NewYork
44:39 The major challenges of Dex Aggragator
