Ethereum’s Sleeping Giant Just Woke Up - 1inch Co-Founder on Launch of Aqua

Transcript

What's up, guys? Welcome back to the rollup here today with the co-founder of 1 in, Sergey Coons. You guys just announced the launch of the Aqua Shared liquidity protocol. Uh, Sergey, the background is epic. You got like a Trojan horse. Looks like it's straight out of the Odyssey there. Very, very cool. Uh, I have a feeling you spent a lot more time in uh the office, more so than sleeping, sleepless, sleepless nights leading up to these product launches. How are you feeling now that you've launched the Aqua Protocol? >> Yeah, hi everyone. Uh it's privilege to be here. Uh yeah, it feels um honestly like 20 2019 when we started with one in on the hackathon. Feels like really like

hackathon working day and night. Uh only a few hours sleep. Uh but uh we did it. We did it and we are very very happy to we able to deliver it in production ready state highly stable and with all the nice uh u features. >> Very cool. Awesome. Well, we're going to get into it today. Um obviously this comes on the heels of a research piece that you commissioned alongside Dune. Um I remember reading this something to the tune of $150 million in fees that liquidity providers were leaving on the table. Um I think first let's talk about Aqua you know this was built as a result of some of the research that you guys

have done um before we get into the research before we get into Aqua 1 in has been around for a long long time uh the bridge space the exchange space the aggregator space amms we've gone through like we started the roll out back in 2020 we've been around a long time 1 in has been there you know from the beginning uh maybe you could just tell us you know how some of the evolutions that 1 in has gone through up until now. Just give us the quick history, the chronology, you know, what were some of the lessons, the learnings, and the experiences that ultimately brought you to the current state of the exchange onchain market.

>> Back into 2019, I was traveling with my co-founder Anton around the globe building different projects on the if you're doing global hackathons and one of these hackathons, we just came to a simple idea. Why why not to build one venue small D app um what just communicate with the blockchain and uh calculate the right um uh routting smart routting to exchange assets for the best execution. Back in 2019 liquidity was not that fragmented. Now this is much more complicated. That's why we introduced 2020 um puffer algorithm. Um what was uh kind of um team team uh

effort result where uh we have built a multi-splitting algorithm would use multiple market depths. So it makes sometimes sense to use some tokens in between some liquidity in between to to buy memecoin for example because memecoin is only traded to specific other asset and people want also to buy it with maybe UDC. So it's this routting is kind of was our magic thing uh where then other competitors started to do the same kind of try to replicate and it's great kind of competition in the space um um favors the users so we uh it pushed ourself to improve it. Um so we are still market leader here with the um um aggregation routing but uh it was not

enough for us. recognized that actually it's kind of painful when you do the transaction by yourself and um you you take all the risks. Uh the math bots started to appear and and cut on on the user transactions. So uh the they are doing sandwich attacks. You try to swap on like for un swap pools. They jump in um put um on trade before you and then after you and then cut on on your maximum acceptable price impact. And we we we thought like oh why not to introduce intentbased protocol that user just should announce what they want to exchange like for example I want for USDC some um some meme coins and uh someone else should take risks and

someone else are the professional market makers. So and so we introduced one in fusion uh what was the foundation also for unis swap x if you look into the white paper of unis swap x um it it's based on our research and a fusion technology uh with the Dutch auction and uh a little bit after we recognized that actually the bridge space was highly terrible I I was like always annoying using like bridges took too long too risky they got hacked and you had to watch out for a specific bridge, you know, you had to search for one. Um there were not that many aggregators. Um and then we came to the idea, okay, why we not using the intentbased protocol?

Uh what versless and um just add atomic swaps to cross like for crosschain swaps. So we discovered that someone in 2012 2012 2012 on Bitcoin uh talk forum posted for like proposal for bitcoin uh to introduce um hash block contracts and I thought like oh it's actually really nice idea to combine intentbased approach user says I want to sell my ethereum on ethereum want on Robin Hood some blade so and then we bundle it together and introduce kind escro contracts and some atomic uh uh flow with secrets. Uh so user just declare and market makers take all the

risks and give the user in the destination chain what they expect and the trade is is done it and nothing can go wrong in the between because it's kind of fully automically. So if the market maker will stop to execute on the destination chain, someone else would will continue or it will just roll back to to the to the user wallet. So it's kind of um something what we introduce what not everyone knows I would say uh we are still working to to teach people in the community about this technology of course it's much easier to integrate someone who is offering custody service yeah and you you you get like in the next block already the execution but if you want safety uh and and non-custody approach then you have the atomic swaps

and then we expanded also to Salana we we recognized There are some users right and um now we support Salana with intentbased protocol and this is the first protocol what protects user um from math by design math kind of is a huge problem in Solana and um and here again we are a little bit lazy with uh educating people uh about the the protocols also on Solana so we're still working to to get some people from the community from Solana and of course we introduce um the atomic swaps uh between Solana and event compatible chains and all all the L2s right now you can for example swap from Robin Hood u chain uh some some um um

Ethereum for example to salon easily it's kind of um not not um kind of um a technology what uh what needs to be invented kind of it's it works it works very well um and then we came to to the idea okay we have intentbased protocol we have kind of classic approach the algorithm is used mostly right now by the um integrators like Metam Mask and Trust Wallet and some arbitrators as well market makers and we thought like why you are not building own um venue for liquidity provisioning. So we we did an internal research. So it this evolution was like started in 2021. We we came to the first idea for for this

um intense for for a price range uh by user. It's like a trading strategy. It's like a limit or a um what what what has a um range from what price to what price it should sell something or buy and or maybe both. So and um yeah, we thought like why not to introduce such um thing uh to also back up our uh intentbased swaps because like these swaps can be arbitrary. Yeah. and settled to each other and it's it's very cheap in terms of gas cost. So it doesn't need to go through all the different liquidity pools banker like balancer curve and unis swaw one single

venue from one hand like Apple it does you get from Apple everything you know like mobile phone and uh and the MacBook so it's our kind of MacBook what we introduced um so and these strategies are highly flexible we have right now like uh three strategies full range concentrated liquidity um and the kind of packed liquidity for stable coins and it can be extended to a lot of different things flash loans and and and we have built it in a manner that it's open for the developers and it's built also for institutionals >> institution and institutionals can create own positions without mixing u own liquidity with other people in the

pool you know like all the hackers they put sometimes liquidity into into the pool right and they don't want to that uh and they want to be sure that only compliant participants settle on your liquidity and we we we did it. So we have um one inch resol network uh who is um do passing KYB and compliance checks uh on our compliance team and uh so we can we are building for for the future of kind of finance we are we are the infrastructure so and uh yeah here we are with the new innovation of one shaka what um it's kind of a new thing it's I wouldn't even say that it's competing with unis swap pools or something it's something something new I would say

>> yeah well it's a fantastic story. Um, you guys have gone through so many evolutions and iterations of the product. I mean, the lore is fantastic. Thinking back to how much alpha is in those Bitcoin talk forums, like if you know, you know. You got to be pretty OG to really, you know, understand that's where action is. >> Great ideas and great tech. Yeah. >> Yeah. In incredible. So I mean you guys have done this you know you've been here since the beginning of you know Ethereum through the intentbased designs through the bridge designs the different swap models now we're in this institutional era and you know preparing for that you've implemented KYB there's different setups and now we find ourselves at a position where we're trying to maximize

capital efficiency but at the same time you know unlock a lot of value that is currently just sitting idle and so this was part of the research that you did so let's not bury the lead here you guys you know today very recently launched Aqua this is the shared liquidity protocol and you mentioned that this is something like almost completely new and I just want to read a quote here from the press release is that the liquidity provisioning space is broken this is from you uh but you only see how broken once there's an alternative today that alternative has arrived with Aqua liquidity providers no longer have to accept the inefficient pool structure that they've been put up with for years and so I think the model here is incredibly powerful and I want to get into some of the technical design

choices that allow the model to be so innovative. But first, I know our community is going to be extremely excited about the incentives that you guys have coming along with this new protocol. So, first let's talk about the incentives. Let's talk about how our community can get rewarded for participating in the design in the protocol and then we'll get into exactly how it works, the design choices and how it will fit into the market. >> Yeah. Um we we have still our one inch foundation what came with the idea to introduce these incentives um for um educating and on boarding liquidity providers um to to to use the protocol and uh one more additional incentive we got from 1ish dollar with additional

500,000 USDC um additionally to to the 1 in tokens for uh coming from the foundation uh for the next three months it will be distributed through our uh partner Merkel. Um they have great infrastructure and uh we integrated them uh into our uh web application um and double front end front end. [clears throat] So um you can see all all the earnings in in lifetime and claim um every every week uh for for your rewards. Um so yeah we we we kind of the goal is like to on board uh new new people uh into this new product I would say like who would also

like share the the feedback um um for for the technology itself as well. >> Amazing. Okay. So he uh so we're going to be able to deposit into Aqua and I think you know we're going to talk about exactly what depositing into Aqua means. It's really because the the funds actually stay in your wallet, which is a very powerful design. We can actually pull these funds into multiple liquidity pools all at the same time. I think this is something that I've I'm I'm thinking about this as uh like just in time liquidity uh in the sense that it's almost like, you know, there's a there's a user that submits a bid. Once that bid fills, they can use your liquidity, but you don't have to keep it in this pool

all the time. So why don't we talk about what this protocol design is able to do and how it is able to unlock you know hundreds of millions of dollars in liquidity provider fees that are currently just not getting distributed. This is purely a more capital efficient design. Talk us through the design choices that you've made when designing the protocol and ultimately you know how you foresee this fitting into the market. >> I I I would start with my personal opinion what I had with the liquidity pools. Um I was providing in unis swap some some liquidity and um I somehow changed the uh maximum acceptable price impact in the unisoft front end and it was like a little bit higher than I was

it should be and I got kind of sandwiched by uh providing liquidity. Uh so I got less and then when I was sitting in unis swap polls I I did some research and found out that actually in the pool where I was sitting every time when a bigger trade came a mathbot put a lot of liquidity into the pool catch almost all the fees from the trade and pull out the liquidity out out of the pool. So we as liquidity provider weren't actually much less than we could and then and and then this huge competition um in in a 30 bit pool for example uh Ethereum USDC you get diluted kind of you know you

could theoretically um have all position with 29 percentages of of 29 bips or maybe like even even like four or five bibs based on my research what I did recently this there's a mathematically possible to calculate exactly uh based on the current market conditions what price range you should choose what fees should be set for this specific amount of money you put into your positions based on this um uh um calculations you you can have really successful position and you are not buying to your to a pool what has like 30 beeps and there's no nothing else yeah um you have of course five bips yeah

then in one And for a specific person, it doesn't make sense. But if you need something in between, you should be free in in your choose. So you should be free in your intense. This is kind of our mythology. So and um we were working very long time already with intense. We had limit since 2021. And already there we we were thinking about these strategies like let's say it should not be just limit for specific price. this price can maybe move on specific bonding curve. Yeah. Um um and um or it should only sell in one direction not buy in the reverse reverse direction. Such strategies we were

discovering we had already prototype uh but somehow like it was too early. Yeah. So, and nowadays uh when we have RAAS, we have the intents uh you know um and the problem with the math in JIT attacks on the liquidity pools our our our setup is I I would say uh like ready to to be launched in the right time. So, and in the right place I would say. So, if with this um like AR blade hype for example um and the benefits of Aqua is that you can actually uh create multisync for example you put your funds

into it um and then you put like your 10,000 USDC what you ready to to to use for passive income. So, and then you can create different strategies. If you have USDC, you can even deposit in a V3 landing market and you can borrow three to four times more and then you can you can provide um you can create trading strategies in Aqua directly in the wallet directly in innosis multi. So uh the the new feature additionally to a what we launched in our one.com website is the support of sub wallets. Subwallet is a is just a

multisc what is owned by your main wallet like metamask wallet for example. So yeah you keep it kind of simple. So you you separate your normal wallet where you have maybe more assets and then you have additional wallet where you have um like your risk assets. So in this additional world you can create different positions like for example uh if you allow if if you do looping on on a uh what's really really nice just imagine if in the case of unis swap you would just put your 10 10k maybe five in USDC and five in USDT into unis swap pool but in our case you can just um lend USDC borrow USDT lend it again and then you loop it yeah

>> yeah and then you create um you can even create multiple positions. You can borrow um USDE for example, you can uh borrow some other assets. So and you can create among them uh tra trading positions like and then you can say okay I I I choose very tight um uh uh range. >> So and um and and then you can also define fees. Yeah. So, and you could have like three, four, um, six strategies depends. Um I personally did today for example a strategy where I put my Ethereum and Bitcoin into our uh and looked at and created between

Bitcoin WBTC and uh C CBTC Coinbase BTC a position and earn already money in and kind of uh there's already traffic volume because CB BTC on Ethereum is not that liquid and I I improved the liquidity >> for me it's it's Bitcoin you and and and the chance of to to to get liquidated um is very very low because uh of course it's not financial advice but >> right but they're the same they're the same they're the same asset right and so >> it's the same asset yeah so you have only the risk that it get depacked and you get liquidated and whatever and of course you have risk of a for sure um but you know like it's free money from 10k you make like 30 to 40k yeah can't

even do it to 40k 4x tax. So, and it's it's really crazy uh what what's what's how it would increase the um capital efficiency. It's not possible in unis swap at all. This is uh one of the cases um kind of was very very simple case in aqua as well that you have uni token you would like to participate in the governance of unis swap but if you put your uni token in the liquid liquidity pool you cannot participate right but if you keep it in the wallet you you can and in the same time you can trade uni to ethereum what's more or less in the same range over over the years yeah >> um yeah this kind of nice things you you you can do right Oh, and we have also

what what we launched as well with Aqua is Aquaarn. You can go to to one.com/aqua. There's a learn page uh where you can see some videos how it works and some explanations and some some research papers as well. We introduced um um a page with back tests. So we took 365 days backwards and analyze like uh how would would it be if I would just have also aqua positions compared to unis swap positions. So and um the capital efficiency is growing with the amount of the positions you have. Yeah.

>> Uh it's it's it's very very interesting. Um so and um yeah uh I think we we have much more to discover what is possible to build on top of Aqua. Um one more example would be flash for for example it could be strategy where someone just borrow it for one single transaction gives you some fees. Um yeah, we are still discovering and focusing right now to uh to teach people uh what is this and how how to work with that especially especially with uh bigger bigger guys like this uh looping communities uh world communities uh institutionals uh who who don't really want uh to to mix on liquidity with unis swap pool

liquidity since there are some some people exchanging in permission less manner >> it's kind of good but from the other side it's not very good for institutions right so they cannot work with that >> yeah no it it makes complete sense I mean there has to be some sort of uh compliance uh for these institutions to get into the game uh but this is somewhat at odds with the you know permissionless nature of the onchain ecosystem but it's at the app layer from which we've been able to segment these two audiences and both are able to combine and create capital efficiency with one another but maintain compliance as much as they need to do. I I mean I find the me the mechanism fascinating like it it makes sense because you know

typically we've been so accustomed to depositing our liquidity into these protocols and then once it's there it becomes locked in the smart contract and then it's able to transact with buyers and sellers. This is a fundamentally new paradigm right because the the the the real zero to one innovation here is that the liquidity stays in our wallet. It stays in our wallet. The smart contract is an essentially an this might be a little bit too simpl simplified but it's effectively an approval where we approve the amount that the token spend can come from and if the order comes through then it pulls the tokens from our wallet so we can continue to use them. In fact, this was one of the things that I didn't realize until I was reading through the

press release for today that we can apply the same liquidity to multiple different venues. We can apply the same 100 USDC or 10,000 USDC because it stays in our wallet. We can source order flow from different venues so that instead of just locking into one protocol and if the order comes through in that protocol then it gets swapped. We can keep it in our wallet and source orders from four, five, six, seven, eight different protocols. Everything comes in. If there's a if there's a bid that gets into our liquidity, then it pulls from our wallet. And so we turn, you know, this $10,000 from one pool into $10,000 for eight pools, which in theory would increase the potential trading volume

and therefore increase the potential trading fees that our liquidity can generate using the same amount of principle. And so my I I mean this is this just feels like, you know, a massive innovation. I I have a a couple different questions. You know, one is I guess how extensible is this solution? I have, you know, according to this press release, I believe it's live on 13 different EVM chains. You guys have been running this in DevNet for quite a while and there's a breadth of assets across, you know, the the onchain ecosystem now. Do you see a world as we progress more into the institutional era, you know, RWAS, tokenized equities, stock tokens are becoming more and more ubiquitous. Do

you see a world where I can hold Apple, Nvidia tokenized equities, but I can generate yield from the trading fees of people trading these onchain? What do you what do you think we can expect in terms of the yield that we can produce and and from from holding some of these equities? >> You can do it already. you can go to Robin Hood chain and create your autoblaze positions and it it's kind of um good capital efficient uh compared to liquidity pools in liquidity pools you would just need to put into different you you have to split your 10,000 USDC in smaller pieces and put every in every pool yeah but here you have like one wallet and multiple strategies on the same liquidity and based on our research

with Jun together um we came to that 85% of the liquidity sits idle So just imagine like uh $8,500 um of eur US dollars wouldn't work in the liquidity pool but you can make it work by having additional um trading pairs to other tokens what what are what have volume so right now if you go to Robin Hood chain and you buy all the um tokenized uh stocks um auto blaze and you create between them um positions yeah and you charge maybe even one percentage fee So um you will get any anyway volume because arbitr arbitrage traders trade and all the stocks they're moving not

all together right of course like if the whole market moves then everything moves. Yeah. Uh but they move normally like not depending to each other and this is the beauty uh compared to to the crypto assets like double double like bitcoin and ethereum they most of the time they move in same in the same direction. Same with the uh blue chips, D5 blue chips and me like memecoins. So yeah, this is another story. Uh but they move you know the blue chips move together with Ethereum and Bitcoin. Yeah. And you know and here we have like less energy compared to other blaze where they move like this and we have much more energy and this energy is actually the volume from what you can earn um by creating strategies. And I

think this is the next really big step for for the web three space that we got great adoption of uh trading ras 2447 and uh allowing people uh not just only earn on on the investments in araas in stocks for example um but also for the volumes what comes through yeah it's kind of open finance yeah and open Lego money, Lego finance. >> It's uh it's pretty incredible to see.

Do you do you have an idea of you know what currently, you know, from some of this data? And we can we can do the research into this data, but you know, on some of the more popular pools from the the research that you've done, what was the typical, you know, 365day average yield that someone could get from providing liquidity and how much could it increase with the same liquidity in Aqua? So our back test is uh not in kind of APR or APY. Uh it it's b based on the kind of uh estimated earnings. So and u it depends on the amount of um um the pairs you set and the uh right um uh fees you set. Yeah. So um

based on the on the report um the um good fee is around four three to four percentages um three three to four uh beeps >> uh fees um even for um Ethereum to use DC pairs um and the more you have additional um pairs the more is the utilization of your assets. Yeah. um in these price ranges and the more you earn. So I've seen like um there was um um like six six positions uh test unis swap up against aqua and we got um up to 4x

uh more efficient uh fee fee generation. But again here not at all financial advice it's just a simulation of the data from the last 365 days. Um and uh we will see we will see we we introduce a leaderboard. It's also really a nice thing what for your community you can see yourself in the leaderboard um where you are right now with the um with the know what position you are based on the volume you generate. >> So it's not like based on the TVL we have no TVL right um it's not based on the yield what you earn uh it's just on the volume. So the more volume you get um the more you would earn and you need to find the the the right um

settings for fees. Yeah. And here we also we will launch alo research for for um or mathematical formula what we came to how to calculate the right uh combination of u of the price range and and the fees as well. But again here not financial advice it's just technical thing. Yeah. No, [snorts] no financial advice anywhere in here. But the the last question I have for you, Sergey, is you know, and you don't want to give you don't want to let the cat out of the bag, but you know, maybe for our communities, is there any pairs that you think are particularly inefficient right now that you know someone can come in and they can make more efficient with their liquidity? What? Yeah. What do you think? So um what I did um I I did like

deep research into into like what markets exist what pairs and I I visualized it in 3D. So uh based on this visualization you can see what are the lowh hanging fruits potentially I will publish it under uh my own domain d6.com so everyone can just look on that and maybe discover um so it's kind of um there there are some blocking fruits there are some pairs they are very very liquid and it's very difficult to compete with them but anyway you will get arbitrage volumes so if they move if the price moves you get arbitrage so if you have 1%age fee for um tokens like Uni for example or a even a you have seen like huge pump huge done um um and

again like um good healthy growth you you could earn that yeah but just having a to um to USDC um and you could you could earn good amount of money of that again not financial advice at all. [laughter] Fantastic, Sergey. Uh, congratulations on uh, first surviving in the game for so long. I mean, so many people have pivoted to AI and different places, but you're a true OG. You've been here for the long haul. Uh, so congratulations and, uh, congratulations on the launch of Aqua, the shared liquidity protocol. Uh, everyone can find that uh, on the 1-inch website aqua. And so we encourage everyone to go check it out. Uh, you guys did a bunch of research, a lot of data collections. uh there's a lot to

learn through and also the incentives that are now live. Uh you mentioned uh you know these things going on for the next three months. So thank you so much for joining. Absolute pleasure and uh congratulations on the launch of the new protocol. >> Yeah, thank you very much. It was a pleasure to be here.