ARC: Add 1INCH as collateral

Governance New Asset
1

Summary

1inch is a network of decentralized protocols designed to provide the fastest and most efficient operations in the DeFi space. 1inch Network was launched in May 2019 with the release of its Aggregation Protocol V1. Since then, 1inch Network has developed additional DeFi tools such as the Liquidity Protocol, Limit Order Protocol, P2P transactions, and 1inch Mobile Wallet.

This proposal seeks to onboard the 1inch Network token (1INCH) as a collateral asset in Aave.

Motivations

Launched in 2019, and with over 60% of the market share, the 1inch Aggregation Protocol is both the oldest and most trusted DEX aggregator in the DeFi space. The 1inch Network’s metrics are below (source):

  • Total trading volume: $160B
  • Total swaps: 5.91M
  • Total users: 1.25M

1INCH token is the governance and utility token for the 1inch Network. 1INCH has a circulating market cap of $500M, a daily trading volume of $50M+, and is currently listed on highly liquid centralized exchanges including Coinbase, Binance, FTX, Gemini, and Kraken. In addition to the spot markets, 1INCH also has perpetual markets on the centralized Binance and FTX exchanges, as well as the decentralized dYdX exchange.

The mint function for 1INCH was recently burned by the 1inch Foundation – the future supply of 1INCH will not exceed the 1.5 billion amount described in the original distribution schedule.

In December of 2021, 1inch Labs completed a $175M funding round for 1inch Network Pro development. This was done via a direct token sale to accredited and institutional investors.

Benefits to Aave Community

  • 1INCH is highly liquid.
  • 1INCH is not yet listed on any decentralized lending platforms, so Aave will have a first-mover advantage.
  • 1INCH is listed on several perpetual markets – there are robust centralized and decentralized price oracles for 1INCH.
  • 1INCH has a wide set of token holders ranging from early adopters, who were airdropped the token for free back in December 2020, to accredited and institutional investors, who bought the token in the subsequent funding rounds.

Resources

Specification

1. What is the link between the author of the AIP and the Asset?

RoundElephant is a community and governance Core Contributor for the 1inch Network.

2. Provide a brief high-level overview of the project and the token

1inch Network is a decentralized set of protocols that aim to improve the efficiency of the DeFi space. The 1INCH token is used to govern the protocols and is also in control of the protocols’ revenue stream. 1INCH has the added utility of providing stakers with subsidized transactions via the gas refund program.

3. Explain the positioning of the token in the AAVE ecosystem. Why would it be a good borrow or collateral asset?

1INCH governs the largest aggregation protocol in the EVM space.

1INCH is highly liquid in the spot market and has perpetual markets on Binance, FTX, and a decentralized perpetual market on dYdX.

1INCH has a wide set of token holders ranging from early adopters, who were airdropped the token for free back in December 2020, to accredited and institutional investors, who bought the token in the subsequent funding rounds. Currently, none of these holders have a way of tapping into their equity without selling.

On the demand side, users can borrow 1INCH to participate in the gas refund program, or support specific governance proposals.

4. Provide a brief history of the project and the different components: DAO (is it live?), products (are they live?). How did it overcome some of the challenges it faced?

The 1inch Network was founded by Sergej Kunz and Anton Bukov over the course of the ETHGlobal New York hackathon in May 2019 with the release of its Aggregation Protocol V1. Since then, 1inch Network has developed additional DeFi tools such as the Liquidity Protocol, Limit Order Protocol, P2P transactions, and 1inch Mobile Wallet.

  • 1inch Aggregation Protocol: The 1inch API v4, Pathfinder, is a cutting-edge discovery and routing algorithm, which offers asset exchanges at the best rates on the market. Pathfinder finds the most efficient paths for a token swap, able to split between different protocols and even different market depths within one protocol in the shortest possible time.
  • 1inch Liquidity Protocol: 1inch Liquidity protocol (previously called Mooniswap) is an AMM that aims to offer capital-efficient liquidity positions while protecting users from front-running.
  • 1inch Limit Order Protocol: 1inch limit order protocol is a set of smart contracts that allows users to place limit orders, and RFQ Orders, which later can be filled on-chain. Both types of orders are a data structure created off-chain and signed according to EIP-712. Key features of the protocol are extreme flexibility and high gas efficiency.
  • P2P Transactions: 1inch Peer-to-Peer allows two users to make an over-the-counter style trade of any ERC20 token.
  • 1inch Mobile Wallet: The 1inch Mobile Wallet is a fast and secure crypto wallet with a built-in DEX aggregator and an easy interface for secure storage and transactions.
  • Supported Networks: 1inch protocols are deployed on the following EVM networks: Ethereum, Binance Smart Chain, Polygon, Arbitrum, Optimism, Gnosis chain, Avalanche, and Fantom.

5. How is the asset currently used?

1INCH is currently used as a governance and utility tool for the 1inch Network. Since November 2021, all revenue collected from the 1inch Aggregation protocol is sent to the 1inch DAO Treasury. The 1inch DAO has full control over the treasury and the 1INCH token is used to govern the decisions made by the DAO.

Holders of the 1inch Network token may stake it in the 1inch DAO governance contract and participate in general proposals, Instant Governance, or benefit from the gas refund program.

6. Emission schedule

The 1INCH distribution and token unlock schedule can be seen here.

Of the 1.5B total future supply, 415M 1INCH are currently in circulation. The remaining tokens will be gradually unlocked until December 2024 (when the maximum supply of 1.5B is reached).

Uncirculated 1INCH is held in on-chain vesting contracts. v1INCH is the non-transferable ERC-20 which represents 1INCH tokens currently locked in the vesting contract. There are 1.07B v1INCH (these are included in the 1.5B total future supply).

7. Token & protocol permissions and upgradability

The smart contracts of 1inch Network are immutable and cannot be upgraded – new versions of protocols require the deployment of new contracts. Specific protocol parameters can be dynamically changed by DAO participants via Instant Governance.

The 1INCH token is non-upgradable. The token’s mint function, previously controlled by a mutli-sig, was recently burned – there will never be more than 1.5B 1INCH.

8. Market data (Market Cap, 24h Volume, Volatility, Exchanges, Maturity)

9. Social channels data (Size of communities, activity on Github)

10. Contracts date of deployments, number of transactions, number of holders for tokens

  • Date of Deployment (Token): Dec-23-2020
  • Number of Transactions: 580k+
  • Number of Holders: 87k

Risk Factors

A comprehensive list of 1inch Network smart contract audits can be seen here.

Risk Quantification

Edit: @Governance_House performed a more detailed risk assessment than the one I initially had here:

Temperature Check Poll

  • (YES) – Add 1INCH as collateral
  • (NO) – Do not add 1INCH as collateral
0 voters
10 Likes
2

For some context, here is a related discussion from last year: Proposal: Add support for 1INCH Token.

At the time, @monet-supply brought up some risk concerns that have since been addressed by the implementation of the following:

1. 1INCH vesting contract

The Step Vesting contract allows for the on-chain distribution of vested 1INCH based on the predetermined vesting schedule – v1INCH is the token used to represent vesting 1INCH. This improves transparency to the vested 1INCH distribution.

2. 1INCH supply concentration

The total holdings of 1INCH and v1INCH by the 1inch Foundation’s mulit-sig is now only ~17 of the total supply instead of the 88% of the supply cited in the original discussion thread.

3. 1INCH mint function burned

On April 6th, 2022 the 1inch Foundation burned the mint function of 1INCH with this transaction.

4 Likes
3

Great idea. 1inch x AAVE :+1::fire:
Hope the 1inch community and AAVE community support this.

4 Likes
4

Having $1INCH listed within AAVE could be quite powerful, I can see plenty of synergies there. Definitely in favor of this proposal!

6 Likes
5

good too see u I hope your statagy is so good

4 Likes
6

Let’s make this happen! 1INCH token listing on Aave would be mutually beneficial for both 1inch and Aave communities, and would further strengthen the DeFi space as a whole.

Thanks so much @roundelephant for putting this together and getting the ball rolling :fire: :unicorn:

4 Likes
7

Thanks for the feedback everyone!

I just made some edits to the post:

  • Added the AAVE Rick Quantification Criterion to the Risk Factors.
    • This uses historical market data as of May 12th, so it reflects the volatility of the past week.
  • Added a temperature check poll to gauge community sentiment.

If there is anything else I can provide to help the community evaluate onboarding 1INCH as an asset, please just let me know!

4 Likes
8

When can we expect the snapshot vote to start?

2 Likes
9

Hi @roundelephant

Thanks for these details and addressing @monet-supply comments.

Its great that the tokens have moved away from 1inch foundation multisig, yet the token distribution is still concerning. Could you please provide a break down of the non circulating supply? Who holds them: team, investors? When will they enter in circulation?

Combining data from Etherscan and Nansen, I’m finding the below split across holders

Screenshot 2022-06-21 at 12.47.02

Over 60% of the tokens are vesting. Among the 81 wallets holding more then 2.5m 1INCH, 75% are vesting. The unvesting will change market dynamics and impact price. Could you please share a detailed unvesting calendar?

What are the 1inch wallets identified in Nansen as 1inch Multisig, 1inch Gov and 1inch Distributors. What is their purpose? Who controls them? Who are the multisig signers?

2 Likes
10

Hi @Alex_BertoG, thank you for the comments!

The token unlock and distribution schedules can be seen here. The unvested tokens are controlled by a combination of 1inch core contributors, the 1inch Foundation, and backers. The maximum circulating supply of 1.5B 1INCH will be reached no earlier than December of 2024. Here is the Etherscan link for the vesting tokens.

Note that the vesting contract does not automatically distribute tokens and it requires action on the part of the vestee in order to actually claim the tokens (convert v1INCH to 1INCH). Some with vesting tokens do not take this claim action at every opportunity so that is the reason for the discrepancy between the ~500M 1INCH currently in circulation vs. the ~700M 1INCH that the unlock schedule shows should be in circulation as of June 2022.

What are the 1inch wallets identified in Nansen as 1inch Multisig, 1inch Gov and 1inch Distributors. What is their purpose? Who controls them? Who are the multisig signers?

I hope this addressed your questions but let me know if you want further clarification on anything. Thanks!

1 Like
11

1INCH - Risk Assessment

Smart Contract Risk Counterparty Risk Market Risk Overall Risk

image
image1076Ă—259 12.5 KB

General

The 1inch Network was launched at the ETHGlobal New York hackathon in May 2019 with the release of its aggregation protocol v1. Since then, the 1inch Network has also launched the Liquidity Protocol, Limit Order Protocol, P2P Transactions and 1inch Mobile Wallet. The 1inch Network is composed of three independent entities, the 1inch Foundation, 1inch Core Contributors and 1inch DAO that each operate separately.

  • 1inch Foundation is a non profit organisation with the goal of fostering 1inch Network growth and support initiatives that benefit the 1inch community. The foundation issued the 1inch token, however the 1inch DAO has control over the smart contract. The 1inch Foundation holds around 28,188,355.56 1INCH tokens via a 2 of 3 multisig.
  • Core Contributors are a decentralised group of 1inch Network technical contributors dedicated to building out the 1inch Network. The largest contributor of the Core Contributors is 1inch labs.
  • 1inch DAO governs the 1inch Network through a set of on-chain smart contracts. The 1inch DAO has control, amongst others, over the 1INCH token, DAO Treasury, 1inch Network Protocols and the revenue streams generated by those protocols. Do note the 1inch Treasury only holds USDC at the time of writing.
    • 1INCH: The un-staked version of 1INCH does not have the ability to vote on governance proposals.
    • st1INCH: A non transferable ERC-20 which represents 1INCH staked within the 1inch protocol’s governance contract. This has a Voting Weight of 100%. There is no time commitment or waiting period upon entering or exiting the contract respectively.
    • v1INCH: This is an ERC-20 which represents 1INCH tokens that are currently locked in the vesting contract. These tokens are held by backers, advisors and core contributors but are not yet fully-vested. Each v1INCH has 1/5th (20%) the Voting Weight compared to st1INCH.

The 1inch DAO earns its revenue in the form of USDC via the Swap Surplus collector which deposits the funds in the DAO’s treasury. A Swap Surplus occurs when a User performs a swap and the price terms change between when the swap was quoted and when the transaction was mined on the network. The majority of the Swap Surplus is swapped for USDC and sent directly to the 1inch Network DAO Treasury.

Relevant addresses are linked below:

DAO Treasury: 0x7951c7ef839e26F63DA87a42C9a87986507f1c07
1inch Foundation: 0x5E89f8d81C74E311458277EA1Be3d3247c7cd7D1
1INCH: 0x111111111117dc0aa78b770fa6a738034120c302
st1INCH: 0xA0446D8804611944F1B527eCD37d7dcbE442caba
v1INCH: 0x03d1b1a56708fa298198dd5e23651a29b76a16d2
Chainlink Oracle: ​​0x72AFAECF99C9d9C8215fF44C77B94B99C28741e8

1INCH Smart Contract Risk:

The 1INCH token was launched on 23rd December 2020. Since then it has done over $250B in trading volume with the number of Users approaching 3M.

The 1INCH token is an ERC-20 token with no governance influence held by around 88,475 wallets and the staked INCH token, st1INCH, used for governance is held by around 5,391 wallets. The staking contract holds 20,218,800.81 INCH tokens at the time of writing.

The 1inch Foundation, although a 2 of 3 multisig has transferred out the vast majority of 1INCH token from the wallet. The current value of the 1inch Foundation wallet is approximately $15M and all 3 signers are on at least one other wallet which is also 2 of 3 which holds a similar value.

On April 6th, 2022 the 1inch Foundation burned the mint function of 1INCH.

There is an extensive list of audits available on Github.

Relevant addresses are linked below:

Audits: GitHub - 1inch/1inch-v2-audits
1inch Genesis: 0x9825b9f083ba43112afd66dbcfbbf770e24bc21ff4128ce24ddbda171d79ae2f
Burn 1INCH Key Transaction: 0x8799998e32cf58f4939a1fb21b3e679f1cc4598b26b73bfea6f265fa5426d511

1INCH Counterparty Risk:

1inch is a permissionless protocol where 1INCH holders do not have a say in how the protocol or DAO is governed.

Holders of the 1inch Network token may stake it in the 1inch DAO governance contract and participate in general proposals, Instant Governance, or benefit from the gas refund program.

The st1INCH token is used for governing the DAO and although there is no revenue sharing like with xSUSHI there are economic rewards/incentives for those who hold the token. st1INCH token holders receive up to 100% of gas expenses refunded, depending on your stake size. Under this program, 1INCH tokens are distributed as a gas refund to Ethereum users who stake 1INCH tokens through the 1INCH dApp. Borrowing 1INCH with the intent to receive a gas refund is a useful utility.

Users who stake 1INCH receive st1INCH which is non transferrable and used for governance. If a malicious actor was to borrow 1INCH, stake to receive st1INCH and then try attack the DAO’s treasury, then the Treasury Multisig 7 of 12 can veto the proposal during the 72 hour timelock period post successful Snapshot vote. This measure provides a level of protection for the DAO’s Treasury funds which are nominated in USDC. Any malicious attack on the DAO Treasury would not lead to the actor selling 1INCH on-market and this scenario would not create bad debt by moving the spot price of 1INCH.

Risk Parameters:
As of 18th June 2022 for 1INCH:

Parameter Value
30 Day Average Daily Volume $58.4M
30 Day Average Daily Volume $73.1M
90 Day Average Daily Volume $78.0M
1 week Normalised Volatility 0.05507
1 month Normalised Volatility 0.04442
3 month Normalised Volatility 0.05669
6 month Normalised Volatility 0.05198
1 year Normalised Volatility 0.06044
Parameter Vaue
Collateral Yes
Borrowing Yes
LTV 60%
Liquidation Threshold 75%
Liquidation Penalty 7.5%
Reserve Factor 20%
UOptimal 45%
R_0 0%
R_s1 7%
R_s2 300

Relevant addresses are linked below:

https://docs.1inch.io/docs/governance/dao-treasury
https://docs.1inch.io/docs/governance/proposal-lifecycle
https://docs.1inch.io/docs/governance/instant-governance
https://blog.1inch.io/the-1inch-foundation-will-distribute-10-mln-1inch-to-the-defi-community-as-gas-cost-refunds-2dd35a6a084f

General Comments:

At the time of writing, there are 535,985,403 units of the 1.5B units in circulating supply worth $303,701,283 on the 19th June 2022. 1INCH has a fully diluted market capitalisation of $849.9M. Of the 1.5B 1INCH tokens, 63% are vested in the form of v1INCH. The distribution of v1INCH is fairly concentrated, with the 1inch Foundation holding 23.64% and the next 9 top holders holding around 37.5% of the v1INCH supply. The Top 10 v1INCH holders effectively hold 37% of 1INCH supply. The vesting schedule started during December 2021 and concludes December 2024.

The concentration of the 1INCH tokens distribution creates a risk for lending markets as large illiquid positions can be used as collateral and liquidators may not be able to effectively clear bad debt from the system due to the size of the position relative to on-chain liquidity. Implementation of a Supply Cap would enable the Aave community to mitigate this risk by restricting the quantity of 1INCH in the lending pool which can be maintained via the governance process based upon secondary market liquidity conditions. To implement this mitigation the Aave v3 market needs to be deployed on mainnet. The Aave community can elect to proceed with a Aave v2 listing in line with the risk parameters detailed above with Gauntlet to offer further refinement in time or await Aave v3 on mainnet utilising the supply cap.

Other considerations, the 1INCH token is listed on several Centralised and Decentralised Exchanges with the main liquidity source being on 1inch liquidity pools. The 1INCH token has a Chainlink oracle price feed, good volatility results and there is solid trading volume for 1INCH. This is all very favourable for listing the asset on the Aave markets as collateral.

4 Likes
12

Thank you for the detailed Risk Assessment @Governance_House! I’ll edit my original post to refer to this one instead of using mine.

All vesting contracts are publicly available on-chain. For a good example, let’s look at the StepVesting contract of the largest v1INCH holder – the 1inch Foundation.

From the Foundation’s StepVesting contract on Etherscan, we can see the following variables:

  • started = 1606824000 (Tue Dec 01 2020 05:00:00 UTC-0700)
  • cliffDuration = 365 days
  • stepDuration = 182.5 days
  • numOfSteps = 6

The cliff ended December 2021, so all of the Foundation’s v1INCH will be fully claimable come December 2024 (262,500,000 in total over the course of the contract).

We aggregated the unlock data for all existing v1INCH contracts and charted it below. Y-axis is token quantity in millions, X-axis is time –

2022-07-01 20.14.43
2022-07-01 20.14.431236Ă—1160 29.8 KB

It is important to note a couple things:

  • The 1INCH supply will only increase once the recipient chooses to claim the 1INCH. Some v1INCH holders have not claimed 1INCH at steps when they could have (which is why the current circulating supply of 1INCH is only ~550M when the token unlock schedule shows it could be as high as ~700M at this point).
  • This chart does not count the initial 1INCH tokens that were minted in late 2020 (add those to this to get to the 1.5B supply cap).
4 Likes
13

From my perspective, it makes sense to proceed to the Snapshot step of the listing.
My rationale:

  • The 1Inch community has been really respectful in terms of timing since the first listing proposal and clearly trying to “accommodate” to risk-listing requirements on Aave, for example removing minting roles on the token.
  • The progressive nature of the vesting discussed previously in the forum seems protective enough in what concerns big amounts of tokens going to the market.
  • The asset has a relatively healthy market, combined with staking utilities.
  • As a more high-level aspect, 1Inch is one of the main players in the DeFi ecosystem and has been supportive with Aave since V1 (and before even), for example by creating more use cases for aTokens. We as a community should always take that into account.

In what concerns the proposed parameters, I would probably start a bit lower than the proposed ones, given that for example assets like AAVE on Aave v2 Ethereum have lower risk configurations, even having a bit better market metrics (e.g. liquidity).
Maybe 55% LTV, 65% Liquidation Threshold and 10% Liquidation Penalty, targeting a progressive increase over time. But could be important to have an opinion from Gauntlet about this.

8 Likes
14

Hi Everyone,

We created a Snapshot for listing1INCH on Aave.

Snapshot ARC: Add 1INCH as collateral

6 Likes
15

@eboado @Governance_House @roundelephant - Gauntlet will provide analysis and initial parameter recommendation by Friday, July 8th at 5 PM ET.

2 Likes
16

Hi @Pauljlei,

Fantastic news! The snapshot vote finishes just after this time so we will be able to use Gauntlet’s risk parameters in the asset listing. The payload is written and tested, so we will be moving to submit the AIP soon.

1 Like
17

Gauntlet Parameter Recommendation

We leverage Gauntlet’s asset listing framework (which we are tuning for Aave). We considered the following metrics and assessed the risk factors based on the existing params of other assets on Aave (like UNI).

  • Combined (CEX+DEX) slippages for 1INCH to measure how the markets can absorb $300k or 10% of total supplies (since the asset hasn’t been listed yet, we are leaning on 300k before real supply data is available)
  • User distribution
  • Average daily trading volume (ADV)
  • Market Cap
  • Other DEX metrics
  1. The potential price slippage for a large 1INCH sell order ($300k) is around 1.45% for 1INCH/ETH pool on 1inch. With combined (CEX+DEX) liquidity, the price slippage for 1INCH is smaller.
  2. The top liquidity pools of 1INCH on Ethereum DEX are Uniswap V3 and 1inch liquidity pool.

  1. For all the other general market data, we ingested all the information from Messari and Coingecko. Based on real on-chain data, 1INCH is more volatile and risky than comparable assets like UNI due to smaller market cap, smaller & volatile ADV, and more centralized token distribution:

    a. The market cap for UNI ($2.5B) is around 7X higher than the one for 1INCH ($350M) in the recent one month.
    b. The volatility of UNI (1.3-1.4) is greater than the volatility of 1INCH (1.08).
    c. The ADV of 1INCH is volatile, but it’s mostly 30-50% of UNI ADV.
    d. The circulating supply (CS) of UNI is around 456M, and the CS of 1INCH is 559M (denominated in native tokens), which are at the same scale. Based on the token distribution, the 1INCH token holders are more centralized than UNI token holders, as UNI has more active addresses but fewer whales.

As with our recent recommendation on rETH, we strongly recommend that assets not be listed as collateral on the initial listing, and instead observe how real supplies and borrows shape up before listing as collateral.

However, if the community still wishes to list 1INCH as collateral on the initial listing, we would recommend more conservative parameters than what is currently given in the snapshot vote (these can be tuned up as long as it is safe to do so as part of our ongoing dynamic risk parameter optimizations):

  • LTV: 40%
  • liquidation threshold: 50%
  • liquidation bonus: 8.5%
  • RF: 20%
3 Likes
18

Thanks a lot for these risk parameters suggestions.

I personally think there’s no use-case nor market demand for a non-collateral 1INCH token onboarded protocol.

That being said I’m in favor of the more conservative risk parameters suggested, as such, and to reflect recommendations, I switched my vote in the current Snapshot from “YAE” to “ABSTAIN” and will support a new snapshot requesting the newly suggested risk parameters.

5 Likes
19

Thanks for providing the risk parameters @Pauljlei.

I agree strongly with @MarcZeller here.

To avoid any confusion, I will rerun the Snapshot with revised parameters, as shown below, to ensure the asset is fully endorsed by the community:

Parameter Vaue
Collateral Yes
Borrowing Yes
LTV 40%
Liquidation Threshold 50%
Liquidation Penalty 8.5%
Reserve Factor 20%
UOptimal 45%
R_0 0%
R_s1 7%
R_s2 300

Please note, the Snapshot does state “Risk parameters can be found on the forum thread linked below” due to character limitations of the Snapshot post being to long.

Any chance Gauntlet can use that linked Compound work and generate a similar post that can be shared on the Aave forum ? I think the same discussion for rETH will be had around listing assets with zero LTV ratio.

Matthew Graham

5 Likes
20

Gauntlet will be publishing an asset listing framework for Aave - we will keep the community posted.

2 Likes