How 1inch Is Putting DeFi's Idle Liquidity to Work With Aqua

Transcript

Institutional score want to provide liquidity in a specific environment like maybe Robin Hood chain and maybe even audible ace. They don't want to mix own funds with other people funds, right? Because there's also some hackers and maybe sanction people and you are cool as is isolated. You are with own position. The settlement on aqua is done by professional market makers who are passing specific compliance checks from one inch balance team and also passing through QIB. >> Hi everyone. Welcome to a special Unchained paid partnership interview. My name is anchor Beganski and I'm here today with one inch co-founder Sergey Coons to discuss aqua a shared liquidity

wire for D5 that just debuted across 13 [music] networks. Welcome Sergey. >> Hi everyone. It's a pleasure to be here. >> Heads up everyone. This conversation is sponsored content paid for by one inch. It's produced in partnership with them separate from Unchained news One inch is one of ethereum's most prominent decentralized exchange aggregators and today you launched aqua a product that is meant to offer an alternative to D5's traditional pool based model. What problem were you trying to solve for users with aqua?

>> So I actually solve my own problem. I faced multiple times problems in you know solve the liquidity pools. I provided some liquidity and I played around with the maximum acceptable price impact and somehow like I forgot to reset it. And I got sandwiched by providing liquidity and lost like 10 ethereum or something. Uh kind of uh it's it's a technical by math bots. It's it's kind of a problem. Um Additional problem with the first is liquidity provider as well. Um are the adjusting time liquidity provisionings from math bots.

So when you sit in the pool and there a big trade is coming to the pool and there's a mathbot jumping in into the liquidity pool before the trade with a lot of money. And after the trade, it removes the liquidity, so you you don't get almost anything from from from the swap. Um and the fact that you get diluted with like with sitting with the others in in the in the liquidity pool with the piece what are defined by the by Uniswap team, you know, like you can only choose 30 bips, five bips, one bip, you know, one percentage. But, you know, if you do proper analysis of the market and we did deep research

of it, one of it we we reported with together with June where we are highlighted that 85% of the liquidity sits actually idle. It's participating in the price formation, but actually it doesn't move at all in like 95% of of the time in a year. So, and we were thinking like like how we can address all these problems. We did already long research from 2021 when we introduced limit orders. We built some strategies for limit orders.

What allowed you to sell in in in price range, yeah, in in one direction, for example. Um somehow we didn't continue to work on that, but um I think right now is the right time for for for this um approach since we have much more liquidity. Also from institutionals coming in with other ways and this demand for more efficient on higher utilization of liquidity. So, we came to the idea, okay, like we we have we have really good in intense. We have our intense by swaps. We have the intense by Christian swaps

highly atomically and non-custody. And then we would told like why not to make liquidity provision also based on intense. And this is at the end kind of just like a strategy, you know? You you define a strategy, you say okay I I'm okay to buy this asset until this price and I'm okay to sell it until this price. And I want to charge specific amount of fee. And how much you should charge it should not be good feeling. Yeah? It should be based on on on the historical data based on the trend and based on um um the market situation. Market situation can change. So you should be able to to close all your positions with one single transaction. This will every

like such things are um um possible to to to do on on Aqua. Um we have benefit that uh you don't need to distribute your liquidity into different pools. Um if you look into into Uniswap if you have like 10,000 USDC and you want to provide liquidity, you need to split it. Yeah? If you if it's only one pool, you have to split it by half then you to to disperse um USDC Ethereum maybe. And then if you want to provide USDC to uh WBTC, you cannot. You need to reduce your amount what you put in the pool so you it is your liquidity gets very fragmented.

So and in our protocol you can just keep your assets in your wallet. You have all the benefits for example you can participate in Uniswap governance with your UNI token because they're on your wallet. Yeah? At the same time you can uh uh have a position to uh for UNI Ethereum in a specific price range and it moves like if you look in your history of data what we provide in our interface, you see what happened like in the last 6 months with the price. How how it moved and then you can set your price range in the right manner so so you stay kind of a range and always and can also utilize the utility of the token. There are some some other really

nice uh solutions as well for looping. Looping on Aave V3 kind of I love it very very much. Today I built out of my position three three to four time a leverage with like just same assets like you can deposit wBTC for example in Aave. You can borrow cBTC and you can deposit again. And you can just loop it multiple times and then you have like three to four x and then you put aqua position on that just on Aave tokens. All the arbitrage traders market makers who participating in Managed Network after passing KYC and

compliance check from the team. Um they can settle it and they they they're okay with settling it in Aave tokens, you know, it's it's kind of they don't need to Um these are not like retail users something these are professionals who know how to do that. So when you get trades, you know, and you made out of your 10 10k you you can make 30 to 40k. Means you could earn three to four times more fees, yeah. Mhm. So this is the idea and kind of of like aqua.

>> Sergey, I appreciate the overview and there's some details that you just mentioned that we're going to dig into now and later in the segment. First off, you mentioned this research that was commissioned by Dune showing that 85% of concentrated liquidity was underutilized this year. Is this an ecosystem-wide issue and why do you think it's the case? >> Yeah, it's like on every chain the same because they use the same design. Yeah, smart contract custody, you need to put into smart contract your assets.

Um and the assets are isolated. Yeah, so and cannot be shared. So and actually this shared security approach becomes more famous I would say. Today I am I have seen that last week Uniswap launched um the dual dual pool hack hook hook. So what is a collaboration with the Spark. Um and it's kind of use also the shared liquidity approach. So it's very nice to see that what we launched in November last year as a developer release of Aqua and now getting adoption also by Uniswap team. So um Yeah um

and the design of shared liquidity allows you to utilize on the same assets in multiple positions in the same time. It's kind of really beautiful and increase the utilization. >> You know, you talk about that idea, multiple positions sort of happening at the same time. Can you talk about how that's able to happen without the creation of debt or anything like that? >> Yeah, um just you have to just normal wallet.

One big thing what we also introduce with this Aqua releases uh the uh I call them sub wallets. You know, like you have a wallet you have maybe like 20K in a wallet, but you don't want to risk full amount of of your assets, right? So and you are okay only to to gamble with gamble, yeah? Um with 10K you can create a sub wallet. And sub wallet in the form of Gnosis Safe. Yeah? You can add it if If already in a Gnosis Safe or you just create one, with a beautiful address even. Yeah, you can just mine your beautiful Gnosis Safe address. It's also kind of um thing what I like called it in my free time. Um So um

yeah, and then uh you can isolate your assets in in a sub-wallet as Gnosis multi-sig. And then next like normal wallet on on 1inch. Um so, and then you can uh you have your different assets. You have maybe like six assets. And then you can um create among assets uh co- trade combinations like trading strategies. It's like virtual MM pools, but they're only kind of virtual. And um uh these are just only allowance for market makers to trade on your assets based on specific conditions.

It's like an uh like an uh trading bot what you run on a wallet. And your rules are written in smart contract. So, and it works 24/7. And you don't need even to run a computer for that. >> You know, you talk about this from the perspective of how it could potentially or is meant to benefit users. And I'm just curious like how do you think this product could affect Ethereum's ecosystem at large? >> Uh I think it it will affect the web 3 space in in in general. Um you see um the adoption of Auto Blaze.

Uh Robinhood launched on on a layer 2 um based on Arbitrum technology, right? And um they have Auto Blaze. Binance have Auto Blaze. Um on the X stocks. So, and this kind of a problem of um um a lack of liquidity. They of course they are they are market makers uh who are integrated in 1inch in 10 best swaps. Um or um offering to mint on demand Auto Blaze. Um but there's no kind of secondary market. And it's kind of difficult to build it because the small amount of liquidity. So, and this secondary market can be built by a user itself. Like I as person can just buy all the outer blase.

And the beauty of outer blase is compared to to the blue chips or if you don't Bitcoin, blue chips and Ethereum and Bitcoin moving in the same direction at the same time. Sometimes they they like move maybe slower, but they come then back, you know, and it's it's like moving like this. Yeah, all the prices are same. Yeah, up down up down. Outer blase, they're all different, right? So, Nvidia goes up, SpaceX goes up, something goes down, and this energy between move this price move price movements, you can catch by by taking this outer blase, putting on your wallet,

creating upper strategies among them, and you can earn on on the volume that goes through through through the ecosystem of of this blockchain. >> Mhm. Well, I would love it if you could just describe how Aqua actually prices and executes transactions compared to what you see with classic AMMs. >> Yeah, so Aqua is not executing anything. Aqua is just in ten in ten based protocol for liquidity provisioning. You define what strategy you want to create. For example, you have some Ethereum, you you have some USDC, and you would like to to to create a trading strategy um for specific price range. You are okay to

buy Ethereum if it drops up to 15 percentages, and you are okay to sell Ethereum until 12,000 USD dollars where you will see Ethereum very soon. So, not financial [clears throat] advice, of course. >> Another component I wanted to ask you about is why was this product designed in a way that prioritize self-custody? >> Uh, everything what we build is self-custody at 1 inch. So, there's no service what is custody at all um and uh even um uh we try to to work with the wallets uh to introduce clear signing what we did for Flagger uh if you have seen the announcements.

So, uh clear signing is when you see when you get to the transaction on your wallet, you exactly understand what understand what you are doing. For example, you're creating position on Aqua uh in specific price range, uh under specific current market rate, and a specific fees what you are charging, and and the amount you you you choose. So, >> Um yeah, do you feel like there's any risks worth highlighting when it comes to Aqua or just the idea of providing liquidity in DeFi at large? >> Uh for sure, there are some risks like uh everywhere. And uh to address this exactly, we launched under um uh 1inch Aqua um 1 1inch.com/aqua/learn.

Uh it's a learn page uh where you can search if you have a question. Um you can see uh how what what strategies are there, concentrated liquidity, full range liquidity, a packed uh um formula for um for stablecoin pairs. So, um there are some explanation what what what reasons you have as uh so someone who use the strategies. So um of course, everyone should educate themself uh understand really what what you're doing, yeah? Um what impact could happen, and uh of course, from the protocol side, uh kind of um we did maximum effort as a core contributor team uh with a lot of security audits. We have eight security

audits. It cost huge amount of money. We were lucky that uh we got funded uh for the security audits from the DAO, so DAO now uh um, kind of uh uh, help to bootstrap the the protocol itself. Uh, so uh, we were able to launch it. Uh, so yeah. >> Shifting gears a little bit, you know, you've seen a lot of innovation in the crypto space when it comes to building applications that are both consumer facing and those meant for institutions, especially regarding ease of use and compliance. Um, who is Aqua meant for?

>> [clears throat] >> Yeah, actually for me. For for myself. >> [laughter] >> Um, that's [clears throat] why I I I spend a lot of time to to work on that, to improve that, and uh um, uh we're lucky to have this great team where we have shipped all everything all together. The so there's like no way I'm a one-man show. Um, it's always a team effort with all the specialists. Um we have started to build for ourselves, uh, same as with other protocols like cross-chain swaps for example. Um uh we're it was kind of difficult difficult to to bridge, you know, like and the security problems if the bridge

is still I I feel like last week again two more bridges got hacked. Um and here we used our standard approach what we are doing at 1 inch. We built everything institutional ready. It's like uh, you know, this time we are uh the um the TV brands started to to to publish the TVs with HD ready or something, you know. We are we are institutional ready, yeah. So you you took put a level on top of it and uh, we um we fulfill also what we what we promise here. It's a it's institutional ready in the form that um institutionals who want to provide

liquidity in a specific environment like maybe Robinhood chain. Uh and maybe I'll even audible ace. Um they don't want to mix own funds with other people's funds, right? Because there's also some hackers and uh and maybe uh sanctioned people and uh you are cool as as as isolated. You are you you are with own position. And the settlement on Aqua is done by professional market makers who are passing uh specific compliance uh checks from uh 1inch balance team and also passing through uh KYB.

So, it's clear who is behind the settlements. So, you you even the institutionals can say, "Okay, I'm only okay if if Intermezzo settles." >> Mhm. >> And they can they can define it by themself. Yeah, by themselves. >> At the top of the show, you mentioned how uh Aqua debuted across 13 different networks that are Ethereum-compatible. I know you've talked about Robinhood chain on this show, but which other one stand out to you? >> So, um we we support everything what's there, kind of what what's famous and and and have users uh base, of course. One of our institutional partners, uh we are um uh we are infrastructure provider um uh as

well for for Coinbase. Um so, we serve them with our uh with three APIs. Um and we are we are moving a little bit into AI direction with AI aggregation and providing other AI services. Um yeah so of course, all all the like Arbitrum, uh um Optimism, um zkSync, um Binance Smart Chain, uh Polygon, uh kind of we work with everyone because like uh it's it's the the the the way what what where we can benefit all together.

>> Mhm. And aside from capital efficiency, what incentives or rewards programs are you rolling out alongside Aqua to attract that initial liquidity? >> Yeah, so for Aqua launch, 1inch Foundation introduced an incentive program through a Merkle distribution. So, people can get some rewards by creating positions and generating volumes on these positions. And we have a specific leaderboard in Aqua. So, you see yourself and you see other people and you see the positions of other people. So, you can look like how they generate actually money and you can just do a kind of

copy-trading, yeah? And I personally introduced the 3D visualization as a as a kind of 3D map in a form of molecules. And I can visualize what are the positions between the tokens. So, you can better discover and understand, oh, I actually forgot to create between these two tokens one more position. So, we I can share the the the same assets in these two or three positions in the same time. So um and you can actually tweet on x.com with a small small banner of your positions. Also kind of a nice thing. So,

additional program we got from 1inch DAO as well. 1inch DAO is distributing 500,000 USDC in the next 3 months to people who generate volumes on Aqua. >> Mhm. Um That's interesting. >> by creating positions, by by being a market maker, by creating a Aqua trading strategies, positions, and generating volumes. >> Sure. Um is there anything else that we didn't cover during this interview that you feel like is worth high-highlighting, potentially some of the technical nuance when it comes to Aqua, or anything that you're particularly excited about.

>> Yeah, in terms of like technical topics, looking to Aqua learn, we tried our best. We have even tutorials, we have videos where you can see how to connect the wallet for really new people, how to create position, um um we have even audio, you can just sit and hear like a podcast um um over like what is jit, yeah, and why is is this a problem in in our web 3 space. Um yeah.

And developer documentation, of course, for developers. We have built it not just only for 1 inch network itself, or the institutionals what what we serve and and and and also expand our direction to institutionals to become the mass infrastructure provider. Uh also for developers, so you can as a developer can you can build a vault uh where you use the shared liquidity Aqua positions. So you could could generate much more than you can just uh compared to to other MMs where you isolate liquidity and it's idle for 85 percentages. So it's open for developers and everyone is welcome to

build on top of it. >> Mhm. Well, it was nice speaking to you about DeFi and Aqua today, Sergey. Thank you so much for joining us. This has been a paid partnership interview sponsored by 1 inch. Keep an eye out for future ones, and I'll see you the next time. >> This video was a paid partnership. Any statements about the featured company or its [music] products are its own and have not been independently verified by Unchained. [music] Nothing in this video is investment, financial, legal, or tax advice, or a recommendation to buy, sell, or use any asset or product discussed. Always do your own research before making any financial decision.

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