Decentralized exchange (DEX) aggregator 1inch.exchange has launched its own automated market maker (AMM), Mooniswap, according to a company press release shared with The Block.
1inch started out as a product for aggregating liquidity across DEXes, gaining traction in the DeFi space by integrating many liquidity sources and tokens. The project's aggregation feature allowed users to swap between different tokens at cheaper prices and with a wide range of options.
Major liquidity sources that 1inch has integrated with include Uniswap, Balancer, Bancor and Kyber Network. In March, the protocol integrated version 2 of Uniswap's protocol.
AMMs are "liquidity pools" that allow users to easily switch between tokens in a decentralized and non-custodial manner. Bancor was the first project to leverage the AMM model to enable cryptocurrency trades. Other projects like Uniswap and Balancer followed suit and gained popularity in the decentralized finance (DeFi) space.
However, the implementations of the AMM mechanisms were not without flaws. According to 1inch, current designs in some AMM models result in “high slippage on large trades and impermanent losses” for traders and liquidity providers. This led to the launch of new projects like Curve and Balancer with enhanced AMM models. 1inch's Mooniswap hopes to also improve on the current AMM designs.
With Mooniswap, 1inch plans to lower impermanent losses for liquidity providers by lowering the profit-margins of arbitrageurs with the introduction of a 5-min time-delay. According to the press release, "by such a delay in price updates, the market maker would create a highly competitive environment for arbitrageurs forcing them to perform trades at less profitable prices, which in turn would add value to the liquidity providers’ side." As a result, these arbitrageurs will only capture a portion of slippage, with the remaining portion diverted into a shared pool for liquidity providers.
The aggregator said it is expecting Mooniswap to generate between 50-200% more income for liquidity providers than Uniswap V2 because of the price slippage profits it believes Mooniswap will bring.