What is 1inch?
1inch is a decentralized exchange (DEX) aggregator protocol. DEXs allow users to exchange crypto assets without a central intermediary, and a DEX aggregator rapidly sources the best exchange rates for its users by sourcing liquidity from, and comparing quotes between, multiple DEXs at once. The 1inch platform can split a trade across multiple DEXs and supports over 80 markets and multiple chains of assets. In 2020, the 1inch network launched Mooniswap, an automated market maker, adding another layer to how it matches assets to swap.
The 1inch protocol was founded in May 2019 by Sergej Kunz and Anton Bukov, and the team raised venture funding in both August and December 2020 to fund development. In December 2020, the team also launched the 1inch DAO, decentralized autonomous organization, and its governing token, 1INCH. DAO members can participate in 1inch’s governance by voting on community proposals to make upgrades to the protocol.
What is the 1INCH token?
1INCH is an ERC-20 token that serves primarily as a governance token. Decisions on how 1inch operates and evolves over time are made by its members. 1INCH holders can stake their tokens to earn voting rights, as well as a governance reward for their participation (a portion of the swap fees applied to exchanges performed on the 1inch platform.) The weight of each user’s vote is proportionate to the number of tokens they have staked, and that weight is calculated and applied equally across the 24-hour voting period.
How does 1INCH compare to Bitcoin?
1INCH differs from Bitcoin in a few key ways.
First, 1INCH is an ERC-20 token, meaning it is a token that runs on, and is backed by, the Ethereum blockchain. This means that 1INCH does not have its own miners. Ethereum miners perform the task of processing and validating 1INCH transactions, just like how Bitcoin miners process and validate Bitcoin transactions.
The second major difference between 1INCH and Bitcoin is their age. 1INCH was launched in December 2020 compared to Bitcoin’s 12 or so years, meaning 1INCH is less proven, less distributed, and has a significantly smaller market value than Bitcoin.
Additionally, the Bitcoin blockchain does not perform any other functions besides processing transactions. 1INCH, however, allows users to vote on protocol changes, participate in 1inch governance processes, and earn rewards.
Similar to Bitcoin, a malicious participant or group of participants who gain enough control could negatively impact the value of 1INCH. If one person or an aligned group of 1INCH holders decided to manipulate its development, they could draft a malicious proposal and vote it through (similar concentration risk to a 51% attack on the blockchain.) This risk is much higher for an asset like 1INCH that has a more limited supply of tokens.
Just like Bitcoin, 1INCH is decentralized. No single entity maintains the 1INCH network, meaning that the token is divided between a potentially unlimited number of users, none of whom have ultimate control over the system.
However, it should be noted that, although 1INCH is different from Bitcoin, it is far from independent from it.
Bitcoin, the coin with a larger market (by a long shot), can influence the price of all other cryptocurrencies. If Bitcoin crashes, there’s a good chance that 1INCH will feel the burn too (not directly as they operate entirely distinctly, but through overall market sentiment.) And if Ethereum, the coin that powers the blockchain that supports 1INCH crashes, then 1INCH’s price could be impacted. However, if 1INCH crashes, Bitcoin may be less likely to get hurt by virtue of its size.
Before trading any crypto assets, it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about 1inch, including an opinion that 1INCH is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of 1INCH prior to making it available on Wealthsimple Crypto and has concluded that 1INCH is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated 1INCH based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of 1INCH, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created 1INCH;
- The supply, demand, maturity, utility and liquidity of 1INCH;
- Material technical risks associated with 1INCH, including any code defects, security breaches and other threats concerning 1INCH and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and
- Legal and regulatory risks associated with 1INCH, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of 1INCH.
Like all other crypto assets, there are some general risks to investing in 1INCH. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk, and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure. In addition to these general risks, 1INCH presents an elevated short history risk and an elevated concentration risk. Further, the 1inch community is not under any legal or regulatory obligation to disclose material information to the public regarding its activities. Holders of 1INCH have no recourse to 1inch or Wealthsimple if 1INCH declines in value for any reason.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading 1INCH. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc. dated June 18, 2021. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.
Last updated: September 1, 2021
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