Introduction
1inch is the biggest DEX Aggregator in the entire crypto space, commanding a 60% market share. Its nearest competitor lags far behind, with only a 17% market share. (Ref)
This dominance highlights 1inch’s unparalleled trust within its user base.
Despite this market leadership, 1inch faces a notable challenge: it has yet to generate revenue.
The absence of revenue streams could potentially weaken the DAO’s power and diminish user and token holder confidence in 1inch’s long-term sustainability.
This proposal outlines viable strategies for 1inch to cultivate revenue streams, thereby ensuring its continued growth and market dominance.
Revenue Sources
Some Common Revenue Sources Include:
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Order-Based: This is the most common source of revenue, where users are charged a fee based on the order. There are multiple types of fees we can charge:
- Percentage Fee: A minimal, fixed percentage fee on the order size, for example, 0.01% of the output token.
- Tiered Fees: Introduce fees based on order size tiers, such as orders from $0-500 in tier 1, $500-5000 in tier 2, and so on.
- Fixed Fees: A standard fixed fee for every order.
- Combination: A hybrid model incorporating elements of the above strategies, for example, charging fixed fees for higher-value tiers and a percentage-based fee for lower ones.
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Member Fees: A membership model could provide users with exclusive benefits, such as waived order fees, premium support, and access to specialized features or products.
Problem
1inch operates in a commodity business where users are seeking the best swap rate; they don’t care whether it’s 1inch, 0x, or Cowswap, they just need the best rate.
Many DApps, like wallets, even abstract away the 1inch name, simply using APIs of multiple aggregators to show the best price.
Any revenue model we choose needs to be selected carefully to ensure it doesn’t make our rates less competitive, directing all our users to other exchanges.
While testing, we should avoid making continuous daily changes to our fee model, as this will introduce uncertainty among our users. Any changes in fees should be communicated properly.
Edge
Our main competitive edge is the trust and brand of 1inch, created by its community over the years.
I believe this will be the main factor differentiating 1inch from all other exchanges, similar to how Apple has differentiated itself from Windows computers or Android phones.
1inch users comprise traders, many of whom are big traders and whales.
If we can serve these users with new and innovative products that they really need and monetize those products, then 1inch can generate a lot of revenue.
Some examples of products I am talking about are:
- Private Trading Platforms: Catering to high-net-worth individuals and institutional traders, offering privacy and priority service.
- Dark Pools: Allowing users to execute large trades without immediate market impact.
- Yield Pools: Innovative financial products offering competitive yields, attracting and retaining users within the 1inch ecosystem.
While this approach suggests building new products, it offers a strategic pathway to distinguish 1inch from competitors. The Aggregator Protocol can serve as the gateway for users to the 1inch ecosystem, where they can discover and utilize our premium products.
It aligns with 1inch’s vision of becoming the one place to access the whole DeFi space and, using 1inch’s unfair advantage of user trust and distribution, we can easily launch successful and large products.
Proposal
Here’s what I propose we should do:
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Pilot a “Fees-based on Order” Model: Initiate a trial by applying a fee structure on transactions for a select group of users. This allows us to gauge the impact on user behavior and market competitiveness without fully committing. Continuous evaluation and adjustment based on user feedback and transaction data will be crucial for refining this approach.
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Develop Relevant Products: Identify and prioritize the creation of products that not only resonate with our goals but are also sought after by our users. This step involves deep market research, user engagement to capture their pain points and preferences, and agile development practices to quickly bring viable solutions to market.
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Renewal Fees for Exclusive Services: Explore if we can offer premium, value-added services targeted at our most active and committed users. This could involve solving specific challenges within the crypto space that our users face, offering them additional privileges, or providing early access to new features. The key will be to ensure that these services offer substantial value, justifying the renewal fees and enhancing user loyalty and engagement.
User Feedback
In this proposal, I have suggested experimenting with new fee models to identify the most effective ways for 1inch to generate revenue through its products. However, before initiating any testing phase, it’s important for 1inch to establish a robust and efficient user feedback loop. This will ensure continuous and direct feedback regarding the impacts and acceptance of these tests.
Ways to create such a loop include:
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Onchain Activity Monitoring: Implement advanced tracking of both historical and current onchain activities of 1inch users. This is to observe any shifts in user behavior that may arise from the introduction of new fees. The tracking system needs to go beyond basic analytics, like those found in simple dashboard tools, and should incorporate comprehensive data analysis techniques to provide deep insights into user interactions and transactions.
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Community Engagement: Leverage forums, social media, and 1inch’s own community platforms to actively engage with users. Encourage open discussions about the new fee structures, inviting feedback, suggestions, and concerns. This can be facilitated through AMAs (Ask Me Anything sessions), dedicated feedback threads, and regular updates on the testing progress.
By implementing these feedback mechanisms, 1inch can ensure a user-centric approach to its revenue generation strategies. This will not only help in fine-tuning the fee models to better match user expectations and preferences but also strengthen the trust and loyalty of the 1inch community.
Some Insights
1inch has achieved significant milestones, with 13 million unique users (addresses) and over $422 billion in trading volume, showcasing its critical role in the decentralized exchange market.
The top 1% of users are responsible for 55% of swaps and 85% of the total volume, highlighting their immense contribution to 1inch’s ecosystem.
We should focus on these high-value users as they represent a key revenue and growth opportunity.
(These numbers are taken from 1inch dune dashboard)
Conclusion
In summary, this proposal tries to propose some strategies for 1inch to initiate revenue generation without compromising its competitive edge or user trust.
By carefully piloting a Fees-based on Order model, developing user-centric products, and instituting a feedback loop for continuous improvement, 1inch can secure its financial sustainability.
Central to our strategy is the commitment to our community’s trust and leveraging our dominant market position.
The proposed steps are designed not only to address the immediate need for revenue but also to ensure that 1inch sustains its pioneering role in the DeFi ecosystem.