1inch rolls out new liquidity pools optimized for stablecoin swaps
1inch, a decentralized exchange (DEX) aggregator, has announced the launch of a new investment tool called Earn.
According to an announcement shared with The Block, Earn is a collection of liquidity pools optimized for stablecoin exchanges. A liquidity pool is a collection of cryptocurrencies such as ether (ETH) and stablecoins such as tether (USDT) locked into a smart contract managed by protocols known as Automated Market Makers (AMMs). ).
1inch said Earn provides significantly better capital efficiency for LPs by using concentrated liquidity distribution. This means that LPs provide liquidity to the pool in tight finite price ranges rather than distributing it over a wider price range.
Concentrated liquidity is particularly advantageous for stablecoin swaps because they tend to have tighter spreads (the difference between the bid price and the ask price of the stablecoin). Stablecoins are by definition expected to maintain their price peg, which means that a trading pair like USDT/USDC should maintain an almost 1-to-1 price relationship.
This approach differs significantly from the liquidity distribution mechanism on standard pools where liquidity often exists in a wider price range that can theoretically extend from zero to infinity.
By opting for a tighter liquidity distribution, 1inch claims that traders can benefit from greater liquidity in the likely price ranges for stablecoin swaps without compromising revenue from fees for liquidity providers.
1 inch Earn Liquidity Providers (LP) – people who contribute crypto trading pairs to the liquidity pool – are likely to earn between 5-10% Annual Percentage Returns (APY). This income will come from the transaction fees levied on the swaps in the pool.
The 1inch Earn product will be launched with the USDC/USDT trading pair on the Ethereum network. There are also plans to introduce more pools, including those containing tokens other than stablecoins.
1inch closed a $175 million Series B funding round in December and announced plans to begin offering institutional-grade services.