DEX • Feb. 3, 2022 10:02 am EST
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 swaps. A liquidity pool is a set of cryptocurrencies like ether (ETH) and stablecoins like tether (USDT) locked in a smart contract run by protocols known as automated market makers (AMM).
1inch stated that by leveraging concentrated liquidity allocation, Earn offers significantly better capital efficiency for LPs. This means that LPs provide liquidity to the pool within tighter bounded price intervals rather than spreading it across a broader price range.
Concentrated liquidity is particularly beneficial for stablecoin swaps, as they tend to have tighter spreads (the difference between the stablecoin’s bid and ask prices). By definition, stablecoins are meant to remain price-pegged, 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 in standard pools, where liquidity is often present across a wider price range, which in theory can range from zero to infinity.
By opting for tighter liquidity spreads, traders can enjoy deeper liquidity across likely stablecoin swap price ranges without compromising liquidity provider fee income, according to 1inch.
1-inch earn liquidity providers (LPs) — individuals who contribute crypto trading pairs to the liquidity pool — can earn anywhere from 5% to 10% annualized percentage returns (APY). This revenue comes from transaction fees charged on swaps in the pool.
The 1 inch Earn product will be launched on the Ethereum network with the USDC/USDT trading pair. There are also plans to launch more pools, including those with tokens other than stablecoins.
1inch closed a $175 million Series B funding round in December and announced plans to begin offering institutional-level services.
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