The Secret Behind 1inch’s Unmatched Efficiency in DeFi
In Brief
Driven by the need for seamless multi-source trading, Sergej Kunz transformed 1inch from a hackathon idea into a top DEX aggregator, redefining DeFi innovation.
Why wasn’t anyone executing trades across multiple liquidity sources in a single transaction? That question led Sergej Kunz to build 1inch, one of the most efficient DEX aggregators in DeFi. What started as a hackathon project quickly became a game-changer, pushing the boundaries of decentralized trading.
In this interview, co-founder of 1inch shares how he went from decompiling smart contracts on YouTube to leading DeFi innovation. He talks about staying ahead of competitors, tackling MEV attacks, and the future of intent-based swaps, offering a deep dive into the evolving Web3 landscape.
Can you share your journey to Web3?
I started my YouTube channel to talk about crypto mining, and during one of my weekly live streams, I began exploring smart contracts on Ethereum. I noticed that some Ponzi schemes were promoting certain smart contracts as a way to make more money. I wanted to explain to people that they shouldn’t trust or invest in such schemes because a smart contract is just a program—you can read it.
However, I found that many of these contracts weren’t readable because their creators didn’t upload the source code. So, I started decompiling them. At that moment, my future co-founder, Anton Bukov, joined my livestream. He asked if he could help since he already had extensive experience with smart contracts. That was my real entry into the Ethereum space.
After half a year of YouTube streams focusing on smart contract security, Anton and I decided to participate in hackathons. That’s when my Web3 and blockchain journey truly began. We traveled the world, participating in about 17 hackathons over 14 months, building different projects.
I won several hackathons, including those in Stuttgart, where I’m from, as well as competitions organized by Daimler and Porsche. We also won major prizes from Ethereum Global, the main organizer of Ethereum-based hackathons. The funds from these events allowed us to keep traveling and competing, which was how I fully immersed myself in Web3.
What is the most underestimated technical challenge in building an effective aggregator within the DeFi ecosystem?
The biggest challenge is continuous innovation. Our journey started with a simple proof of concept at the Ethereum Global Hackathon in New York in 2019. We asked ourselves: why isn’t anyone executing trades across multiple liquidity sources in a single transaction?
This approach reduces price impact, allowing users to get more value than if they traded through a single liquidity source. At the time, we had Uniswap (the first version), Kyber, and Bancor Network. We tried our idea, and it worked. Some people understood its potential; others didn’t.
With MEV (Maximum Extractable Value) concerns affecting DeFi traders, what innovations have been explored to mitigate its impact across the industry?
In 2022, I personally experienced MEV attacks. I lost about 10 ETH, which was painful. That motivated me to take action. I discussed the issue with our team, and after brainstorming, we developed a protocol to protect users from MEV by design.
We called it Fusion. It’s essentially an intent-based swap protocol. The idea is simple: as a user, you only specify what you want to achieve without worrying about execution details. You set conditions that must be met, and an executor—typically a market maker or arbitrage trader—carries out the trade under those conditions.
We’ve also extended our intent-based approach to cross-chain swaps. Since September last year, users can exchange assets across different blockchains fully automatically, in a non-custodial and bridgeless manner. This ensures that if something goes wrong, users retain full control of their assets. The industry is definitely moving in the right direction, with intent-based architectures becoming the standard.
With increasing competition among DEX aggregators, how do industry players differentiate themselves beyond just offering better pricing?
Many projects are trying to copy what we do—whether it’s intent-based swaps, classic swaps, or cross-chain swaps. That’s fine. Competition is good for users.
I’ve heard pitches where teams claim they’re building “a more efficient 1inch,” but in most cases, I haven’t seen anything genuinely better. Still, it’s good that people are investing time and money into improving DeFi.
We thrive in competition. Coming from hackathons, we love the challenge of staying ahead. Right now, our team in Dubai—about 30 people—is conducting an internal hackathon to develop Solana support for 1inch. That’s a small alpha leak for you!
Overall, competition forces us to innovate, and we’re happy to see the ecosystem evolve.
How do decentralized exchanges mitigate the risks of malicious liquidity pools?
Our protocols execute transactions atomically, which means liquidity pool owners can’t drain funds mid-transaction. This protects users interacting with our platform.
Regarding illicit funds, we have a dedicated compliance team monitoring wallet activity. If a hacker deposits stolen funds into a liquidity pool, we can block transactions with that liquidity. Our resolvers—market makers executing intent-based swaps—are also screened. If they receive tainted funds, they’re blocked from using our network.
This self-regulation is crucial in preventing bad actors, like North Korean hackers, from laundering money through DeFi.
How does institutional adoption of DeFi impact the future of DEX aggregators?
Institutional adoption brings more liquidity and volume. We already see Swiss banks offering crypto trading and custody services. Some companies in Germany provide B2B solutions for brokerage systems to offer crypto trading.
Right now, institutions mainly use centralized exchanges, but DeFi adoption is increasing. To facilitate this, we need better compliance measures, ensuring institutions only interact with clean liquidity.
What macroeconomic factor could significantly impact DeFi adoption?
It’s hard to predict exactly. If someone knew, we’d all be preparing for it. However, I believe non-custodial wallets will eventually become as common as the Internet. In the early days, no one thought they needed the Internet, but now it’s everywhere. Similarly, in the future, everyone will have full ownership of their assets through non-custodial wallets.
We already see tokenized real estate, where users can buy small fractions of properties for as little as $50. This makes investing more accessible. DeFi also allows for new financial models, like using tokenized stocks as collateral for loans.
Adoption will take time, and education is key. We need better user experiences and safer architectures to make DeFi more accessible.
What are the key trends in Web3 and DeFi right now? How do they differ from last year?
Meme coins have been a major trend, but they’re risky. While they attract new users, they also cause disappointment when people lose money.
We’re also seeing more AI-integrated blockchain projects where users can earn crypto by tagging AI training data. Additionally, payment infrastructure is evolving, with models like crypto-based subscriptions emerging.
At 1inch, we’ve developed a Web3 SaaS solution—similar to Google Cloud but for blockchain. Users can create accounts and pay for API services directly with crypto. The industry is moving fast, and we’re excited to be at the forefront of innovation.
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About The Author
Victoria is a writer on a variety of technology topics including Web3.0, AI and cryptocurrencies. Her extensive experience allows her to write insightful articles for the wider audience.
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Victoria is a writer on a variety of technology topics including Web3.0, AI and cryptocurrencies. Her extensive experience allows her to write insightful articles for the wider audience.
