1inch is a DEX aggregator that routes trades across multiple DEXes to find the best possible price for any swap. Rather than providing liquidity itself, 1inch's Pathfinder algorithm splits orders across dozens of protocols simultaneously — executing a $10M USDC→ETH swap across Uniswap, Curve, Balancer, and smaller pools simultaneously to minimize price impact.
Pathfinder Algorithm
1inch's core algorithm evaluates thousands of possible routing paths in real-time, splitting orders optimally across multiple pools. For a large ETH→USDC swap, Pathfinder might route 40% through Uniswap v3 (0.05% pool), 35% through Curve, and 25% through Balancer — finding the combination that minimizes total slippage and fees.
The algorithm accounts for gas costs (more splits = higher gas), fee tiers, and pool depth. For small swaps, a single hop is usually optimal; for large swaps (>$100K), splitting saves substantial amounts.
Fusion Mode
1inch Fusion is an intent-based trading system where users sign an order (intent to trade X for at least Y) and third-party "resolvers" compete to fill it optimally, often providing better rates than any single DEX. Resolvers batch fill orders against their own liquidity or source from DEXes, absorbing gas costs in exchange for capturing the price improvement spread.
1INCH Token
1INCH holders who lock tokens receive st1INCH (staked 1INCH), gaining governance rights and surplus from the spread between Fusion resolver bids and actual execution. The token is also used for limit order fee discounts.
Aggregator Arbitrage
1inch itself enables arbitrage by exposing price discrepancies to traders. When ETH is 0.3% cheaper on Curve than Uniswap, 1inch routes buyers through Curve, effectively arbitraging the price difference on behalf of users. 1inch's aggregation means individual arbitrageurs compete primarily against each other's bots rather than against the aggregator itself.