High Ethereum gas price drives DeFi dapp 1inch growth



1inch demonstrated steady MoM growth of 20% in April and 2% in May

Activity on Ethereum has dropped abruptly due to high transaction fees in May 2020. A considerable impact was felt in the games category as previously reported, where daily activity decreased by 61%.

A lower, but very noticeable effect was felt within the DeFi and DEX categories where daily wallet activity decreased by 19% and 14% respectively comparing May to April. 

Gas price volatility has made cost-conscious scalability solutions more prominent. One such solution for cost-efficiency could be DeFi dapp 1inch.

1inch acts as a DEX aggregator where the smart contract is built in such a way that it achieves the best rates by splitting the orders among multiple DEX in one single transaction. 

1inch demonstrated stable growth within the last couple of months that justifies the need to look deeper into the dapp and how it operates. Additionally, there is a need to examine the effect of Ethereum gas price volatility upon the different dapps tracked by DappRadar.

Key takeaways

  • High gas fees saw Ethereum’s daily activity drop 14% month-on-month.
  • Opposite to other dapps, 1inch grew by 20% in April and 2% in May, month-on-month.
  • The high correlation of 0.7 could be spotted which brings us to the conclusion that increasing gas prices had a positive effect on 1inch’ growth.

1inch demonstrates stable growth

1inch came into existence on the 19th of May 2019. Its been a year for 1inch in the market, and they call themself a DeFi dapp on the Ethereum protocol. 1inch is a DEX aggregator that claims to provide the best price on the market. Their smart contract is built in such a way that it achieves the best rates by splitting the orders among multiple DEX in one single transaction.

The tremendous increase in daily active wallets could be spotted YoY. On average in 2019 there were around 40 users while in April and May of 2020 more than 300. 

Back in April of 2020 daily activity grew by 20% compared to March and in May was stable at around 320 wallets. Different from other dapps, 1inch seems to be immune from Ethereum gas price increases, or the effect is less visible.

GasToken importance

1inch provides a platform to swap tokens without having to go enter into the particular dapp ecosystem. For each swap, there is a transaction fee charged. 1inch.exchange claim that their transaction fees are up to 42% cheaper.  This is because of the use of the GasToken within the dapp.

1inch uses a GasToken as a transaction fee and claims that it is way cheaper for the user. Basically, the GasToken is a new, highly advanced Ethereum contract that allows tokenizing gas on the Ethereum network. In essence, it stores gas when it is cheap and deploys when it is expensive. This is the very first contract that allows users to buy and sell gas directly by enabling the long term banking of gas. 

As described above, the GasToken serves as the token which reduces transaction costs for the user. This helps wallets to conduct actions within dapps like Aave, Compound, Curve, Synthetix, Uniswap, and others with way lower costs.

This structure might allow the user to reduce the risk of gas price volatility and most likely increase the demand for such a dapp.

Correlation between 1inch activity and the Ethereum Gas price

As already acknowledged, the volatility of gas prices didn’t have such a  negative effect on 1inch when compared to other dapps. The effect could seemingly be positive. 

This brought forward the hypothesis that increasing gas prices were actually driving 1inch daily active wallet growth.

To test this hypothesis, the correlation was calculated for two periods: January – March of 2020 and April-May of 2020.

For the first three months of 2020, there was no correlation or the observed correlation was weak. On the other hand, for April-May, a strong positive correlation of 0.7 was observed.

As per our calculations, we can conclude that the volatility of the Ethereum gas price has had a positive effect on 1inch during the April-May 2020 period.

Conclusions

The negative effect of gas prices could be spotted across all categories back in May of 2020 on the Ethereum protocol. The biggest drop occurred within the games category. On the other hand, other categories also suffered from the price surge.

Opposite to some dapps, 1inch demonstrated a steady increase with month-on-month growth of 20% in April and 2% in May. This led us to investigate what effect the gas price had on 1inch. A strong positive correlation of 0.7 was observed between daily wallets and gas prices. 

On the other hand, the volatility of gas prices on the Ethereum network is only one variable tested within this overview. An alternative hypothesis might be examined for a deeper understanding of the key drivers of dapp 1inch growth.

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