Paid Partnership: How Can DeFi Fix Its Liquidity Problem? 1inch's Aqua Offers a Solution

**Sergej Kunz** (0:00)
Institutionals who want to provide liquidity in a specific environment, like maybe Robinhood chain, and maybe even the auto blaze, they don't want to mix all funds with other people's funds, right? Because there's also some hackers and maybe sanctioned people, and your Hooli is isolated, you are with own position. The settlement on Aqua is done by professional market makers who are passing specific compliance checks from 1inch compliance team, and also passing through KYB.

**Andriy Pogansky** (0:33)
Hi, everyone. Welcome to a special Unchained paid partnership interview. My name is Andriy Pogansky, and I'm here today with 1inch co-founder Sergej Kunz to discuss Aqua, a shared liquidity for DeFi that just debuted across 13 networks. Welcome, Sergej.

**Sergej Kunz** (0:49)
Hi, everyone. It's a pleasure to be here.

**Andriy Pogansky** (0:52)
Heads up, everyone. This conversation is sponsored content paid for by 1inch. It's produced in partnership with them, separate from Unchained's newsroom.
1inch is one of Ethereum's most prominent decentralized exchange aggregators, and today you launched Aqua, a product that is meant to offer an alternative to DeFi's traditional pool-based model. What problem were you trying to solve for users with Aqua?

**Sergej Kunz** (1:18)
So I actually solved my own problem. I faced multiple times problems in the use of liquidity pools. I provided some liquidity, and I played around with the maximum acceptable price impact, and somehow I forgot to reset it, and I got sandwiched by providing liquidity, and lost 10 Ethereum or something.
Kind of, it's a technical problem by MEVBOTS. It's kind of a problem. Additional problems that I faced as a liquidity provider as well are the adjusting time liquidity provisioning from MEVBOTS. So when you sit in the pool, and there a big trade is coming to the pool, and there's a MEVBOT jumping in to the liquidity pool before the trade, with a lot of money, and after the trade it removed the liquidity, so you don't get almost anything from the swap.
The fact that you get deleted with sitting with the others in the liquidity pool with the P's what are defined by Uniswap team. You can only choose 30 BIPs, five BIPs, one BIP, one percentage. But if you do a proper analysis, of the market, and we did deep research of it, one of it we reported together with Dune, where we highlighted that 85% of the liquidity sits actually idle.
It's participating in the price formation, but actually it doesn't move at all in like 95% of the time in a year. So, and we were thinking like, how we can address all these problems? We did already long research from 2021, when we introduced limit orders, we built some strategies for limit orders, what allowed you to sell in price range, in one direction, for example. And somehow we didn't continue to work on that, but I think right now is the right time for this approach, since we have much more liquidity. Also from institutions coming in with RWA, and this demand for more efficient on higher utilization of liquidity.
So we came to the idea, okay, like we are very good in intents, we have our intent-based swaps, we have the intent-based question swaps, highly atomically and non-custody. And then we thought like, why not to make liquidity provision also based on intents? And this is at the end kind of just like a strategy, you know. You define a strategy, you say, okay, I am okay to buy this asset until this price, and I'm okay to sell it until this price. And I want to charge specific amount of fee. And how much you should charge, it should not be gut feeling. Yeah, it should be based on the historical data, based on the trend, and based on the market situation. Market situation can change. So you should be able to close all your positions with one single transaction. This will, like, such things are possible to do on Aqua. We have benefit that you don't need to distribute your liquidity into different pools.
If you look into Uniswap, if you have, like, 10,000 USDC and you want to provide liquidity, you need to split it. If it's only one pool, you have to split it by half to disperse USDC, Ethereum, maybe, and then if you want to provide USDC to WBTC, you cannot. You need to reduce your amount what you put in the pool, so your liquidity gets very fragmented. So in our protocol, you can just keep your assets in your wallet. You have all the benefits, for example, you can participate in Uniswap governance with your Unitoken because they are on your wallet. In the same time, you can have a position for Ethereum in a specific price range, and it moves like if you look in your history of data, what we provide in our interface, you see what happened like in the last six months with the price, how it moved, and then you can set your price range in the right manner so you stay in the range and can also utilize the utility of the token. There are some other really nice solutions as well for looping. Looping on Aavev3, I love it very much. Today, I built out of my position 3 to 4 time a leverage with just same assets, like you can deposit WBTC, for example, in Aavev, you can borrow CBBTC and you can deposit again and you can just loop it multiple times, and then you have like 3 to 4X, and then you put Aqua position on that, just on Aavev tokens. And all the arbitrage traders and market makers who are participating in 1inch network after passing KYB and compliance check from a team, they can settle it and they are okay with settling it in Aavev tokens. You know, they don't need to. These are not like retail users or something. These are professionals who know how to do that. So you get trades, you know, and you made out of your 10K, you can make 30 to 40K. This means you could earn three to four times more fees.