Revolutionizing Liquidity in DeFi

1inch, a leading decentralized finance (DeFi) protocol, has recently launched its new shared liquidity protocol, Aqua. This groundbreaking innovation promises to enhance efficiency and unlock liquidity for users across networks. Sergej Kunz, co-founder and CEO at 1inch, recently joined TheStreet Roundtable to discuss the launch and explain how Aqua’s efficiency gains are being achieved.

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The Problem with RWAs

Receiving and redeeming assets (RWAs) are becoming increasingly popular in DeFi, but they require liquidity to function properly. Unfortunately, a significant portion of liquidity on decentralized exchanges (DEXs) remains idle, with a recent study commissioned by 1inch revealing that approximately 80% of liquidity on DEXs sits idle at any given time. This equates to around $1.6 billion that isn’t earning anything.

This inefficiency can be particularly devastating for thin and newer markets, such as tokenized RWAs. To address this issue, 1inch has developed the Aqua protocol, which aims to provide a new model of liquidity provisioning built for the tokenized-asset wave.

Tokenized Equities and the Rise of Direct Asset-to-Asset Markets

Tokenized equities have seen significant growth globally, with hundreds of tokenized stocks already available for purchase through platforms like Robinhood, Kraken, and Ondo. Users can now easily buy and trade top-performing RWAs, setting up trading positions among them and benefiting from the volume generated by their movement.

Kunz explained that traditional brokerages only allow users to trade each stock against dollars, whereas the Aqua protocol enables direct asset-to-asset markets. This innovative approach creates a web where one wallet’s holdings back every pair simultaneously, with the liquidity provider collecting fees on every crossing.

The Need for Aqua

When RWAs are isolated in single two-token-pair pools, it’s impossible to achieve the desired efficiency. This is where the Aqua protocol comes in, providing additional efficiency and unlocking liquidity for users across networks.

The RWA boom has promised ‘stocks on-chain’ but mostly delivers stocks-vs-dollars with extra steps. Kunz’s pitch is one of the first structurally new things tokenized equities could do: markets between assets, priced continuously, fed by one pool of reusable capital.

This innovative approach has the potential to revolutionize the way we think about liquidity in DeFi, providing a more efficient and accessible way for users to participate in the market.

A New Era for DeFi

The launch of the Aqua protocol marks a significant milestone in the evolution of DeFi, offering a new model of liquidity provisioning that addresses the inefficiencies present in traditional DEXs. As the DeFi space continues to grow and mature, it will be exciting to see how the Aqua protocol shapes the future of liquidity provision.