The 1inch token implementation is built on top of the vote escrow contract. This contract is a core element of the token model. It is used to lock 1inch and receive UP (the Unicorn Power) as a result of the token lock-up for a specified period of time. The UP of the particular address is used as an input variable for receiving protocol fees, calculating voting power, enabling access to the running resolvers, and the delegation option.
The value capture process for the 1inch token is entirely dependent on the token lock-up in this contract and obtaining the UP. Accordingly, the implementation of the vote-escrow contract is described first, with descriptions of the sub-VCMs following.
1. VOTE-ESCROW (THE RISK EXPOSURE) IMPLEMENTATION
The vote-escrow contract is used to lock 1inch tokens to receive the UP within the protocol. The lock-up period can vary from 30 days to 2 years, with the default value of 2 years.
Upon locking, 1inch tokens are converted into its active form of Unicorn Power. It scales exponentially with an increase of the locking time left with a base of . The one-to-one conversion rate can be achieved only at the moment of maximal locktime. While the tokens are locked, they cannot be withdrawn without a penalty, which can be as high as maxlossratio (currently 90%). It is impossible to withdraw tokens if the penalty exceeds the maxlossratio.
The penalty is calculated according to the formula:
penalty =
Observe that the penalty for withdrawal at the exact moment of locking for two years is equal to the deposit (so, the penalty is 100%):
Penalties are transferred to the Treasury, the allocation of which is subject to the governance decisions.
2. THE VOTE-ESCROWED GOVERNANCE IMPLEMENTATION
This section describes the technical details of the 1inch governance process.
The vote-escrow contract determines the voting power of the user address (the UP position size). The governance process for UP owners is carried out in Snapshot. The particular details of the stages of the process and governance parameters are described in the original documentation. Since 2021, SafeSnap has been used for the decentralized execution of governance decisions (source).
3. THE VOTE-ESCROWED ACCESS IMPLEMENTATION
This section contains information about implementing conditional access to resolver operations on top of the user's owned and delegated UP position.
To operate the resolver, the address should be whitelisted. The primary condition for listing is owning at least 5% of the total UP supply that can be delegated by the address itself or by external addresses (source). Resolvers listing is done manually by the 1INCH team if the address complies with the 5% UP condition.
Once listed, the Resolver can fill fusion orders. The order fulfillment process is designed as a Dutch auction. The resolver's profit comes from two sources: (1) arbitrage opportunities that arise while filling these orders and (2) additional incentives, if any.
4. STAKE DELEGATION
This section describes how the delegation of the UP position to other addresses is implemented. The delegatee can use this UP to run the resolver and use this delegated voting power in governance.
The delegation contract executes the delegation process. The delegated UP is accounted for with an internal array in this contract.
Each delegatee has a special farm that distributes the incentives to the original UP owners proportionally to the delegated UP and serves as the source of future cash flow for delegators. These incentives can be referred to as resolver bribes.