First of all, what is an aggregator?
An aggregator is best thought of as a search engine sometimes. It will crawl through all of the DEXs within the exchange list that it has stored, and then discover the best price, and also best price routing to route the trade through. For example: If I wanted to swap from FXS to BAT.
The routing would look something like this.
First, my FXS would be converted into ETH, which would be then finally converted into BAT. All the while, going through different exchanges, to maintain the best price point possible.
In this example:
We can see that we want to convert ETH into aLEND, but we can also see that the router has split the transaction off into multiple parts, where there are certain percentages going to certain exchanges.
Your first thought may be. This is really easy to make, surely anyone could make an aggregator? Well, you are right, kind of. A fundamental part of an aggregator is their algorithm. For 1inch, this is their “pathfinder” algorithm. Anyone could make an aggregator without a routing algorithm, this would just be a matter of collating all of the DEXs into a database, then making API calls to all of their endpoints, getting the JSON data, then comparing the price. A very primitive version, very similar to something like comparethemarket.com for insurance.
So, in essence, when comparing between different aggregators, the majority of them will have 99% of the same DEXs in their databases. So the only difference will be the routing algorithms which each respective aggregator is using.
However, matcha (which is powered by 0x) claims that they are able to beat 1inch’s prices around 72% of the time.
If this is the case, you may wonder, why do users not all flock to matcha as they are able to offer so much better prices? Well, in my opinion, I believe this is a question of web3 adoption. 1inch has been there for longer, 1inch has also been in market for longer, making it more well known. You could pose the same question to CEXs, if people can easily store their assets a cold wallet, why do they still choose to store their assets on a hot wallet on a CEX? I believe this is a question of adoption.
An interesting new concept that has been brought to light by the team at DeFiLlama is the concept of an aggregator aggregators. That’s a mouthful, I know. Conceptually, this makes a lot of sense, aggregating the aggregators, so that at last, you can confidently know that you are getting the best price. The only issue right now, is that these aggregator aggregators have no routing algorithms, they are merely quoting the best prices. Now, this may be because the list of aggregators to route through is not big enough, or also because a lot of these aggregator’s APIs are extremely faulty, and their documentation is iffy. Right now, these “Meta DEX-aggregators” are extremely similar to comparethemarket.com , it would be interesting to see if an algorithm could be implemented here.
An interesting point to note is that these aggregators such as 1inch and CoW swap are actually giving affiliate/referral fees to those that use their calldata from their API to make trades, meaning that as long as the meta-DEX aggregators have volume on them, they are easily making some passive income.
A quick search of the DeFillama codebase and we can quickly find their referral address
With this much volume:
They have around 46 ether in their balance at the time of writing this article. Not bad.
