On December 25th, the 1inch Network announced a significant upgrade known as Fusion. This new trading mode introduces a unique order-matching mechanism designed to enhance cost efficiency, security, and user experience. Alongside this upgrade, 1inch has also introduced updates to its token economics. This article breaks down the key features and implications of these developments.
What Is the 1inch Fusion Mode?
The term Fusion signifies the integration of two core products within the 1inch ecosystem: the 1inch Limit Order Protocol and the 1inch Aggregation Protocol. By combining these protocols, 1inch has developed a decentralized trading and order-matching system that incorporates liquidity from both centralized and decentralized markets through professional market makers.
This approach shares similarities with platforms like Hashflow, emphasizing efficiency and improved pricing mechanisms.
How Fusion Mode Works
Fusion introduces three distinct order types, allowing users to choose between speed and price optimization:
- Fast: Users opt for quicker execution within the first few blocks, accepting a potentially less favorable exchange rate.
- Fair: Users allow a moderate waiting period to receive a better price. The rate may start less advantageously but is expected to improve during the order’s lifespan.
- Auction: Designed primarily for large orders, this option enables users to wait up to 10 minutes to obtain the most optimal price available.
A central innovation in Fusion is the introduction of a Dutch auction model. User orders are fulfilled by professional market makers known as Resolvers, who cover the network gas fees. Resolvers generate profits through arbitrage opportunities rather than charging direct fees.
Benefits for Users and Resolvers
For users, Fusion offers:
- No gas fees
- Protection from MEV (Maximal Extractable Value)
- Zero price impact for trades
- No charges for failed transactions
- Faster execution times
Resolvers, on the other hand, enjoy:
- Staking rewards
- Resolver-specific fees
- Participation in the 1inch Gas Refund Program
- Voting rights in 1inch DAO governance
To become a Resolver, a user must stake a sufficient amount of 1INCH tokens into a dedicated “feebank” contract. Resolver priority is determined by the amount and duration of tokens staked. The 1inch DAO may also impose fees on Resolvers in the future.
Fusion Mode vs. Legacy Mode: A Comparison
The 1inch interface now defaults to Fusion mode. While Fusion eliminates visible gas fees for users, the cost is indirectly incorporated into the final settlement amount.
For example, swapping 1 WETH for USDC may show an identical market rate in both Fusion and Legacy modes. However, in Legacy mode, the user pays a separate gas fee. In Fusion mode, the resolver deducts gas costs and other fees from the final amount received by the user.
This means Fusion isn’t truly “gas-free”; it restructures how fees are applied. Small transactions (under $100) are not supported in Fusion mode due to resolver profitability constraints. Additionally, native assets like ETH must first be wrapped (converted to WETH) before trading.
Understanding the Updated Tokenomics
The 1inch Network has also revised its token economic model. Under the new system, users can stake 1INCH tokens for periods ranging from one month to two years to earn Unicorn Power.
Unicorn Power enables holders to:
- Participate in network governance
- Qualify for rewards from the Resolver Incentive Program
- Delegate voting power to other users
Fees generated from Resolver activities are distributed among stakeholders based on their Unicorn Power and contribution to the network.
Resolver Incentive Program
The Resolver Incentive Program began on December 24th. Resolvers receive rebates for gas spent executing Fusion mode trades. The 1inch Foundation has allocated 10 million 1INCH tokens to this program, with a monthly cap of 1 million 1INCH per resolver.
Key Takeaways
The Fusion upgrade introduces a novel trading mechanism aimed at improving usability and expanding 1inch’s liquidity ecosystem. However, it does not entirely eliminate transaction costs—instead, it shifts how those costs are applied. The mode appears best suited for larger trades using the Auction option, where price optimization outweighs minor fee adjustments.
For small trades, Legacy mode may still be more transparent and economical. Resolvers stand to benefit significantly through staking rewards, fee incentives, and governance participation.
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Frequently Asked Questions
What is 1inch Fusion mode?
Fusion is a new trading feature on the 1inch Network that combines limit orders and aggregated liquidity. It allows users to trade without paying gas fees directly, while relying on resolvers to execute orders via a Dutch auction model.
How do resolvers make money in the Fusion system?
Resolvers profit from arbitrage opportunities between quoted and execution prices. They also receive 1INCH token incentives through the Gas Refund Program and can earn fees based on their staking weight.
Is Fusion mode better than the classic Legacy mode?
It depends on the trade size and user preference. Fusion benefits large orders through improved pricing and MEV protection, while Legacy may be simpler and more cost-effective for smaller transactions.
Can anyone become a resolver?
Yes, but it requires staking a significant amount of 1INCH tokens. Resolver status is determined by the number of tokens staked and the staking duration.
What is Unicorn Power?
Unicorn Power is a governance metric obtained by staking 1INCH tokens. It grants voting rights in the 1inch DAO and eligibility for rewards from network fees.
Does Fusion mode support all cryptocurrencies?
Currently, Fusion does not support native assets like ETH—they must be wrapped first. Very small transactions (under $100) are also not supported.