Let's first understand what Fragmented Liquidity is:

Fragmented liquidity is a situation in the DeFi market where liquidity is distributed among different trading platforms and is not centralised. Instead of having one large pool of liquidity, fragmented liquidity means that liquidity is divided into several smaller markets that may have a limited number of participants.

Example:

A user wants to sell assets, but there are not enough buyers in a particular market, he may face a problem finding a buyer or getting a low price for his assets.

Another example:

Protocol A with its own liquid pool and Protocol B with its own pool. Participants wishing to execute a trade between these protocols may face the problem of insufficient liquidity or slow execution speed.

This makes it difficult to ensure better price efficiency, fast trade execution, and high liquidity across different DeFi protocols.

Example for beginners:

Imagine you want to exchange your ETH for USDC using DEX. There are different liquid pools on DEX that supply liquidity for trading different tokens.

Fragmented liquidity occurs if there is not enough liquidity on DEX to allow efficient trading of ETH for USDC. This will lead to a problem with executing a trade at the desired price or even delay it for a long period of time.

Fragmented liquidity and 1INCH

1inch is a liquidity aggregator in the DeFi space. They combine liquidity from various DEX and protocols to provide the best price and most efficient transactions for users.

1inch algorithm searches for the best deals on different exchanges and protocols to ensure maximum liquidity and optimal price for the user. It uses smart contracts and different paths to exchange assets to minimize gas costs and ensure fast transaction execution.

1inch Aggregation Protocol plays an important role in solving the problem of fragmented liquidity.

How it works:

1inch aggregates liquidity from different DEX/protocols, allowing you to concentrate more assets in one place. This eliminates the need to manually search for the very best prices on different DEXs. Distributes a single trade across different DEX liquidity pools. This means that even large trades can be split into several smaller transactions executed in different liquidity pools.

This helps to avoid high slippage rates and provides a better execution price for users.

This greatly facilitates the process of finding the best price and ensures more efficient trading in the DeFi space.

The core part of the protocol is the 1inch v5 smart contract, which performs runtime verification of transaction execution.

View all integrated protocols on 1inch: 

1inch is the perfect tool to facilitate the process of finding the best price and help you work and earn money in the DeFi market.