#Market_Update #solana $XRP $BTC $ETH
basic ideas
CoW Decentralized Autonomous Organization is a decentralized finance project that aims to enhance user experience and safety. It includes three main tools: CoW Protocol, Maximum Extractable Value Blocker, and CoW Protocol Automated Market Maker.
CoW (Synchronization of Wishes) Protocol is a trading tool that provides efficient pricing mechanisms and protection from unfavorable trading setups.
Maximum extractable value blockers are a transaction protection tool that helps users avoid preemptive transactions and insider attacks.
CoW Protocol Automated Market Maker is an automated market maker that adopts a new model to protect liquidity providers from price manipulation.
What is a decentralized autonomous organization (CoW)?
The CoW decentralized autonomous organization focuses on building products on the Ethereum network that will enhance the security and trading experience for Web3 users. The project features three main tools: the CoW Protocol, the Maximum Movable Value Blocker, and the CoW Protocol Automated Market Maker. It also provides development support, grants, and other resources to these projects.
CoW Protocol: A trading tool that uses crowd trading to find the best prices and improve liquidity.
Maximum Extractable Value Blocker: A transaction protection tool that prevents attacks on trades while offering discounts to users.
CoW Protocol Automated Market Maker: An automated market maker (AMM) that protects liquidity providers from price manipulation.
The CoW Decentralized Autonomous Organization adopts a decentralized governance model that allows community members to control the development of the protocol.
CoW Protocol
Trading intention
When trading with the CoW protocol, instead of making a trade directly, you sign a “trade intent.” This intent describes what you are trading and how much you want to trade, and then the analysts find the best way to execute it.
Financial benefits
Analysts try to get the best prices by matching person-to-person trades (called wish synchronization) or finding off-chain trades. This method lowers fees and avoids price manipulation while providing protection from maximum extractable value (MEV) attacks.
Technical features
The protocol supports block auctions, allowing users to submit multiple trades and even pay processing fees in tokens other than ETH. It also eliminates fees for failed transactions.
Analysts and batch auctions
Analysts compete to process your trading intentions in batches, aiming to get you the best deal. Batch auctions protect against manipulation and allow for uniform pricing across trades. This system prevents bots from exploiting the order of trades, and supports person-to-person matching of trades, reducing costs and improving trading efficiency.
Processing requests
The CoW protocol processes requests in four main steps, which are as follows:
Submit Intent: Instead of submitting an order directly, users submit a signed “intention to trade” order with details about the assets and amounts.
Batching: CoW protocol aggregates multiple trading intentions into a single batch.
Analyst Competition: Analysts have a short time to propose solutions that aim to offer the best prices to users. The analyst with the best offer wins.
Execution: The winning analyst executes the trades, and users get their tokens.
This method is designed to lower fees, improve pricing, and provide maximum extractable value protection.
Types of requests
As of November 2024, the CoW protocol will support six order types: market orders, limit orders, time-weighted average price orders, programmatic orders, milkman orders, and CoW Hooks.
1- Market demands
Target to buy or sell immediately at the current price.
Analysts must execute the order in full or wait for liquidity to become available.
Users set a slippage tolerance to account for price changes during execution.
2- Limit orders
Buy or sell at a specified price before the expiration date.
If the price reaches the target, the order will be executed; otherwise, it will expire.
The CoW protocol addresses these issues without network transfer fees and is optimized to get the best possible rates.
3- Time Weighted Average Price Requests
Break large orders into smaller trades over time to reduce the impact on price.
Users specify assets and price limits and share account and duration to control order execution.
4- Software requests
Automated trading operations based on specific conditions (e.g. price triggers).
Useful for complex strategies, decentralized autonomous organizations, and protocol-level transactions.
5- Milkman Requests
Designed by Yearn Finance in collaboration with CoW Protocol, Milkman orders are based on real-time pricing rather than fixed prices.
Milkman orders can be executed at the fair market price even if orders are significantly delayed.
Useful for trading for decentralized autonomous organizations and governance-based trading operations.
6- CoW hooks
CoW hooks allow users to perform custom actions before or after trades, such as moving funds, storing, or claiming rewards.
CoW hooks execute a set of actions as a single transaction, allowing users to pair any Ethereum-related action with their CoW requests.
Developers and traders can express their intentions.
Maximum extractable value blocker
Developed by the CoW decentralized autonomous organization, Beaver Builder, and the Gnosis decentralized autonomous organization, the Maximum Extractable Value Blocker protects users from preemptive transactions and insider attacks. It sends transactions to a secure network, avoiding public pools that attract bots.
Preemptive trading occurs when bots detect a large transaction in the queue and place their orders ahead of it, taking advantage of the anticipated price change. This often leaves the original trader with a worse price.
Following trades occur when bots place trades immediately after a major trade, so that they can benefit from the price shifts left by the original trade. This is less harmful because it does not affect the original trader’s price.
Insider attacks are a combination of the two, where the bot places a trade before and after the user's transaction, inflating the price and making a profit at the user's expense.
These methods exploit the transparent nature of blockchain networks, but can be combated with tools like the CoW protocol's Maximum Extractable Value Blocker.
With the Max MVP blocker, users can also earn up to 90% off the next trades generated from their own transactions. This tool is faster than standard trades and offers users transparency and real-time tracking. Many Web3 wallets, such as Uniswap and Trust Wallet, have integrated Max MVP into their wallets for safer and more efficient trading.
CoW Protocol Automated Market Maker
Loss vs. Rebalancing Problem
Liquidity providers often lose because most automated market makers do not adapt quickly enough to match the latest prices on major trading platforms, leaving outdated prices for arbitrage traders to exploit. This is known as “loss versus rebalancing” (LVR) and is a problem that reduces liquidity providers’ profits.
To solve the “loss vs. rebalancing” problem, the CoW protocol’s automated market maker uses a new mechanism known as Function Maximization Automated Market Maker (FM-AMM). This mechanism groups trades into batches and sets a single clearing price for each batch, ensuring that trades occur at a fair and up-to-date price.
COW Token
The COW token is central to the CoW protocol, acting as a governance token that allows contributors to participate in decision-making for the growth and changes of the protocol. This governance system is designed to align the interests of users, developers, and supporters, and promote a community-driven approach.
Closing thoughts
The CoW decentralized autonomous organization offers innovative solutions to protect Ethereum users from manipulation, ensure better trading, liquidity protection, and decentralized governance. Through the CoW protocol, the maximum extractable value blocker, and the CoW protocol’s automated market maker, users can enjoy lower fees, less risk, and greater control over transactions.
