With Trump's victory, crypto assets saw a surge across the board, but the most notable project was COW, which just launched on Binance and saw a peak increase of 204%.
Some believe that COW's significant increase after listing on Binance is due to selecting a good timing; others claim COW is Vitalik's favorite exchange, as he uses cows to exchange every time he dumps coins, thus COW itself carries meme attributes. But are these claims really insightful?
Another SUI ecosystem DeFi project CETUS, which went live on Binance the same day, also benefited from the recent strong performance of SUI, but its peak increase only reached 100%. In contrast, COW's performance stands out.
Introduction to CoW Swap
CoW Swap is a centralized trading protocol based on Ethereum and Gnosis that offers batch trading, intent matching, and MEV protection features. The protocol originated from Gnosis Protocol V1 launched in 2020, primarily achieving flash trading through batch auction mechanisms. After the launch of version 2, the protocol was officially renamed CoW Swap and further optimized trading experience and security.
Addressing the MEV issue in DEX
Currently, decentralized exchanges (DEX) are generally facing the MEV (Maximal Extractable Value) problem, leading to issues such as front-running and sandwich attacks for users. MEV bots gain undue profits by cutting in line and raising transaction prices. According to data from Galaxy Digital, the profits extracted by MEV bots from Ethereum traders range from $300 million to $900 million.
Advantages of CoW Swap
Unified clearing price: CoW eliminates the importance of trade order through a unified clearing price mechanism, preventing MEV bots from profiting by reordering trades.
Delegated trade execution: Solvers are introduced as third parties to execute trades on behalf of users, avoiding direct exposure to MEV risks. Solvers must ensure execution results are no lower than the signed price and reduce MEV risks through off-chain liquidity.
Demand coincidence: By matching transactions peer-to-peer, the CoW protocol bypasses on-chain liquidity, fundamentally eliminating MEV attacks and improving trading efficiency and fairness.
Demand coincidence (CoW) mechanism of CoW Swap
The 'CoW' in CoW Swap is not arbitrary; it is actually a shortening of 'Coincidence of Wants'. This mechanism allows both parties in a transaction to exchange assets directly without relying on on-chain liquidity.
For example, suppose Alice wants to exchange 0.5 ETH for $1,000 worth of DAI, while Bob wants to exchange 1,500 DAI for 0.75 ETH. On a traditional DEX (like Uniswap), Alice and Bob would trade through a liquidity pool; but on CoW Swap, their orders can be matched directly for a peer-to-peer exchange, passing through the liquidity pool. This method not only saves liquidity provider fees and gas fees but also avoids slippage and MEV attacks.
If trading demand cannot be fully matched, CoW Swap will batch the unmatched orders on-chain, effectively reducing the gas fees for each transaction, similar to how Layer 2 improves transaction efficiency.
Additionally, CoW Swap introduces the innovative 'Ring Trade'. Orders from multiple traders share liquidity to form an initial trade rather than a single token pair. This model splits trades into multiple parts, reducing costs and minimizing the high trading fees and complex routing demands of traditional AMMs.
Innovative trading mechanism: Intent trading
The CoW Protocol introduces an innovative 'intent trading' model, making trading methods more flexible and efficient. Users do not need to initiate trades directly but instead submit a signed order (i.e., trading intent) that defines the assets they want to trade within a specified timeframe, eliminating concerns about slippage, liquidity pool selection, and other details. These signed orders are delivered off-chain to 'solvers', who compete to find the best execution path within the reduced orders, with the winning solver ultimately gaining execution rights.
This significantly enhances the user experience: solvers bear the gas fees for the transactions, and if a transaction fails to execute (for example, if a suitable path is not found before the order expires), the user incurs no gas fees, reducing transaction risk. On CoW Swap's interface, users can clearly guarantee the minimum price for execution. Furthermore, with batch trading and the CoW mechanism, traders often achieve expected prices, known as 'price optimization', which showcases CoW Swap's exceptional performance in optimizing user experience.
Economic model and market capitalization
COW is the governance token of the Cow Protocol, with a total supply of 1 billion, of which 90.25 million are in circulation (accounting for 9.02%), with a market capitalization of $142 million. Token distribution:
44.4% to the national treasury;
15% to the team;
10% to GnosisDAO;
10% for ecological investment;
0.6% for rewarding guiding proposals;
10% for airdrops;
10% for protocol development governance: COW holders can participate in CoW DAO governance, voting to determine key parameters and development directions of the protocol, safeguarding the community's common interests.
Incentive mechanism: COW tokens are used to reward solvers who provide the best trading paths for the protocol, encouraging them to continuously optimize trade execution and enhance user experience.
Fee distribution: The CoW Protocol plans to introduce a protocol fee mechanism, with part of the revenue used for buybacks and burning COW tokens, reducing market supply and enhancing the token's potential value.
Market analysis and price prediction
Cow Swap stands out with its innovative features such as anti-MEV, gas-free trading, and advanced orders, providing solutions for on-chain trading users. Its design philosophy is exquisite, and user experience is excellent, performing prominently in the competitive DEX aggregator market. Latest data shows that the protocol's trading volume exceeded $3 billion last month, with revenue reaching $870,000, demonstrating strong market appeal and growth potential.
Cow Swap's market share in the aggregated trading sector has shown a steady upward trend, rising from 17% at the beginning of the year to 30%, narrowing the gap with 1inch to 9 percentage points. However, Cow Swap currently has a market capitalization of $140 million, which is less than half of 1inch. This valuation difference has sparked discussions about its potential value being underestimated. Analysts generally believe that as Cow Swap continues to expand its market influence and improve its ecosystem, its valuation is expected to rise significantly.
