Key points:
CoW DAO is a DeFi project that aims to improve user experience and security. It has three main tools: CoW Protocol, MEV Blocker and CoW AMM.
CoW Protocol is a trading tool that provides efficient pricing mechanisms and protection against adverse trading setups.
MEV Blockers is a transaction protection tool that helps users avoid transaction preemption and sandwich attacks.
CoW AMM is an automated market maker that uses a new model to protect liquidity providers from price exploitation.
What is CoW DAO?
CoW DAO is focused on building products on Ethereum that can enhance the security and trading experience of Web3 users. The project has three main tools: CoW Protocol, MEV Blocker and CoW AMM. They also offer development support, grants and other resources for these projects.
CoW Protocol: A trading tool that uses grouping of trades to find the best prices and increase liquidity.
MEV Blocker: A transaction protection tool that prevents transaction attacks by offering discounts to users.
CoW AMM: Automated Market Maker (AMM) that protects liquidity providers from price exploitation.
CoW DAO uses a decentralized governance model that allows community members to control protocol development.
CoW Protocol
Intention to perform the transaction
When trading with the CoW Protocol, instead of executing a trade directly, you sign an "intent to trade". This intent describes what and how much you want to trade, and the solvers find the best way to implement it.
Financial benefits
Solvers try to get the best prices for you by matching P2P deals (so-called Coincidence of Wants) or finding off-chain deals. This method lowers fees and avoids price manipulation, providing protection against MEV attack (maximum value that can be mined).
Technical advantages
The protocol supports batch auctions, allowing users to submit multiple transactions and even pay gas fees in tokens other than ETH. It also eliminates fees for failed transactions.
Solvers and package auctions
Solvers compete to process your trade intent in batches, striving to get you the best deal. Batch auctions provide protection against manipulation and allow setting the same prices for all transactions. This system prevents bots from exploiting the transaction order and supports P2P trading, reducing costs and increasing trading efficiency.
Order processing
CoW Protocol processes orders in four main stages:
Submission of Intent: Instead of placing an order directly, users submit a signed "intent to trade" with details of assets and amounts.
Grouping: The CoW Protocol combines several intents to commit a transaction into a packet.
Solver competition: Solvers have a short time to offer solutions in an effort to get the best prices for users. Whoever makes the best offer wins.
Execution: The winning solver executes the transactions and users receive their tokens.
This method is designed to reduce fees, increase prices and protect MEV.
Types of orders
As of November 2024, CoW offers six types of orders: market orders, limit orders, TWAP orders, programmable orders, Milkman orders, and CoW Hooks.
1. Market orders
They want to buy or sell immediately at the current price.
Solvers must execute the entire order or wait for liquidity.
Users set a slippage tolerance to account for price changes during execution.
2. Limit orders
Buying or selling at a certain price before expiration.
If the price reaches the target, the order is executed; otherwise it expires.
CoW Protocol processes them without gas commission and optimizes to offer the best prices.
3. TWAP orders
Break large orders into smaller trades over time to minimize price impact.
Users set assets, price limits, number of pieces and duration to control order execution.
4. Programmable orders
Automated deals based on specific conditions (eg price triggers).
Useful for complex strategies, DAOs, and protocol-level transactions.
5. Milkman warrants
Created at Yearn Finance in collaboration with CoW Protocol, Milkman orders rely on real-time pricing instead of fixed prices.
Milkman orders can be executed at a fair market price even if the orders are significantly delayed.
Useful for DAOs and governance-dependent transactions.
6. CoW Hooks
CoW Hooks allow users to perform special actions before or after transactions, such as transferring funds, staking, or claiming rewards.
CoW Hooks perform a combination of actions as a single transaction, allowing users to combine any Ethereum-related action with their CoW orders.
Developers and traders can express their intentions.
MEV Blocker
Developed jointly by CoW DAO, Beaver Builder and Gnosis DAO, MEV Blocker is a tool that protects users from transaction preemption and sandwich attacks. It sends transactions to a secure network, avoiding public pools that attract bots.
A preemptive transaction occurs when bots detect a large transaction in the queue and place their order before it, taking advantage of the expected price change. This often leaves the beginning trader with a worse price.
Lag trading occurs when bots execute trades immediately after a large trade so that they can capitalize on the price drifts left behind by the initial trade. This is less harmful as it does not affect the trader's initial price.
Sandwich attacks are a combination of the two, where a bot executes a transaction before and after the user's transaction, inflating the price and making a profit at the user's expense.
This tactic takes advantage of the transparent nature of blockchain networks, but can be countered with tools like CoW's MEV Blocker.
With MEV Blocker, users can also get a discount of up to 90% on backlog deals created by their own transactions. This tool is faster than standard transaction processes and provides users with real-time tracking and transparency. Many Web3-wallets like Uniswap and Trust Wallet have integrated MEV Blocker for more secure and more efficient trade.
CoW AMM
The LVR Problem
Liquidity Providers (LPs) often suffer losses because most AMMs do not adjust quickly enough to match the latest prices on major exchanges, leaving outdated prices used by arbitrage traders. This is known as the loss-versus-rebalancing (LVR) problem, which lowers LP profits.
To solve the LVR problem, CoW AMM uses a new mechanism called Function-Maximizing AMM (FM-AMM). This mechanism groups trades and sets a single clearing price for each lot, ensuring that trades take place at a fair, up-to-date price.
COW token
The COW token is the central element of the CoW protocol, acting as a governance token that allows stakeholders to participate in decision-making regarding the development and changes of the protocol. This governance system is designed to align the interests of users, developers and supporters, promoting a community-driven approach.
Results
CoW DAO offers innovative solutions to protect Ethereum users from manipulation, providing better trading, liquidity protection and decentralized management. With CoW Protocol, MEV Blocker and CoW AMM, users can enjoy lower fees, reduced risk and increased control over transactions.
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