Binance Academy
--
What Is CoW DAO (COW)?
Key Takeaways
CoW DAO is a DeFi project that aims to enhance user experience and safety. 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 unfavorable trading setups.
MEV Blockers is a transaction protection tool that helps users avoid frontrunning and sandwich attacks.
The CoW AMM is an automated market maker that adopts a new model to protect liquidity providers from price exploitation.
What Is CoW DAO?
CoW DAO is focused on creating products on Ethereum that can enhance the safety and trading experience of Web3 users. The project features 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 group-based trades to find the best prices and improve liquidity.
MEV Blocker: A transaction protection tool that prevents attacks on trades while offering rebates to users.
CoW AMM: An automated market maker (AMM) that protects liquidity providers from price exploitation.
CoW DAO adopts a decentralized model of governance that allows community members to control the protocol’s development.
CoW Protocol
Intent to trade
When trading with the CoW Protocol, instead of placing a trade directly, you sign an “intent to trade.” This intent describes what and how much you want to trade, and solvers then find the best way to fulfill it.
Financial benefits
Solvers try to get you the best prices by matching peer-to-peer trades (called Coincidence of Wants) or finding off-chain deals. This method cuts fees and avoids price manipulation while offering protection from MEV (Maximal Extractable Value) attacks.
Technical benefits
The protocol supports batch auctions, letting users submit multiple trades and even pay gas fees in tokens other than ETH. It also eliminates fees for failed transactions.
Solvers and Batch auctions
Solvers compete to process your trade intents in batches, aiming to get you the best deal. Batch auctions offer protection from manipulation and allow for uniform pricing across trades. This system prevents bots from exploiting the order of transactions and supports peer-to-peer trade matches, reducing costs and improving trade efficiency.
Order processing
The CoW Protocol processes orders in four major steps:
Intent submission: Instead of placing an order directly, users submit a signed "intent to trade" with details on assets and amounts.
Batching: CoW Protocol groups multiple trade intents into a batch.
Solver competition: Solvers have a short time to propose solutions, aiming to get users the best prices. The solver with the best offer wins.
Execution: The winning solver executes the trades, and users receive their tokens.
This method is designed to reduce fees, improve prices, and offer MEV protection.
Order types
As of November 2024, CoW offers six order types: market orders, limit orders, TWAP orders, Programmatic orders, Milkman orders, and CoW Hooks.
1. Market orders
Aim to buy or sell immediately at the current price.
Solvers must fulfill the entire order or wait for liquidity.
Users set a slippage tolerance to account for price changes during execution.
2. Limit orders
Buy or sell at a specific price before an expiration date.
If prices hit the target, the order executes; otherwise, it expires.
CoW Protocol handles these without gas fees and optimizes for the best possible prices.
3. TWAP orders
Break large orders into smaller trades over time to minimize price impact.
Users set assets, price limits, split count, and duration to control order execution.
4. Programmatic orders
Automated trades based on specific conditions (e.g., price triggers).
Useful for complex strategies, DAOs, and protocol-level transactions.
5. Milkman orders
Created by Yearn Finance in collaboration with CoW Protocol, Milkman orders rely on real-time price feeds 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 trades.
6. CoW Hooks
CoW Hooks allows users to run custom actions before or after trades, like bridging funds, staking, or claiming rewards.
CoW Hooks executes a combination of actions as a single transaction, allowing users to pair any Ethereum-related action with their CoW orders.
Developers and traders are able to express their intent.
MEV Blocker
Developed by CoW DAO, Beaver Builder, and Gnosis DAO, the MEV Blocker is a tool that protects users from frontrunning and sandwich attacks. It sends transactions to a secure network, avoiding public pools that attract bots.
Frontrunning happens when bots spot a big transaction in the queue and place their order before it, taking advantage of the expected price change. This often leaves the original trader with a worse price.
Backrunning occurs when bots place trades right after a major transaction so they can cash in on price shifts left by the original trade. This is less harmful since it doesn’t impact the original trader’s price.
Sandwich Attacks are a combination of both, where a bot places a trade before and after a user’s transaction, inflating the price and profiting at the user’s expense.
These tactics exploit the transparent nature of blockchain networks, but they can be combated with tools like the CoW MEV Blocker.
With MEV Blocker, users can also earn a rebate of up to 90% from backrunning trades created by their own transactions. This tool is faster than standard transaction processes and gives users real-time tracking and transparency. Many Web3 wallets, like Uniswap and Trust Wallet, have integrated the MEV Blocker for safer, more efficient trading.
CoW AMM
The LVR problem
Liquidity providers (LPs) often lose out because most AMMs don’t adjust quickly enough to match the latest prices on major exchanges, leaving outdated prices that arbitrage traders exploit. This is known as the "loss-versus-rebalancing" (LVR) problem, which reduces profits for LPs.
To solve the LVR problem, the CoW AMM uses a novel mechanism called the Function-Maximizing AMM (FM-AMM). This mechanism batches trades and sets a single clearing price for each batch, ensuring trades happen at a fair, up-to-date price.
COW Token
The COW token is central to the CoW Protocol, acting as a governance token that lets stakeholders take part in decision-making for the protocol's growth and changes. This governance system is designed to align the interests of users, developers, and supporters, fostering a community-driven approach.
Closing Thoughts
CoW DAO offers innovative solutions to keep Ethereum users safe from manipulation, ensuring better trading, liquidity protection, and decentralized governance. Through CoW Protocol, MEV Blocker, and CoW AMM, users can enjoy lower fees, reduced risk, and increased control over transactions.
Further Reading
What Is a Decentralized Exchange (DEX)?
What Is an Automated Market Maker (AMM)?
What Are Web3 Wallets?
Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.
CoW DAO is a DeFi project that aims to enhance user experience and safety. 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 unfavorable trading setups.
MEV Blockers is a transaction protection tool that helps users avoid frontrunning and sandwich attacks.
The CoW AMM is an automated market maker that adopts a new model to protect liquidity providers from price exploitation.
What Is CoW DAO?
CoW DAO is focused on creating products on Ethereum that can enhance the safety and trading experience of Web3 users. The project features 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 group-based trades to find the best prices and improve liquidity.
MEV Blocker: A transaction protection tool that prevents attacks on trades while offering rebates to users.
CoW AMM: An automated market maker (AMM) that protects liquidity providers from price exploitation.
CoW DAO adopts a decentralized model of governance that allows community members to control the protocol’s development.
CoW Protocol
Intent to trade
When trading with the CoW Protocol, instead of placing a trade directly, you sign an “intent to trade.” This intent describes what and how much you want to trade, and solvers then find the best way to fulfill it.
Financial benefits
Solvers try to get you the best prices by matching peer-to-peer trades (called Coincidence of Wants) or finding off-chain deals. This method cuts fees and avoids price manipulation while offering protection from MEV (Maximal Extractable Value) attacks.
Technical benefits
The protocol supports batch auctions, letting users submit multiple trades and even pay gas fees in tokens other than ETH. It also eliminates fees for failed transactions.
Solvers and Batch auctions
Solvers compete to process your trade intents in batches, aiming to get you the best deal. Batch auctions offer protection from manipulation and allow for uniform pricing across trades. This system prevents bots from exploiting the order of transactions and supports peer-to-peer trade matches, reducing costs and improving trade efficiency.
Order processing
The CoW Protocol processes orders in four major steps:
Intent submission: Instead of placing an order directly, users submit a signed "intent to trade" with details on assets and amounts.
Batching: CoW Protocol groups multiple trade intents into a batch.
Solver competition: Solvers have a short time to propose solutions, aiming to get users the best prices. The solver with the best offer wins.
Execution: The winning solver executes the trades, and users receive their tokens.
This method is designed to reduce fees, improve prices, and offer MEV protection.
Order types
As of November 2024, CoW offers six order types: market orders, limit orders, TWAP orders, Programmatic orders, Milkman orders, and CoW Hooks.
1. Market orders
Aim to buy or sell immediately at the current price.
Solvers must fulfill the entire order or wait for liquidity.
Users set a slippage tolerance to account for price changes during execution.
2. Limit orders
Buy or sell at a specific price before an expiration date.
If prices hit the target, the order executes; otherwise, it expires.
CoW Protocol handles these without gas fees and optimizes for the best possible prices.
3. TWAP orders
Break large orders into smaller trades over time to minimize price impact.
Users set assets, price limits, split count, and duration to control order execution.
4. Programmatic orders
Automated trades based on specific conditions (e.g., price triggers).
Useful for complex strategies, DAOs, and protocol-level transactions.
5. Milkman orders
Created by Yearn Finance in collaboration with CoW Protocol, Milkman orders rely on real-time price feeds 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 trades.
6. CoW Hooks
CoW Hooks allows users to run custom actions before or after trades, like bridging funds, staking, or claiming rewards.
CoW Hooks executes a combination of actions as a single transaction, allowing users to pair any Ethereum-related action with their CoW orders.
Developers and traders are able to express their intent.
MEV Blocker
Developed by CoW DAO, Beaver Builder, and Gnosis DAO, the MEV Blocker is a tool that protects users from frontrunning and sandwich attacks. It sends transactions to a secure network, avoiding public pools that attract bots.
Frontrunning happens when bots spot a big transaction in the queue and place their order before it, taking advantage of the expected price change. This often leaves the original trader with a worse price.
Backrunning occurs when bots place trades right after a major transaction so they can cash in on price shifts left by the original trade. This is less harmful since it doesn’t impact the original trader’s price.
Sandwich Attacks are a combination of both, where a bot places a trade before and after a user’s transaction, inflating the price and profiting at the user’s expense.
These tactics exploit the transparent nature of blockchain networks, but they can be combated with tools like the CoW MEV Blocker.
With MEV Blocker, users can also earn a rebate of up to 90% from backrunning trades created by their own transactions. This tool is faster than standard transaction processes and gives users real-time tracking and transparency. Many Web3 wallets, like Uniswap and Trust Wallet, have integrated the MEV Blocker for safer, more efficient trading.
CoW AMM
The LVR problem
Liquidity providers (LPs) often lose out because most AMMs don’t adjust quickly enough to match the latest prices on major exchanges, leaving outdated prices that arbitrage traders exploit. This is known as the "loss-versus-rebalancing" (LVR) problem, which reduces profits for LPs.
To solve the LVR problem, the CoW AMM uses a novel mechanism called the Function-Maximizing AMM (FM-AMM). This mechanism batches trades and sets a single clearing price for each batch, ensuring trades happen at a fair, up-to-date price.
COW Token
The COW token is central to the CoW Protocol, acting as a governance token that lets stakeholders take part in decision-making for the protocol's growth and changes. This governance system is designed to align the interests of users, developers, and supporters, fostering a community-driven approach.
Closing Thoughts
CoW DAO offers innovative solutions to keep Ethereum users safe from manipulation, ensuring better trading, liquidity protection, and decentralized governance. Through CoW Protocol, MEV Blocker, and CoW AMM, users can enjoy lower fees, reduced risk, and increased control over transactions.
Further Reading
What Is a Decentralized Exchange (DEX)?
What Is an Automated Market Maker (AMM)?
What Are Web3 Wallets?
Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.
Izjava o omejitvi odgovornosti: Vključuje mnenja tretjih oseb. Ni finančni nasvet. Lahko vključuje sponzorirano vsebino. Glejte Pogoje.
Odgovori 0