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.

Think you can predict the BTC market? Put your intuition to the test and grab your share of the $5,000 USDC reward pool! Join our daily “Bullish vs Bearish” voting campaign and connect with the crypto community by sharing your market sentiment.
Campaign Period: 2024-08-08 00:00 to 2024-08-14 23:59 (UTC)

How To Participate:
Vote on $BTC Direction and Share Insights:
Option 1: Visit the BTC trading page and vote whether the day will be bullish or bearish. Share your insights and reasoning behind your vote in an accompanying post.

Option 2: Create a post through the “+” posting button on Binance Square, adding the $BTC cointag, and vote bullish or bearish in the content editor.

Winning Criteria:
Bullish Votes Win: If the BTC price at the end of the day (daily close price) is higher than the price at the beginning of the day (open price).Bearish Votes Win: If the BTC price at the end of the day (daily close price) is lower than the price at the beginning of the day (open price).
Eligibility: 
Only the first prediction per day will be considered if a user makes more than one prediction.Voting and posts made between 21:00-24:00 UTC will not be counted as eligible entries.

Reward Structure:
Daily Challenge
Participate in our daily task! Users who post and vote in the correct direction will be eligible to share a $500 USDC prize pool each day. Join every day and predict correctly to win!
*Individual cap: $2 USDC per participant per day.
Extra Rewards: Make correct predictions for several days and earn additional rewards!

Terms & Conditions
This Activity may not be available in your region. Eligible users must be logged in to their verified Binance accounts whilst completing tasks during the Activity Period in order for the votes to count. Each day runs from 00:00 (UTC) to 23:59 (UTC). Rewards will be distributed in the form of token vouchers to eligible users within 21 working days after the Activity ends. Users will be able to log in and redeem their voucher rewards via Profile > Rewards Hub. Illegally bulk registered accounts or sub-accounts shall not be eligible to participate or receive any rewards. Binance reserves the right to cancel a user’s eligibility in this activity if the account is involved in any behavior that breaches the Binance Square Community Management Guidelines or Binance Square Community Platform Terms and Conditions.Binance reserves the right at any time in its sole and absolute discretion to determine and/or amend or vary these terms and conditions without prior notice, including but not limited to canceling, extending, terminating or suspending this activity, the eligibility terms and criteria, the selection and number of winners, and the timing of any act to be done, and all participants shall be bound by these amendments.Binance reserves the right to disqualify any participants who tamper with Binance program code, or interfere with the operation of Binance program code with other software.Binance reserves the right of final interpretation of this Activity.Additional promotion terms and conditions can be accessed here.There may be discrepancies in the translated version of this original article in English. Please reference this original version for the latest or most accurate information where any discrepancies may arise.