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George Hristov


When CoW DAO released [CoW AMM](https://cow.fi/cow-amm), its goal was simple: help liquidity providers keep hold of their liquidity. Why was this a problem? Outside of stable-to-stable pools, liquidity providers typically lose 5-7% of their liquidity each year. It’s the dirty secret of automated market making: [hundreds of millions of dollars](https://cow.fi/cow-amm) of LP funds are stolen by arbitrageurs every year.

  

These losses are known as loss-versus-rebalancing (LVR). LVR is a bigger source of MEV than frontrunning and sandwich attacks combined. [CoW AMM](https://cow.fi/cow-amm) is the first product CoW DAO built that directly keeps LVR out of liquidity pools.

  

Since its inception, LPs have been protected from LVR, and also benefited from [CoW AMM](https://cow.fi/cow-amm)’s batch auction and solver system. This has meant LPs have enjoyed [additional surplus](https://dune.com/cowprotocol/cowamms), as solvers work to find the most effective way of rebalancing liquidity pools.

  

Providing liquidity on [CoW AMM](https://cow.fi/cow-amm) has changed the liquidity provider game to such an extent, CoW AMMs behave more like Enhanced Index Funds than the leaky pools of old.

  

In this article we explain why that’s happened, and what doors [CoW AMM](https://cow.fi/cow-amm)s open for more sophisticated pools in future. CoW AMMs are evolving, fast, meaning the possibilities for liquidity providers are changing too.

## What is an Index Fund?

  

An index fund is a type of mutual fund (a professionally managed investment portfolio that pools money from many investors to purchase securities) or exchange-traded fund (ETF) that tracks the performance of a specific index by buying stocks of every company in that index.

  

Index funds are a popular choice for investors because they are a low-cost way to diversify their investments, all the while being passive: no fund manager is actively creating an investment strategy, and charging hefty fees for the privilege. They are so popular, index funds, as well as other kinds of passive investors [hold 33.5% of the US stock](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4188052) market.

  

Index funds typically outperform hedge funds running fancy investment strategies. So much so, legendary investor Warren Buffett made a [$1 million bet](https://www.bloomberg.com/news/videos/2024-07-30/buffett-s-famous-bet-on-the-s-p-500-and-hedge-funds?sref=23bomWKL) in which he wagered that an S&P 500 index fund would outperform a hedge fund over ten years.

  

These funds can be designed to track anything from the price of a commodity to a large and diverse collection of securities. ETFs, or exchanged traded funds meanwhile, can be designed to track specific investment strategies. Those strategies could be for different purposes: income generation to speculation or to partly offset risk in an investor’s portfolio.

  

But these aren’t the only types of Index Funds. There are also Enhanced Index Funds, which we explore in the next section.

## What is an Enhanced Index Fund?

  

If an Index Fund is a passive fund, an enhanced index fund (EIF) is a fund that uses active management to improve returns. They typically use a combination of active and passive investing strategies to generate returns that are higher than the benchmark while keeping risk within a controlled level.

  

The ‘enhanced’ part of the Index Fund is where experts assess which assets inside an index are performing strongly, and which are performing poorly. Once identified, an EIF can be rebalanced, to increase the weighting of one asset, and reduce the asset for another to help the overall fund perform better.

  

This management falls under a broader category called portfolio theory. It is a branch of finance that studies how people should design their portfolios. At a super high level, it says that:

-   People should care both about expected returns and risk.
    
-   Holding multiple assets instead of a single asset (i.e., diversification) is valuable because it reduces risk.
    
-   The problem with diversification is deciding how much to invest in each asset, and several theories exist on how to do so. But broadly speaking, an asset should constitute a higher share (or weight) of the portfolio if its expected future return is high, its volatility is low, and its correlation with the rest of the portfolio is also low.
    

  

Now that we understand the principles behind Index Funds and Enhanced Index Funds, let’s turn to how [CoW AMM](https://cow.fi/cow-amm)s behave like EIFs, and what that means for crypto more broadly.

## What is a CoW AMM?

  

[CoW AMM](https://cow.fi/cow-amm) is the first product on any blockchain to tackle the Loss-Versus-Rebalancing problem head on.

  

LVR is a form of maximal extractable value (MEV) responsible for more price exploitation than all other forms of MEV combined. Many liquidity providers haven’t even heard of LVR, but it costs them 5–7% of their liquidity, resulting in hundreds of millions lost each year. In fact, when accounting for LVR, many of the largest liquidity pools are not profitable for LPs at all.

  

The [CoW AMM](https://cow.fi/cow-amm) is a special kind of automated market maker designed to help liquidity providers capture MEV from arbitrageurs.

  

Here’s how it works:

1.  Liquidity providers deposit tokens into protected [CoW AMM](https://cow.fi/cow-amm) liquidity pools
    
2.  This liquidity becomes available to CoW Swap traders, who can access it similarly to other sources of liquidity
    
3.  Solvers bid to rebalance [CoW AMM](https://cow.fi/cow-amm) pools whenever there is an arbitrage opportunity
    
4.  The solver that offers the most surplus to the pool wins the right to rebalance the pool
    

  

This design eliminates LVR by capturing arbitrage value for LPs and shielding it from MEV bots.

Said another way: while most AMMs allow arbitrageurs to make money at the expense of their LPs, CoW AMM protects this money for the LPs instead.

## Why does a CoW AMM act as an Enhanced Index Fund?

  

As highlighted in earlier sections, Index Funds passively follow an asset or strategy. Because LVR is removed, whenever prices change the AMM will be rebalanced so to make sure that its total TVL is split between the different assets in a pre-specified way: 50/50 for standard constant product, and 80/20 for 80/20 pools.

  

The AMM therefore behaves like a simple index with two components. But CoW AMM pools go one step further: liquidity providers earn trading fees whenever liquidity in the AMM is used to fulfil a user order.

  

Does this mean all liquidity pools can be considered to behave similarly to an Enhanced Index Fund. Not exactly. The simple answer is LVR. CoW AMM was the first on-chain product that solves this. Other pools leak liquidity meaning they aren’t as viable an option as a CoW AMM for investors looking for more consistent returns.

  

With the launch of 80/20 pools, LPs have more options. These pools now offer features including:

  

- Asymmetric upside

- Reduced impermanent loss

- Hedging

  

In essence, these pools can maximize exposure to the native token while providing an avenue to boost returns via trading fees and token rewards.

## But this is just the beginning

  

For now, this is limited to simple, fixed-weight rebalancing strategies, but in the future, more complex passive investment strategies will be possible. For example, a multi-token [CoW AMM](https://cow.fi/cow-amm) could have a “manager” who can change its weights and add and remove assets.

  

At present CoW AMM pools feature just two assets. But in future, CoW AMMs will be capable of hosting multi-asset pools. Over on Balancer, there are already [8-asset pools](https://medium.com/balancer-protocol/the-benefits-of-multi-token-pools-653eea3ef03a) featuring multiple tokens within a single pool.

  

Liquidity providers are able to set up their own pools with custom token splits and weights. This level of customization helps providers have full control over their portfolios and plan to reduce their exposure to risky assets. It also enables low-fee swaps for traders using those same pools.

  

CoW DAO has plans to bring multi-asset pools with customisable weights to liquidity providers in future with its class-leading LVR protection. They’re called Decentralized Trading Funds or DTFs.

  

The Decentralized Traded Fund offers the chance for holders to earn a passive income. It combines the ability to gain exposure to assets, but also the ability to enter and exit the fund whenever it is convenient. On top of that, a DTF does not require holders to pay a fee to CoW DAO. More on that in the coming weeks.

  

The end game is a market mechanism that allows retail investors who want to run simple passive investment strategies to do so by contributing liquidity to AMMs, while earning additional returns.

  

If traditional finance is an indication, these AMMs could attract up to a third of the total market cap of various assets as liquidity, providing super-efficient trading at close to zero slippage.

  

Decentralized finance will finally provide better market mechanisms than traditional finance, opening the door to rebuilding the financial system on blockchain rails.

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Thanks to CoW AMM's LVR busting capabilities, LPs can earn passive income, in new and exciting ways.

Why CoW AMMs Act as Enhanced Index Fund

![CoW-Case-Study-Qantura-main-image.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Co_W_Case_Study_Qantura_main_image_3519f259be.png)
TL:DR

  

-   [Qantura](https://www.qantura.com/) provides a seamless integration layer that transforms how smart wallets engage with blockchain applications.
    
-   In order for their service to work, it needed a Meta DEX with built-in MEV protection to allow users to swap their yield tokens whenever they tap the VISA card to spend money on real-world items.
    
-   The Qantura team chose CoW Protocol to create a seamless way to rebalance customer wallets.
    
-   The result was a first-of-its-kind application that enables frictionless payments with yield-bearing assets.
    
-   Within the first month after the release, the project saw more than $100,000 USD settled.
    

## Introduction

  

CoW DAO builds products that help keep users safe. But it also builds products that other people can use and integrate. One of those is CoW Protocol. With its built-in MEV protection, simple user interface, customized order functionality, and ease of integration, projects looking for a way of providing better prices for its users while keeping them safe look no further.

## The client

  

[Qantura](https://www.qantura.com/) provides a seamless integration layer that transforms how smart wallets engage with blockchain applications. The company leverages account abstraction to simplify complex blockchain interactions while maintaining the highest security standards. Founded by crypto OGs and security experts, they're making it effortless for wallets to expand their capabilities using their plug-and-play modules. They have already partnered with industry leaders like [Zeal Wallet](https://www.zeal.app/) and [Gnosis Pay](https://gnosispay.com/).

## Identifying the problem and challenges

  

Historically, if someone wanted to pay in crypto, the merchant would have to accept that token directly or use a service provider that performed the conversion from cryptocurrency to cash. With Gnosis Pay, that’s no longer the case.

  

Gnosis Pay is the world’s first on-chain spending account with a Visa Debit Card linked to a self-custodial blockchain wallet, and thanks to [Monerium](https://monerium.com/), users with EURe, or GBPe stablecoins can now spend their currency anywhere where Visa is accepted, with a series of on-chain transactions taking place in the background. However, if a user leaves stablecoins sitting in their wallet, they’re not only missing out on yield farming but also on any capital appreciation they expect in other crypto assets.

  

Instead of simply having customers sit with idle capital on their Gnosis Pay account, Qantura wanted to offer users the opportunity to earn yield and spend that yield on whatever they liked. Qantura teamed up with Zeal and Gnosis Pay, to build a unique feature: allow customers to switch stablecoins to yield-bearing tokens in order to capture such yield, while still being able to spend money on real-world transactions.

  

While that sounds simple in theory, the devil was in the details. In order for all this to work, Qantura “needed a flexible system that worked for swapping any ERC20 token and that ensured users got competitive prices” says a member of Qantura’s team. Additionally, because most of their system is based on smart contracts, they needed a protocol that worked with [ERC1271](https://cow.fi/learn/eip-1271-explained) orders. This allowed them to have their smart contract sign the intent to trade transactions whenever the user actually tapped the card on a payment terminal.

  

Based on all these requirements, the team needed a solution that offered smart contract orders that could be customised to suit what they were building. So they turned to CoW Protocol.

## Working with CoW

  

The team were already familiar with CoW DAO’s suite of products and services, and had been regular users of CoW Swap already.

  

“CoW Protocol offered the flexibility we needed as far as token breadth goes via ERC1271 orders, and its off-chain solver competition did it for us in terms of offering a mechanism that incentivised competitive pricing in rebalancing trades.”  
  
Qantura systems use ERC-1271 smart contract signature verification for order placement. This means that when the user account is deployed, (aka the user wants to earn yield on the funds sitting on their Gnosis Pay card), the yield token is immediately approved on the CoW Protocol settlement contract.

  

This means that now, any third party can create an order as long as it satisfies the wallet’s isValidSignature() function, which in this case would be “Swap my yield token to EURe/GBPe with the best price you can find so that the user can rebalance their card after paying for the coffee bill”. For this to happen, the system places the order via CoW Protocol’s orderbook, which is eventually forwarded to solvers as part of the batch auction process.

  

While monitoring performance, Qantura analyzed nearly 4,000 trades and compared their settled sDAI/EURe prices with a proxy oracle. There’s no oracle in Gnosis chain for sDAI/EURe, so they built a sDAI/EURe proxy oracle instead.  
  

CoW Swap’s unique solver system delivered the most competitive prices than any other venue, and was on par to the comparison model.
![cow-protocol-case-study-qantura.jpeg](https://celebrated-gift-f83e5c9419.media.strapiapp.com/cow_protocol_case_study_qantura_4232e2e475.jpeg)


The graph above highlights Cow Swap’s performance against the price oracle. The median percentage difference between the price of the proxy oracle and CoW Protocol´s found price was just 9 basis points, meaning users typically paid just 0.09% more than the oracle. In the figure, the blue outliers are small amounts of around 1 sDAI.

## The solution

  

The finished product? Recharge. Built in partnership with Zeal Wallet and Gnosis Pay, it allows users to spend yield-bearing tokens via Gnosis Chain in the real world with a Visa card. In the backend, meanwhile, a complex rebalancing takes place to ensure assets are able to be converted for a competitive price and moved to the right places at the right time. It’s a unique showcase of what happens when TradFi meets DeFi composability.

  

Where does CoW Protocol feature in this unique solution? CoW Protocol was integral to ensuring that when rebalancing happens, the execution cost is as low as possible and the best price is achieved.

How does Recharge work? Let’s look at an example. But before you do, we need to clarify a few terms:

  

-   EURe - this is the first fully authorized and regulated euro stablecoin.
    
-   sDAI - or Savings DAI is a token that allows users to earn yield from holding DAI.
    
-   Recharge Smart Contracts - Recharge is a feature that allows Zeal wallet users to maintain a minimum amount of a given currency at any time via the Coordinator. When the amount drops below a threshold, the wallet automatically rebalances itself by swapping one currency for another. In this example, we’ll be using sDAI and EURe. The Coordinator is a smart contract that starts the rebalance once a threshold has been reached.
    

  

### Let’s take a closer look at an example:
![Screenshot 2024-10-25 at 8.39.00 AM.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Screenshot_2024_10_25_at_8_39_00_AM_db0ac99d12.png)


-   (1) Alice pays 5 EURe with her Gnosis Pay card. Before that, Alice had set up rebalance with sDAI and EURe.
    

  

-   (2) Prior to the transaction at the coffee shop, Alice had 1,000 EURe in her Gnosis Pay safe account.
    

  

-   (3) She had also set up her Coordinator smart contract to top up whenever her wallet dropped below 1,000 EURe.
    

  

-   (4a) Qantura's automation service detects Alice’s setup and notices that the new balance of the account is 995 EURe. This takes her below the threshold.
    

  

-   (4b) The service sees that Alice holds 5K sDAI, enough to top up the account.
    

  

-   (4c) The bot drafts the rebalance order, making sure that it meets all conditions specified by the sDAI account including that the order is:
    

  

-   Selling sDAI
    
-   Buying EURe
    
-   Issuing a buy order for 5 EURe
    
-   Sending the funds to the intended receiver; i.e., the user’s Gnosis Pay Safe
    

  

-   (4d) A bot posts the order to CoW Protocol’s orderbook.
    

  

-   (5) The order is forwarded to all solvers as part of the auction process, where they compete to provide the best possible price at the lowest execution cost.
    

  

-   (6) CoW Protocol executes the winning solution, sending 5 EURe to the Gnosis Pay Safe and pulling the sDAI from Alice's sDAI account. The amount pulled is determined by the auction.
    

  

-   (7) Alice's Gnosis Pay Safe is now balanced again.
    

  

CoW Protocol is instrumental in allowing this to happen smoothly. CoW Protocol´s competition pushes solvers to get as much surplus as possible. In the case of Alice, solvers will submit a solution that gets 5 EURe for the least amount of sDAI.

  

## The result

  

Since Recharge launched, more than $100,000 USD has been settled. At the time of writing, there is more than 300k USD generating yield for users. You can follow live metrics on [Qantura's Recharge Dashboard](https://dune.com/steakhouse/qantura-rebalance).

  

Qantura is revolutionizing the payments industry by allowing users to remain capital-efficient in a self-custodial setup. That’s a tall order. But then again, CoW DAO is the place people go to build big things.

## CTA

  

Want to get in touch with Qantura for more details about their solution powered by CoW Swap? [Get in touch with Qantura](https://x.com/QanturaTech).

  

Want to work with CoW DAO’s class-leading suite of products? [Head this way](https://forum.cow.fi/).

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Welcome to CoW Case Studies: in this series we explore how partners used CoW Protocol to build their products.

How Qantura Harnessed CoW Swap To Power the Future of Payments

When it comes to making high volume trades, experts love CoW Swap. In the last few months, several high profile traders have all taken advantage of CoW Swap’s unique feature set to settle trades involving large amounts of tokens. DAOs and multisig wallets have also used CoW Swap to complete large volume trades. But why?

  

This article is going to explain why CoW Swap has become the go to meta-DEX for pros.

  

TL:DR it’s because CoW DAO has a number of unique features that gives traders more control over their assets.

  

## CoW Swap Reduces Slippage

[Slippage](https://cow.fi/learn/what-is-slippage-in-crypto) is the amount the price of an asset may vary between the time the trade is placed and the time it actually executes.

  

To better understand slippage, let’s take a look at an example.

  

Let’s say a user places an order to buy 1 ETH while the price of ETH is exactly $3,000. By the time the order executes, however, ETH has shifted slightly in price and the user ends up only paying $2,980 for 1 ETH. The $20 difference between the $3,000 that they initially placed their order at and the $2,980 per ETH price that the order eventually executed for is known as slippage.

  

In the world of decentralized exchanges, users can set what’s called their slippage tolerance, how far from the price they want they are willing to accept - as a percentage.

  

When it comes to high volume trades, the amount of slippage that has to be set in order for a trade to complete can become prohibitive, especially when the trade is with a token with low liquidity. It’s also a key area for exploitation. MEV bots look for trades with high slippages in order to exploit price differences. But on CoW Swap, that doesn’t have to be the case, thanks to solvers.

  

Solvers are specialized actors that search for the best prices on transactions you want to execute. One of their roles is finding the best liquidity pathway for the tokens you want to trade. They do that in two distinct ways.

  

The first is aggregation. CoW Swap solvers search all major sources of liquidity. That includes the likes of 1inch, Uniswap, 0x, and Paraswap. A CoW Swap solver does the hard work of searching through all these sources looking for the best price. But solvers go one step further. They search off-chain liquidity sources, accessing liquidity pools that aren’t found on other DEXes. If they find the right source off-chain, they can secure a better price.

  

Another key function Solvers perform is they can and do split large trades between multiple liquidity sources to reduce price impact. If a trader went to one DEX and attempted to make one single transaction, it would have a bigger impact on price. With CoW Swap, a solver will look for the most effective way to make your transaction by splitting it into smaller chunks across multiple DEXes.

  

Traders, too, have the option of breaking up their transactions into smaller chunks. They can do that via [TWAP Orders](https://cow.fi/learn/why-twap). Time-Weighted Average Price transactions, or TWAPs split the trade into lots of smaller trades over time. This helps manage the amount of slippage each trade will incur if you had made a large, single trade, thanks to a reduction in price impact.

## Protecting Slippage Tolerance

  

As we discussed in the previous section, slippage is a key part of trading in the DeFi space. Because markets never close, prices are always moving, meaning the price you sell and ultimate price you receive can often be different. While that’s a core part of the DeFi experience, another part is MEV.

  

Maximum Extractable Value is a feature that allows sophisticated actors to search the mem pool for transactions they can profit from. One of the most common attacks is to search for high slippage trades in the mem pool, and exploit them by placing trades in the queue either before or after your trade. For a full explanation of how [MEV works, step this way](https://cow.fi/learn/what-is-mev). With CoW Swap, traders do not have to worry: MEV protection is built in.

  

One of the key ways CoW Swap does that is with its Solver system. When solvers receive an order request, it is hidden from the mem pool, meaning no one can swoop in and exploit your slippage setting to make a quick buck.

  

Additionally, because the Solver system is a competition between different entities trying to find the best price, the system ensures the best prices - with the lowest slippage tolerance - wins. In other words, solvers are incentivised to find the best prices, and help achieve the biggest surplus, by finding paths that help protect against slippage tolerance attacks.

  

Lastly, when there’s a Coincidence of Wants - an economic phenomenon where two parties swap assets with one another peer-to-peer - buyers and sellers are matched directly, meaning the transaction cannot be attacked by bots lurking in the mem pool.

## Gives traders more than they ask for

The price we want and the price we get in crypto can and often is, different. On CoW Swap, there are a number of features that help traders get as close to the prices they want as possible - and sometimes even more!

  

This section explores one of the many ways CoW Swap helps give traders more than what they ask for.

### Coincidence of Wants (CoWs)

  

As discussed in the previous section, Coincidence of Wants are moments when a buyer and seller can complete a transaction directly. When this happens, sellers and buyers don’t incur the same fees or run the same risks as they might trying to complete an order on a DEX or centralized exchange.

  

That means better prices. How? When a buyer and a seller are involved in a CoW, they don’t incur the usual fees to use an AMM - which can add up if it's a large transaction.

### Privileged Pricing for Traders

  

Using CoW Swap directly often means traders can gain access to prices only reserved for pros! CoW Swap’s unique relationship with projects like Balancer allows traders to access reduced fees, [by as much as 75%](https://forum.balancer.fi/t/bip-295-fee-discount-for-cowswap-solvers/4785) when Solvers use liquidity on the network.

  

If Solvers complete their trades using CoW AMM pools meanwhile, no fees are added. That’s because CoW AMM liquidity pools are treated as standing limit orders; if they're included in a batch, it's a CoW with no AMM fees. If you want to understand how CoW AMM works, [head this way.](https://cow.fi/cow-amm)

### Batch Pricing

  

Thanks to the unique Batch Auction feature found on CoW Swap, traders get improvements on prices thanks to transactions being processed in blocks rather than one at a time. Let’s explain. The process starts with traders signaling they want to trade by sending what’s called an “intent to trade” message to CoW Swap.

  

The DEX takes these orders and groups them together into something called batches. Those batches are then sent to solvers, whose job it is to find the best prices for those transactions. The solver that finds the best price for the batch executes the order. Any surplus - the difference between the price quoted and the final price - is partially returned to the traders.

## Better UX for advanced traders

  

When traders are performing lots of trades, the last thing they need is complicated UX. CoW Swap has refined the experience to give traders ultimate control of how they execute their trades. Let’s take a look at a few examples.

### Improved multisig experience

  

Large traders, which can often include DAOs and other types of organisations, typically require transactions to be signed by more than one wallet for security purposes. On many DEXes that can be a time-consuming experience. But not on CoW Swap! That’s because traders using CoW Swap get the price at the time of execution instead of at the time of submission. What does that mean?

  

Let’s say you have to gather the signatures of five different wallets to execute a trade. Meanwhile, prices are constantly moving. By the time you have gathered your signatures, the price might have changed significantly enough to either lead to a transaction failing, or it being exploited by MEV bots. Not on CoW Swap.

  

Because it uses a solver system, the price of the trade is only confirmed when the trade is completed, not when it is started. Because solvers are working on your behalf, the user experience means you’re less likely to experience a failed transaction because you’ve missed your price.

### Milkman, CoW Swap’s secret UX sauce

  

For traders looking to trade at some point in the future, on traditional DEXes that’s a challenge. That’s why CoW DAO built [Milkman](https://cow.fi/learn/what-is-milkman-cow-swaps-solution-for-delayed-execution-trading). Milkman is a specialized smart contract for advanced traders that lets them set their slippage tolerance for trades in the future.

  

Many smart contract wallet users, such as DAOs, frequently need to create these types of orders. Take the following examples:

-   DAOs that need trades to execute after passing a governance process
    
-   Groups that need hours to collect signatures to execute trades from a multisig wallet
    
-   Applications that process automated swaps years in the future (e.g. for payroll or treasury management).
    

  

Milkman is a smart contract that solves all of this. Let’s take a look at an example.

  

Let’s say you want to sell 1000 ETH for USDC, but you want to do it far in the future. To protect yourself from volatile price movements, you can ask Milkman to create the order and specify a minimum amount you’re willing to accept for the trade. Milkman tracks prices using oracles.

  

When the time comes to execute your trade, CoW Protocol will receive it and solvers will compete to improve the price on top of that, as they always do.

It’s why DAOs like [Aave](https://cow.fi/learn/aave-trade-breakdown) and [ENS](https://cow.fi/learn/ens-trade-breakdown), have already used Milkman to trade over $20M worth of tokens. Beyond allowing these DAOs to count on reliable prices, Milkman lets them reduce their overall number of governance votes and gives them standard CoW Swap benefits like best price execution and [best-in-class](https://eigenphi.substack.com/p/sandwich-mevs-impact-on-cow-swap) MEV protection — critical for large trades.

### Programmatic Orders

  

When trades are submitted directly to CoW Protocol, via CoW Swap, traders can take advantage of programmatic orders: or orders with certain conditions that have to be met before they are executed.

  

For example, if a trader wants to set and forget a trade like a stop loss or trailing stop, they can on CoW Swap. But there’s more.

  

Wallets of all sizes can automate recurring actions using programmatic orders. DAOs can automate payroll, diversify their treasuries, collect fees and more. Individuals, meanwhile, can automate portfolio rebalancing, yield farming, and hedge market positions.

  

Users can even bundle multiple actions together into one single order. For example, if a trader wanted to withdraw and swap a token for another in the future, it can do so using programmatic orders. No need to create multiple transactions, thanks to [Hooks](https://docs.cow.fi/cow-protocol/concepts/order-types/cow-hooks). This is a unique feature of CoW Swap. How does it work?

  

They allow any user to to pair multiple steps together into a single transaction. Let’s say you want to unstake tokens to take advantage of a price movement, sell a token and swap it for another. With Hooks that can be created and executed in one single transaction. No more multiple transactions, no more multiple fees. Find out more about how to [use Hooks here](https://docs.cow.fi/cow-protocol/concepts/order-types/cow-hooks).

## In summary: Why Traders Trust CoW Swap

  

When making large transactions in crypto, there are a number of things users need to be aware of. Whether it’s slippage, what order type you’re looking to execute, MEV attacks, to the user experience of different platforms.

  

CoW Swap is designed to do the hard work for you. It combines class-leading protection from MEV attacks, alongside its unique solver system which helps find you the best prices, and also gives you the chance to earn a surplus from every trade.

  

For pros it goes even further. CoW Swap’s unique specialised smart contracts give traders the chance to set their slippage tolerance and create programmatic orders that trigger when certain conditions are met.

  

Riding the crypto waves has never been so s-moooo-th! 🐮

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Experts love using CoW Swap for high-volume trades, but why? This article explores the key features that make CoW Swap unique. 

Why Traders Trust CoW Swap for High Volume Trades


MEV or “maximal extractable value” is a hidden tax on all types of Ethereum transactions. Any time you make a DeFi trade, buy or sell an NFT, or lend tokens to a liquidity pool, opportunistic users known as “searchers” may manipulate your trades, resulting in unfavorable prices, failed transactions, and missed opportunities. But not everyone agrees that MEV is bad.

  

In this article we’ll be exploring the pros and cons of MEV and most importantly, how you can protect your transactions from MEV, if you decide it’s not for you.

## Is MEV inevitable?

  

On Proof-of-Stake blockchains such as Ethereum, validators - contributors who validate transactions to help keep the network secure - are free to select which transactions they process first. This is different from markets you would find in TradFi, where the order of transactions are strictly enforced by regulators.

  

Because of this unique feature, users can offer incentives to process their transactions faster than they might process others. This incentive typically comes in the form of a payment, or gas fee on Ethereum. This unique feature on Ethereum and other, similar chains allows MEV to take place.

  

While there are many types of MEV, the most common is frontrunning. Sophisticated traders and bots scan the mem pool, a digital holding area where all transactions wait to be processed. When it identifies a transaction it believes it can make money out of, it places a transaction for the same asset, and pays extra to have it processed before the transaction it wants to front run.

  

By the time the target transaction has been completed, the frontrunner has made a profit. But not everyone believes this is a bad thing. Let’s explore the pros in the next section.

## The good

  

The presence of MEV can lead to improvements in how markets are run. At a high level, the presence of MEV bots can help them run more smoothly by eliminating efficiencies in how markets are run.

  

Arbitrage and liquidations are common trades that flow through MEV infrastructure. Arbitrage is a useful activity that keeps prices aligned between, say, a DEX’s AMM price and the price of the broader market.

### Improved economic inefficiencies

  

Liquidations, meanwhile, are important for the smooth operation of over-collateralized lending platforms like Maker DAO, for instance.

  

MEV activity is necessary to do things like maintain stablecoin pegs and rebalancing liquidity across different pools. MEV bots compete to buy assets at a low price from one source and sell it to another as quickly as possible.

  

The profit taken from the price difference ensures AMM liquidity pools remain balanced. There are also other less obvious yet potentially beneficial effects of MEV. One of which is the incentive for validators to remain engaged in the maintenance of networks when prices are low.

  

By having a larger pool of validators, who can remain engaged during market downturns - thanks to the additional incentives earned through MEV - can help keep a network decentralized.

### Fast price corrections across decentralized exchanges

  

MEV can also bring benefit to blockchains because it incentivizes price normalization and ensures events like liquidations are efficiently executed. Because there is inherent value to capture, MEV bots can exchange assets across pools to maintain the ecosystem without liquidity providers’ or lenders’ involvement. This phenomenon also appears in other DeFi mechanisms where some form of asset rebalancing takes place.

## The bad

  

While MEV can have its benefits, it also has a number of drawbacks: namely that it creates unfairness. Sophisticated actors familiar with the mechanics of blockchains like Ethereum have developed numerous ways to exploit users with less knowledge.

  

MEV makes money for searchers, block builders, and Ethereum validators at the expense of regular users, especially beginners who don’t know how to protect themselves. As of the time of writing, sandwich attacks on AMMs and aggregators alike generate [almost $1 million in profit for searchers each week](https://eigenphi.io/mev/ethereum/sandwich).

  

Over time, persistent MEV erodes market confidence as traders realize they are at a constant disadvantage to more sophisticated actors. Ultimately, MEV may pose an existential threat to blockchain ecosystems like Ethereum so it’s imperative for solutions to emerge that protect everyday traders from price exploitation.

## The compromise

  

The reality is, there is little appetite to change the design of chains like Ethereum, meaning MEV is here to stay. While it does help prices remain consistent across different liquidity pools, it creates a hierarchy between sophisticated actors looking for arbitrage and regular users unaware that their transactions could be exploited.

  

But there are ways to guard against MEV. In the below sections we’ll be exploring each one, and also solutions that do the hard work for you.

### Methods of defense

  

There are a wide range of methods you could use to help mitigate against the effect of MEV. The good news is there are many projects - including [CoW DAO](https://cow.fi) - that are already aware of this problem, and have built a number of solutions to ensure your trades and transactions are MEV free.

  

But as you will see, while there are many different ways you can protect yourself, there are few that combine all these defenses into a single solution that’s easy to use. Like [CoW Swap](https://cow.fi/cow-swap), or [MEV Blocker](https://cow.fi/mev-blocker).

#### Off-chain single batch settlement

  

Off-chain single batch settlement is an idea that’s designed to keep prying eyes from seeing what transactions you are submitting before they are put into a block to be verified.

  

Off-chain settlements are, like they sound, transactions that take place away from the main blockchain. One such technique for using off-chain settlement is to use a layer 2, a second blockchain built on top of the main blockchain.

  

By settling off-chain, the order of those transactions, the primary attack vector for MEV bots, is irrelevant. That’s because by the time the transactions are added to the mem-pool, they have already been completed, meaning arbitrage can’t take place because the prices of the transactions have already been fixed.

#### Fair Sequencing Services (FSS)

  

Fair Sequencing Services (FSS) is a decentralized framework that helps ensure that transactions are ordered fairly and impartially, and that smart contracts process transactions in a fair manner. FSS is designed to help DeFi developers create more equitable systems for users.

  

FSS combats MEV by using an oracle network to order transactions sent to a contract. An oracle is a data source used to verify whether data is accurate. In the case of FSS, it ensure transactions are in an order that makes exploitation more difficult.

#### Explicit specification of maximum slippage

  

Slippage is the difference between the expected price of a trade and the price at which it is executed. It can occur at any time, but is more likely to happen during periods of high volatility or when orders exceed the available liquidity.

  

When it comes to transacting on a blockchain, users are able to adjust the level of slippage, which is commonly expressed as a percentage of the total value. For example, if you set slippage at 5%, this creates an acceptable range whereby the price can move before it is finalised.

  

When trading in DeFi, it’s important to set as low a number as possible to ensure you’re not being exploited by MEV bots. The lower the number, the less price variation. But there are limits. If there’s limited liquidity for the coin you’re trading, the transaction might fail if the slippage range is too small.

#### Using RPC endpoints for MEV protection

  

RPC endpoints or Remote Procedure Calls, are an intermediate layer that routes transactions from a user’s wallet to the blockchain itself. Transactions pass through RPC endpoints before getting to the mem pool, so RPCs can provide additional functionality across any blockchain application or protocol. Think of RPCs as a middle-man which can be used to improve security.

  

[CoW DAO](https://cow.fi) uses this unique feature of public blockchains to create a safety layer that helps protect transactions from MEV bots.

  

[MEV Blocker](https://cow.fi/mev-blocker) provides access to a permissionless network of searchers while hiding transactions from the public mem pool. These searchers cannot frontrun or sandwich user transactions. Instead, they capture value through backrunning. Anytime a searcher backruns a user’s transaction, the searcher keeps up to 10% of the value and sends the other 90% back to the user as a rebate.

  

Want to try MEV Blocker for yourself? [Start here.](https://cow.fi/mev-blocker)

  

CoW Swap's Uniform Clearing Prices

  

Another unique feature of CoW Swap is its uniform clearing price.

  

CoW Protocol collects and aggregates [intents](https://docs.cow.fi/cow-protocol/concepts/introduction/intents) off-chain and settles them together in groups, known as batches. These batches are then "auctioned off" through a competition to the [solver](https://docs.cow.fi/cow-protocol/concepts/introduction/solvers) offering the most surplus for the orders in the batch.

  

Batch auctions allow for Uniform Clearing Prices (UCPs), where an asset that appears multiple times across orders in the same batch settles for a consistent price. This makes transaction order irrelevant within the block, undermining the ability for MEV bots to extract value.

#### CoW Swap's Coincidence of Wants

  

A unique feature of CoW Swap is its use of what’s called a Coincidence of Wants - which also happens to be the meaning of CoW in CoW DAO!.

  

A coincidence of wants is an economic phenomenon where two parties swap assets with one another peer-to-peer. Typically users would have to use an exchange such as Uniswap to complete this trade, but on CoW Swap, you can do it off chain.

  

CoW Swap orders start out as signed “intent to trade” messages that get batched together before getting sent to on-chain liquidity sources like Uniswap. As a result, CoW Swap can match orders peer-to-peer when the opportunity arises.

  

This has two benefits: gas fees are lower, and second, it avoids transactions going through the public mem pool, adding an extra layer of security.

#### CoW Swap's Delegated Trade Execution

  

CoW Swap’s unique “solver” feature protects users from MEV by completing transactions on their behalf. Solvers are dedicated third parties whose role it is to search for the best price for trades submitted by users.

  

A group of solvers compete against each to find the best price for trades. They do this by searching across multiple DEX’s looking for the best prices - hence why CoW Swap is referred to as a meta DEX - because it searches all the other DEXes to find you th ebest price.

  

The most competitive solver is then awarded the trade, and any savings they generate for the user, they pass on to the user.

## The CoW approach to MEV protection

  

CoW DAO’s [MEV Blocker](https://cow.fi/mev-blocker) and [CoW Swap](https://cow.fi/cow-swap) have safety baked in. They are designed specifically to protect you from MEV attacks.

  

In the case of MEV Blocker - this is a stand alone product that you can add to your wallet to enjoy the full benefits of MEV protection. This works by using what is called an RPC or a Remote Procedure Call. This is an intermediate layer that routes transactions from a user’s wallet to the blockchain itself. Transactions pass through RPC endpoints before getting to the mempool, so RPCs can provide additional functionality across any blockchain application or protocol.

  

With CoW Swap meanwhile, it provides MEV protection whenever you trade on the DEX. CoW Swap is a meta DEX aggregator that finds the best prices for trades and provides comprehensive MEV protection.

  

The protocol uses a unique trading mechanism that relies on batch auctions and intents to achieve the best outcomes for users. Thanks to a powerful combination of delegated trade execution, batch auctions, and protected transaction flow through MEV Blocker, CoW Swap users benefit from thorough MEV protection on all trades.

### Interested to learn more?

  

If you want to dive deeper into MEV Protection and how CoW DAO does it, [head this way.](https://cow.fi/learn/articles/what-is-mev)

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MEV or “maximal extractable value” is a hidden tax on all types of Ethereum transactions. But some argue it can be useful. We weigh up the pros and cons. 

Is MEV good or bad?

[CoW DAO](https://cow.fi/), which builds user-protective products like CoW Swap, Cow Protocol, CoW AMM and MEV Blocker, has partnered with Sky, formerly MakerDAO to help the project migrate its tokens as it transitions to its next chapter.

  

The team behind Sky approached CoW DAO to integrate CoW Protocol into their SWAP feature to allow users to seamlessly, and safely swap their tokens between DAI and its replacement, USDS, and its governance token MKR to SKY.

  

This is sizeable task: the MakerDAO transition is one of the largest token migrations. DAI is one of the world’s largest stablecoins, with a market cap of $5.3 billion and [more than 500,000 holders.](https://etherscan.io/token/0x6b175474e89094c44da98b954eedeac495271d0f) MKR, meanwhile, has a market cap of $1.5 billion and more than [100,000 token holders.](https://etherscan.io/token/0x9f8f72aa9304c8b593d555f12ef6589cc3a579a2)

  

“Sky selected CoW Protocol as its primary partner for token migration because it recognizes that CoW's unique batch design enhances both user experience and price efficiency," says Anna George, co-founder and CEO of CoW Protocol.

  

Sky's choice to work with CoW DAO on such an important upgrade demonstrates that CoW Protocol is the place big projects go when they want to do big things.

## How will it all work?

[CoW Swap](https://cow.fi/cow-swap) is being integrated into Sky’s native swap system, meaning that, in addition to facilitating swaps between DAI, USDS, MKR, and SKY, CoW Protocol will handle all token swaps within the Sky UI going forward. This represents a step change in the amount of volume CoW Protocol will handle going forward.

This will take place on Sky.money, decentralized gateway to the Sky Ecosystem and provides access to the key features of the Sky Protocol, including upgrading DAI to USDS, and MKR to SKY. But users can also use [CoW Swap](https://cow.fi/cow-swap) to upgrade their old MKR and DAI tokens to the new SKY and USDS.

The upgraded stablecoin of the Sky Ecosystem is USDS. USDS can be upgraded from DAI or converted from USDC at a 1:1 ratio, on Sky.money and other frontends. USDS can also be converted back to DAI. Upgrading is optional.

The Governance Token of the Sky Ecosystem is SKY. MKR holders can upgrade their MKR to SKY, and SKY can also be converted back to MKR. Upgrading is optional. Users get 24,000 SKY per MKR when they upgrade.

## Bringing DeFi to a Wider Audience

Decentralized Finance is at an inflection point. The industry has successfully matured and scaled and, with the right push, is poised to begin providing large scale value to regular people. By focusing on delivering innovative ways for everyday users to unlock the inherent benefits of DeFi, Sky will do its part in bringing the benefits of DeFi to the mass market.

CoW DAO believes in this mission too. By providing a safe and simple way for DeFi users to swap tokens without fear of MEV attacks helps DeFi achieve mass market adoption.

## Follow CoW DAO

-   [X](https://x.com/CoWSwap)
    
-   [Discord](https://discord.com/invite/cowprotocol)
    
-   [Github](https://github.com/cowprotocol)
    
-   [Forum](https://forum.cow.fi/)
    
-   [Snapshot](https://snapshot.org/#/cow.eth)

cow protocol partnership with makerDAO sky

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CoW Protocol has partnered with Sky, formerly MakerDAO to help the project migrate its tokens as it transitions to its next chapter. 

CoW Protocol Powers MakerDAO’s Transition


# How to create a LVR Protected Liquidity Pool on CoW AMM

## Accessing the creation page UI

CoW AMM is a new type of AMM built from the group up to protect LPs from price exploitation in the form of [LVR](https://cow.fi/learn/what-is-loss-versus-rebalancing-lvr). Liquidity providers expect their tokens to earn yield, but most liquidity pools are actually not profitable after accounting for stale prices. Arbitrageurs exploit these stale prices at the expense of LPs. CoW AMM fixes LVR once and for all, with liquidity pools proven to outperform reference Balancer and Uniswap pools.

Now, you can create your own CoW AMM pools too! To get started, navigate to the [Balancer CoW AMM pool creator](https://pool-creator.balancer.fi/cow).

You can access the pool creator in several ways. The first is to navigate to the [CoW AMM liquidity pools page](https://balancer.fi/pools/cow), scroll down to the bottom, and click “create a pool.”

![Cowamm_poolguide_1.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_1_8dcf4f3760.png)
![Cowamm_poolguide_2.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_2_9e8feff94c.png)
  
You can also open the pool creator from the banner on the [CoW Swap](https://swap.cow.fi/) homepage.

![Cowamm_poolguide_3.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_3_70c3bd8093.png)

The third way is to access the pool creator directly at [https://pool-creator.balancer.fi/](https://pool-creator.balancer.fi/) and click the icon to enter the pool creation page.

![Cowamm_poolguide_4.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_4_0aef667f89.png)

Once inside, you’ll see the following interface:

![Cowamm_poolguide_5.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_5_fb12211f1f.png)

## Configuring your own LVR Protected pool for deployment

To get started, select the tokens you want to use to create your LVR-protected pool.

![Cowamm_poolguide_6.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_6_542472caad.png)

After selecting your tokens, specify the deposit amounts. Keep in mind that the pool creator currently only supports 50/50 pools so add an equivalent dollar amount of both assets.

![Cowamm_poolguide_7.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_7_124b34dcdb.png)

After selecting your assets and amounts, tick the checkbox confirming that you understand assets must be added proportionally or you risk loss of funds via arbitrage. Once you’ve done this, click the “Preview” button.

![Cowamm_poolguide_8.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_8_84c160ab40.png)

## Deploying your LVR Protected pool onchain

Creating a pool requires several approval and swap steps through your wallet. The first is the actual pool creation, to initiate this click the “Create Pool” button and check your connected wallet interface.

![Cowamm_poolguide_9.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_7a477d22d7.png)

In your wallet, approve the pool creation by signing. Remember to double check that you are signing the correct transaction!

![Cowamm_poolguide_9.1.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_1_bed5d89c73.png)

Once you’ve created the pool, click “Approve” to approve the first token you want to create a pool for.

![Cowamm_poolguide_9.2.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_2_bfdabb689f.png)

Sign the transaction in your wallet.

![Cowamm_poolguide_9.3.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_3_08ff4c5184.png)

The next step is to approve the second asset you’re adding to the pool by clicking the “Approve” button once again.

![Cowamm_poolguide_9.4.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_4_1cf27aeeaa.png)

Sign the transaction in your wallet.

![Cowamm_poolguide_9.5.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_5_2493187384.png)

The next transaction adds the initial funds for your first asset to the pool.

![Cowamm_poolguide_9.6.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_6_0717143d89.png)

Sign the transaction in your wallet.

![Cowamm_poolguide_9.7.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_7_3ad3877cea.png)

The transaction after that adds the initial funds for your second asset to the pool.

![Cowamm_poolguide_9.8.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_8_f05506ce78.png)

Sign the transaction in your wallet.

![Cowamm_poolguide_9.9.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_9_4dd69d06c0.png)

Almost there! The second to last transaction sets the swap fee for the pool. Currently, all CoW AMM pools must set the swap fee to the maximum amount (99.99%)

![Cowamm_poolguide_9.91.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_91_3d71ad96df.png)

Sign the transaction in your wallet.

![Cowamm_poolguide_9.92.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_92_f8caadd193.png)

Last, click the “Finalize” button to make your last transaction and finalize the pool creation.

![Cowamm_poolguide_9.93.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_93_f703a7b940.png)

Sign the transaction in your wallet.

![Cowamm_poolguide_9.94.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_94_02c63b4721.png)

Once created, you can view your pool by clicking the “View on Balancer” button.

![Cowamm_poolguide_9.95.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_95_377e64c199.png)

Your new pool will now appear in the [list of CoW AMM pools on Balancer](https://balancer.fi/pools/cow)! Once created, users can LP their own tokens, growing the size of the pool for the two assets you’ve selected.

![Cowamm_poolguide_9.96.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_96_6c0d9f5c17.png)

You can click on the pool to view its current size, APR, yield, and more.

![Cowamm_poolguide_9.97.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_97_374dca4ee9.png)

The interface also showcases the exact amount of liquidity you specifically have added out of everyone for this pool, as well as the pool composition split between assets.

![Cowamm_poolguide_9.98.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_98_2fd5e07452.png)
![Cowamm_poolguide_9.99.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Cowamm_poolguide_9_99_1636bf73fd.png)

Congratulations! You’ve created your first CoW AMM Balancer pool.

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A step-by-step guide to creating a LVR Protected Liquidity Pool using CoW AMM on Balancer. CoW AMM safeguards liquidity providers from price exploitation due to stale prices, ensuring better yield protection and profitability than traditional pools.

How to create a LVR Protected Liquidity Pool on CoW AMM

Welcome back to another CoW update, where we break down the most notable developments of the last few weeks at CoW DAO.

## TL;DR

-   During the month of June, CoW Protocol handled a total volume of **$2.66B** and generated a surplus of **$20M**
-   In exciting news, CoW DAO [attended ETHcc](https://x.com/CoWSwap/status/1815455776183632116), [crossed 1,000 ETH in generated revenue](https://x.com/CoWSwap/status/1818015130959183883), and had a [breakout month for MEV Blocker](https://x.com/CoWSwap/status/1819460894109368446)
-   In terms of Governance, CoW DAO executed CIPS [46](https://snapshot.org/#/cow.eth/proposal/0xbb18689e82d15b23ba2b755123777afc3579a0a86ae76f9b4eb73557b493c90a), [47](https://snapshot.org/#/cow.eth/proposal/0x7456f84721dbbe164b30324112accf976ff3be397b1957e68abe6953801a1f97), [48](https://snapshot.org/#/cow.eth/proposal/0x563ab9a66265ad72c47a8e55f620f927685dd07d4d49f6d1812905c683f05805), and [49](https://snapshot.org/#/cow.eth/proposal/0x153a2e42936b6b99e825d5ebf4aa7a64c176243138c491274fd199b74ed23f6a)

## Protocol Stats

This month, CoW Protocol settled a total of **$2.65B in trading volume.**

![1-july-2024-highlights.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_july_2024_highlights_2786b81422.png)

The top batches worth highlighting are the following:

**Batch containing the highest volume** **(**[**Transaction details**](https://explorer.cow.fi/tx/0xfbb0878ea2b18b20baeac86bc5352fbeefab43dabc74989c5b137633c5526601?tab=orders&vis=transfers)**)**: The total batch volume was **$61,110,239** and it was created by a single trader swapping **wETH to wstETH.**

![2-july-2024-highlights.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_july_2024_highlights_46d1d601b2.png)

**Batch with the highest amount of surplus** **(**[**Transaction details**](https://explorer.cow.fi/tx/0xaa7dc317ae0e14c63c0d44bae9c8c01cc30c01dcd9bf2ccdca5e7d4ffc2cc0ab?tab=orders)**)**: The total batch volume was exactly **$10M** and it was created by a single trader swapping USDT for ETH**.** The batch achieved a surplus of **69.94 ETH** **(2.14%).**

![3-july-2024-highlights.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_july_2024_highlights_354e76463c.png)

During the month of July, the top 10 traders traded a total of **$31,713,561.**

![4-july-2024-highlights.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_july_2024_highlights_39c86a9d5c.png)

In the table below you can see the total volume for this month’s biggest trades. The most active trader executed a whopping **$10,220,367** in trades with CoW Protocol this month.

![5-july-2024-highlights.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/5_july_2024_highlights_fa113c7901.png)

## Solvers

In  July, solvers generated a total of **$20.2M** in surplus, which is money in the pockets of traders.

![6-july-2024-highlights.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/6_july_2024_highlights_3fd2853012.png)

Below you can find a breakdown of how each solver performed in July.

![7-july-2024-highlights.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/7_july_2024_highlights_5294aebf33.png)

## Governance

It has been a hectic month in terms of governance! The CoW cannot be stopped 💪

![8-july-2024-highlights.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/8_july_2024_highlights_c9cef5d2ac.png)

## Executed Proposals

The DAO executed four important proposals this month:

-   [CIP-46: Funding for Marketing & Business Development Services — Service Agreement No 1](https://snapshot.org/#/cow.eth/proposal/0xbb18689e82d15b23ba2b755123777afc3579a0a86ae76f9b4eb73557b493c90a)
-   [CIP-47: Funding for the purpose of facilitating the listing COW token on CEXs](https://snapshot.org/#/cow.eth/proposal/0x7456f84721dbbe164b30324112accf976ff3be397b1957e68abe6953801a1f97)
-   [CIP-48: Solver rewards budget renewal and update of CoW DAO bonding pool operations](https://snapshot.org/#/cow.eth/proposal/0x563ab9a66265ad72c47a8e55f620f927685dd07d4d49f6d1812905c683f05805)
-   [CIP-49: Extending the Revenue Model Testing Period for CoW Protocol](https://snapshot.org/#/cow.eth/proposal/0x153a2e42936b6b99e825d5ebf4aa7a64c176243138c491274fd199b74ed23f6a)

## Draft Proposals

This month, there were two new proposals asking for feedback before moving into the next phase, final CIPs, in their current form:

-   [CIP-Draft: Wintermute <> COW Liquidity Provision Partnership](https://forum.cow.fi/t/cip-draft-wintermute-cow-liquidity-provision-partnership/2530/1)
-   [CIP-Draft: Amendment Balancer & Cow Protocol Strategic Partnership — Launching CoWAMM Pools](https://forum.cow.fi/t/cip-draft-amendment-balancer-cow-protocol-strategic-partnership-launching-cowamm-pools/2525)

Make sure to read them and leave comments — your feedback is highly appreciated and will help move these important topics forward. If you are interested in submitting a proposal to the CoW DAO, make sure to use the following [template](https://forum.cow.fi/t/cip-0-template/28).

## CoWmunity News

-   The CoW team attended ETHcc, giving several talks [including a feature on the first MEV-capturing AMM mechanism — CoW AMM](https://x.com/CoWSwap/status/1815455776183632116)
-   CoW DAO has paved the way toward sustainability by [generating just over 1,000 ETH](https://x.com/CoWSwap/status/1818015130959183883) in protocol revenue during the last 7 months
-   In July, MEV Blocker [protected 13.8B in trading volume and returned a whopping 213 ETH in rebates to 416,000 users across 2.8M transactions](https://x.com/CoWSwap/status/1819460894109368446)
-   Safe{Wallet} got CoW Swap TWAP orders [natively integrated](https://x.com/CoWSwap/status/1811105186578055329) into the wallet swap
-   Attention web3 governance fans! CoW DAO is [searching for applicants](https://x.com/CoWSwap/status/1809237051327562214) to join the Delegate Council and play a crucial role in the new COW Token Vote Delegation Program
-   Convex [enabled mints for $cvxCRV](https://x.com/ConvexFinance/status/1808497404439585273) directly from the CoW Swap interface
-   Stackly, the DCA tool built on top of CoW Swap, [launched on Arbitrum](https://x.com/Stacklydapp/status/1808883040606667099)
-   Hot off the heels of our launch on Arbitrum, CoW Swap [crossed $40M in trading volume](https://x.com/CoWSwap/status/1808166051437596899) on the L2

## Open Job Positions

[**Growth Marketing Manager**](https://job-boards.eu.greenhouse.io/cowswap/jobs/4375232101?utm_source=cow.fi&utm_medium=web&utm_content=job-Growth%20Marketing%20Manager)

[**Product Marketing Manager**](https://job-boards.eu.greenhouse.io/cowswap/jobs/4377355101?utm_source=cow.fi&utm_medium=web&utm_content=job-Product%20Marketing%20Manager)

[**Senior Data Engineer**](https://job-boards.eu.greenhouse.io/cowswap/jobs/4362645101?utm_source=cow.fi&utm_medium=web&utm_content=job-Senior%20Data%20Engineer)

[**Senior Backend Engineer With Rust**](https://job-boards.eu.greenhouse.io/cowswap/jobs/4368543101?utm_source=cow.fi&utm_medium=web&utm_content=job-Sn.%20Backend%20Engineer%20with%20Rust)

large_cow-dao-july-2024-highlights-cover-photo.png

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cow-dao-july-2024-highlights-cover-photo.png

Welcome back to CoW DAO highlights, where we break down the most notable developments of the last few weeks at CoW DAO.


CoW DAO July 2024 Highlights


## TL;DR

-   During the month of June, CoW Protocol handled a total volume of  **$2.19B**  and generated a surplus of  **$14M**
-   In exciting news, CoW DAO  [received a new look](https://x.com/CoWSwap/status/1805606262744531260)  and CoW Protocol  [launched on Arbitrum](https://x.com/CoWSwap/status/1797996272349323412)
-   In terms of Governance, CoW DAO executed CIPS  [46](https://forum.cow.fi/t/cip-46-funding-for-marketing-business-development-services-service-agreement-no-1/2476/1)  and  [47](https://forum.cow.fi/t/cip-47-funding-for-the-purpose-of-facilitating-the-listing-cow-token-on-cexs/2458)

## Protocol Stats

This month, CoW Protocol settled a total of  **$2.19B**

![1-june-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_june_2024_highlights_bbbd21676b.webp)

The top batches worth highlighting are the following:

**Batch containing the highest volume**  **(**[**Transaction details**](https://explorer.cow.fi/tx/0x15a8acee86e3ddd8943f6cb7bf7b6c9dfc98219f0d49dede6501f30e1e6ad327?tab=orders&vis=transfers)**)**: The total batch volume was  **$27,086,967** and it was created by two traders who were swapping  **WeETH to WETH**  and  **USDT to USDC**.

![2-june-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_june_2024_highlights_997a9b5cf0.webp)

**Batch with the highest amount of surplus**  **(**[**Transaction details**](https://explorer.cow.fi/tx/0xfde66662c4df3e9c7e4ea1cf0dc6e645b53912486826f892d2c7b4dc37947518?tab=orders)**)**: The total batch volume was  **4,119 ETH** and it was created by two traders — one swapping  **WEETH to WETH**  and the other swapping  **ETH to ZAAR.** The batch achieved a surplus of  **$71,600**  **(0.49%).**

![3-june-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_june_2024_highlights_5ed5d8db9d.webp)

During the month of June, the top 10 traders traded a total of  **$17,397,532.**

![4-june-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_june_2024_highlights_9025cd7c9a.webp)

In the table below you can see the total volume for this month’s biggest trades. The most active trader executed a whopping  **$4,143,954**  in trades with CoW Protocol this month.

![5-june-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/5_june_2024_highlights_e205f5c02b.webp)

## Solvers

In  June, solvers generated a total of  **$14M**  in surplus, which is money in the pockets of traders.

![6-june-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/6_june_2024_highlights_f3e48e0cc2.webp)

Below you can find a breakdown of how each solver performed in June.

![7-june-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/7_june_2024_highlights_87f40f594b.webp)

## Governance

It has been a hectic month in terms of governance! The CoW cannot be stopped 💪

![8-june-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/8_june_2024_highlights_8ec68b11a8.webp)

## Executed Proposals

The DAO executed one important proposal this month:

-   [CIP-45: Balancer & Cow Protocol Strategic Partnership — Launching CoWAMM Pools](https://snapshot.org/#/cow.eth/proposal/0x5a7435a287fda55133fa5973b4979465687c341def703564986f2771780352b0)

## Draft Proposals

This month, there were two new proposals asking for feedback before moving into the next phase, final CIPs, in their current form:

-   [CIP-46: Funding for Marketing & Business Development Services — Service Agreement No 1](https://forum.cow.fi/t/cip-46-funding-for-marketing-business-development-services-service-agreement-no-1/2476/1)
-   [CIP-47: Funding for the purpose of facilitating the listing COW token on CEXs](https://forum.cow.fi/t/cip-47-funding-for-the-purpose-of-facilitating-the-listing-cow-token-on-cexs/2458)

Make sure to read them and leave comments — your feedback is highly appreciated and will help move these important topics forward. If you are interested in submitting a proposal to the CoW DAO, make sure to use the following  [template](https://forum.cow.fi/t/cip-0-template/28).

## CoWmunity News

-   CoW DAO has a  [new look](https://x.com/CoWSwap/status/1805606262744531260)  including a new logo, new landing pages for each product, and an entirely overhauled brand feel!
-   CoW Protocol  [launched on its first L2](https://x.com/CoWSwap/status/1797996272349323412)  — Arbitrum and  [participated in an X Space with members of the Arbitrum foundation](https://x.com/CoWSwap/status/1800544944396075390)
-   Curve finance  [launched a fee burner using the Programmatic Order Framework](https://x.com/CoWSwap/status/1806001775335580016)
-   Published a  [report on the findings of the second fee test](https://x.com/CoWSwap/status/1799172243995693195)
-   Put  [out a call for CoW DAO delegates](https://x.com/CoWSwap/status/1806741521594720490)
-   Reduced TWAP order minimums to just  [$1,000 per order segment](https://x.com/CoWSwap/status/1799446283662536789)
-   Helped facilitate  [Gnosis DAO’s $30 million buyback program](https://x.com/CoWSwap/status/1800974615264756174)
-   Got  [featured in the “Our Network” newsletter](https://x.com/ournetwork__/status/1807202388538978436)
-   Published a flagship “[What is MEV](https://cow.fi/learn/what-is-mev)” article

## Open Job Positions

[**Content Marketing Manager**](https://boards.eu.greenhouse.io/cowswap/jobs/4343031101)

[**Senior Data Engineer**](https://boards.eu.greenhouse.io/cowswap/jobs/4362645101)

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medium_cow-dao-june-2024-highlights-cover-photo.webp

small_cow-dao-june-2024-highlights-cover-photo.webp

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cow-dao-june-2024-highlights-cover-photo.webp

Welcome back to another CoW update, where we break down the most notable developments of the last few weeks at CoW DAO.


CoW DAO June 2024 Highlights

MEV or “maximal extractable value” is a hidden tax on all types of Ethereum transactions. Any time you make a DeFi trade, buy or sell an NFT, or lend tokens to a liquidity pool, opportunistic users known as “searchers” may manipulate your trades, resulting in unfavorable prices, failed transactions, and missed opportunities.

To date, MEV has been responsible for more than $1.3 billion in lost value for Ethereum users.

![1-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_what_is_mev_050181095d.png)

MEV is a complex phenomenon with multiple different causes. In this article we’ll take a deeper look at what causes MEV, how it affects traders, and how you can protect yourself.

## How Does MEV Work?

MEV is possible because validators are free to order blockchain transactions as they see fit in order to maximize their profits. Proof-of-stake (PoS) blockchains such as Ethereum use parties known as “validators” in order to ensure that the consensus rules of the blockchain are followed by all participants. Validators get randomly selected to add the next block to the blockchain. In this process, they determine what transactions are included in the block, and in what order.

![2-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_what_is_mev_04f9643567.png)

When you submit a transaction on Ethereum, it does not immediately get added to the next block. Instead, it first goes into the “mempool” which is the collection of all pending transactions. Validators then pull transactions from the mempool and add them to the next block when it’s time for it to be built.

Here is where the opportunity to extract value through MEV comes in.

Validators are not required to add transactions to the block in the same order that they were submitted by users, so searchers can pay validators a fee to order transactions in a specific way. For example, they can pay to have their transactions come first if they want to frontrun someone else, or they can pay to have their transactions come right after a specific transaction if they want to perform a backrun — both are types of MEV.

## Understanding MEV Terms

In order to get a solid grasp of how the different types of MEV work, we must first familiarize ourselves with the function of on-chain trading through decentralized exchanges (DEXs) along with some terms.

**Automated Market Makers (AMM)**: Automated Market Makers are trading mechanisms that allow traders to buy and sell assets in real time. Unlike traditional “orderbook” trading, which relies on counterparties for every transaction (you need a seller in order to buy and a buyer in order to sell), AMMs work by maintaining a constant ratio between the prices of two assets. For example, ETH and COW. AMMs use the formula “x*y = k” to determine a fair price based on the ratio between two assets (x and y) in the liquidity pool.

Any time a trade alters this ratio by depleting the supply of one asset and increasing the other, the prices of the assets adjust in order to preserve the established ratio. For instance, if a trader buys COW and sells ETH, the COW price rises, and the ETH price falls. The opposite happens when traders sell COW and buy ETH.

**Slippage Tolerance**: When placing a trade, traders set a “slippage tolerance” for their transactions, which represents the maximum price difference they’re willing to accept for their trade. For example, if ETH is trading at $2,000 and you place an order to buy ETH with a 5% slippage tolerance, you’re willing to buy ETH at up to $2,100. If ETH goes above $2,100, however, your trade will fail, as it’s outside your slippage tolerance.

Some slippage tolerance is always necessary because the prices of crypto assets are constantly fluctuating, so by the time your trade executes, the price may have moved. Setting your slippage tolerance too high, however, leaves room for searchers to exploit your trades.

**Price Impact**: Crypto markets, like all markets, are based on supply and demand. AMMs maintain “liquidity pools” of assets that they use to fill trades. Each trade drains some amount of this liquidity, moving the price of the asset. This price movement is known as “price impact.” The larger the trade, the bigger the price impact.

A trade of $100 ETH will not move the price of ETH very noticeably, since it makes up a tiny fraction of the available liquidity. A trade of $1,000,000 ETH however, will noticeably move the price of ETH.

**Transaction Reordering**: Blockchain transactions do not always enter the block in the order that they were submitted. Searchers can “bribe” the validators responsible for creating the block to get them to arrange transactions in a specific sequence. This transaction reordering is what makes all of MEV possible.

## The Different Types of MEV

Now that we’re familiar with the core concepts at play in MEV attacks, let’s take a look at the different types of MEV.

### Frontrunning

Frontrunning is a particular type of MEV that affects all forms of Ethereum transactions including trades, NFT mints, and more. Users can sometimes receive messages like “your transaction may be frontrun” on decentralized exchanges and it’s important to understand what this means.

![3-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_what_is_mev_fa9d5e5144.png)

Frontrunning occurs when a user makes a transaction but gets “front run” by an MEV bot who makes the same transactions ahead of them.

1.  **Monitoring Pending Transactions**: The first step involves monitoring the blockchain network’s mempool, a holding area for pending transactions. Here, frontrunners, who are often sophisticated bots, scan the mempool to identify transactions that can carry significant value that they want to snatch away or that could influence the price of a particular asset.
2.  **Selecting Profitable Transactions**: The frontrunner will analyze the potential market impact once such a transaction is identified. For instance, if a large buy order for a specific token is detected, the frontrunner knows that this transaction could increase the asset’s price once processed.
3.  **Placing a New Transaction**: The frontrunner will initiate their buy order for the same asset, intending to get their transaction processed before the initially detected transaction. They typically give the validators a higher “tip” to execute their transaction first in the block in comparison to the target transaction.

Frontrunning disrupts the fair operation of blockchain transactions, leading to distorted prices, value drain, and missed opportunities for everyday traders.

Read more about frontrunning in our article: “[What is Frontrunning](/learn/what-is-frontrunning)”

### Backrunning

Backrunning is another form of MEV that affects various Ethereum transactions, including trades, NFT mints, and more. Unlike frontrunning, backrunning takes advantage of transactions after they have been executed.

![4-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_what_is_mev_ebc0972169.png)

Backrunning occurs when a user makes a transaction that gets followed by an MEV bot executing a strategic transaction right after theirs in order to capture a price movement.

1.  **Monitoring Pending Transactions**: Like frontrunning, backrunning attacks begin with searchers monitoring the mempool for profitable opportunities. In particular, they are looking for transactions that cause a large price impact, as the backrunning attack involves capturing the arbitrage opportunity left behind after a large trade.
2.  **Finding a Transaction with a Large Price Impact**: Once a valuable transaction is identified, the searcher analyzes its impact. For instance, if a large sell order for a specific token is detected, the backrunner knows that this transaction could decrease the asset’s price once processed.
3.  **Capturing the Price Impact**: By placing a transaction directly after a previous, large transaction, the MEV bot can capture the price movement that the transaction causes on the AMM. The backrunner makes a transaction correcting this price impact and collecting the arbitrage in the process.

Backrunning is considered the least harmful type of MEV. While it still captures value, it does not do it at the expense of the trader. When done in isolation, it only captures leftover arbitrage after a large transaction moves an asset’s price.

Read more about backrunning in our article: “[What is Backrunning](/learn/what-is-backrunning-mev-attacks-explained)”

### Sandwich Attacks

Sandwich attacks are considered the most dangerous type of MEV as they extract the most value from users. A sandwich attack is a combination of frontrunning and backrunning for maximum profit on the part of the searcher.

![5-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/5_what_is_mev_f66a58a086.png)

Sandwich attacks occur when a user’s transaction gets trapped, or “sandwiched,” between two hostile transactions — one before and one after. As a result, the original transaction executes at a much higher price than necessary, leading to an inflated price for the original trader and a profit for the searcher placing the two extra trades.

1.  **Monitor Pending Transactions**: Like all other types of MEV, sandwich attacks begin with searchers monitoring the mempool for profitable opportunities. In this case, they’re looking for trades that will create a large price impact which they can frontrun, capturing the value of the asset before the large transaction, and then backrun after the victim transaction, capitalizing on the price impact.
2.  **Perform a Frontrunning Transaction**: When a large trade is identified, the searcher will duplicate it and place their own transaction right before the victim’s — in essence frontrunning. The searcher gauges the size of their transaction to cause just enough price impact to push the asset’s price up to the precise slippage tolerance the victim has set.
3.  **Execute the Victim Transaction**: Since a sandwich attack is a 2-part process, the searcher orders transactions so that the victim’s transaction executes right after the seracher’s frontrunning transaction, but just before their backrunning transaction.
4.  **Execute a Backrunning Transaction**: After the victim transaction executes, its price impact pushes the price of the asset even further (remember it was already raised as a result of the searcher’s frontrunning transaction). Once this takes place, the searcher executes a backrunning transaction, selling the asset and profiting from the arbitrage.

Sandwich attacks are the most common types of swap-related MEV, taking advantage of a user’s slippage tolerance to cause maximum pain for the trader and maximum profit for the searcher.

Read more about sandwich attacks in our article: “[What is a Sandwich Attack](/learn/what-is-a-sandwich-attack-and-how-can-you-protect-yourself)”

### Loss-Versus-Rebalancing (LVR)

Loss-versus-rebalancing (LVR) is a type of MEV that affects liquidity providers (LPs) and accounts for more value loss than all other types of MEV combined.

LVR is different from the swap-based versions of MEV we’ve covered so far. It occurs when liquidity providers lose out on potential profits due to stale prices. Many liquidity providers haven’t even heard of LVR, but it costs them 5–7% of their liquidity, resulting in hundreds of millions lost each year. In fact, when accounting for LVR, many of the largest liquidity pools are not profitable for LPs at all.

![6-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/6_what_is_mev_39dc2a4798.png)

_(_[_Source: Delphi Digital_](https://members.delphidigital.io/learn/loss-versus-rebalancing-lvr)_)_

LVR is a form of arbitrage that occurs whenever an AMM has an outdated (stale) price in comparison to some other trading venue. Arbitrageurs exploit this price difference by trading from the AMM to the more liquid exchange (usually a centralized exchange like Binance), correcting the arbitrage and extracting value from LPs in the process.

Learn more about LVR in our article: “[What is Loss-Versus-Rebalancing (LVR)?](/learn/what-is-loss-versus-rebalancing-lvr)”

### Other MEV

Since the definition of MEV is broad enough to encompass all validator activities that maximize the profits of a given block, there are many other types of MEV that we haven’t covered here as well.

One such example is “Oracle Extractable Value” (OEV) which occurs whenever data from an oracle (such as pricing information) is outdated and searchers can capitalize on this arbitrage at the expense of regular users.

## An Example of an MEV Attack

Let’s take a look at a sample MEV attack through the example of the most common type of MEV — the sandwich attack. In this example, we’re going to be trading ETH and COW.

![7-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/7_what_is_mev_d8784b4c5e.png)

**Step 1**: Bessie wants to buy COW using her ETH. She goes to a decentralized exchange (DEX) like Uniswap, and places an order for 4,000 COW. This should cost her around 1 ETH, but due to significant market volatility, Bessie decides to set a 10% slippage tolerance. This means she’s willing to pay up to 1.1 ETH for 4,000 COW.

**Step 2**: Bessie’s trade enters the Ethereum mempool (the pending order queue), and a lurking searcher spots an opportunity. Springing into action, the searcher places a trade just before Bessie’s trade that is large enough to push the COW price up to her slippage tolerance. In this case, the searcher buys 4,000 COW for exactly 1 ETH. As a result of this first trade’s price impact, Bessie’s 4,000 COW purchase now costs 1.1 ETH — the maximum she’s willing to pay.

**Step 3**: Once the searcher’s transaction clears, Bessie’s transaction also goes through and she receives her 4,000 COW in exchange for 1.1 ETH. The searcher takes advantage of this price impact and sells his original COW at this new rate — 4,000 COW for 1.1 ETH.

In the end, the searcher buys 4,000 COW for 1 ETH and sells it for 1.1 ETH, earning a profit of 0.1 ETH (before gas and fees) for not much effort.

It’s easy to see how lucrative sandwich attacks are!

Bessie, on the other hand, ends up with a bad deal. She could have purchased 4,000 COW for just 1 ETH, but her slippage tolerance left room for a sandwich attack that forced her to pay an extra 10% for her trade.

## Why is MEV Bad?

MEV is a complex and often controversial topic in the Ethereum community.

Some say that MEV is a natural part of the Ethereum market mechanism and it helps to find the most efficient prices. Others believe that MEV can be harmful, but only if it’s concentrated in the hands of a few validators — therefore they work to “democratize” MEV and allow anyone to extract value from on-chain transactions.

However, MEV makes money for searchers, block builders, and Ethereum validators at the expense of regular users… especially beginners who don’t know how to protect themselves. As of the time of writing, sandwich attacks on AMMs and aggregators alike generate [almost $1 million in profit for searchers each week](https://eigenphi.io/mev/ethereum/sandwich).

![8-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/8_what_is_mev_26ab0ff9ec.png)

Over time, persistent MEV erodes market confidence as traders realize they are at a constant disadvantage to more sophisticated actors. Ultimately, MEV may pose an existential threat to blockchain ecosystems like Ethereum so it’s imperative for solutions to emerge that protect everyday traders from price exploitation.

## How to Protect Yourself from MEV

There are multiple ways to avoid MEV as a trader. The most comprehensive solutions take place at the dApp level, but not all dApps provide MEV protection so there are more all-encompassing protection methods including RPC endpoints.

### Reduce Slippage

The most basic defense against MEV is setting a low slippage tolerance.

Since MEV relies on slippage for price manipulation, transactions with a lower slippage tolerance give searchers less room to exploit trades.

For users who aren’t utilizing any other MEV protection tools, setting a lower slippage tolerance can be a good first line of defense, however it’s by no means a complete solution. Setting the slippage tolerance too low often results in failed transactions. Even with optimal slippage, MEV bots may still be able to extract value from your trades.

### Use a Custom RPC Endpoint

![9-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/9_what_is_mev_70787de2c8.png)

A better protection method is to install an MEV protection RPC endpoint.

A Remote Procedure Call (RPC) endpoint is an intermediate layer that routes transactions from a user’s wallet to the blockchain itself. Transactions pass through RPC endpoints before getting to the mempool, so RPCs can provide additional functionality across any blockchain application or protocol.

Normally, RPCs are a boring piece of blockchain infrastructure. Recently, however, specialized RPCs have begun incorporating extra security guarantees for transactions before they reach the blockchain.

One of the most popular specialized RPC endpoints is [MEV Blocker](https://cow.fi/mev-blocker). As the name suggests, MEV Blocker provides protection against MEV across all of Ethereum. The RPC works by managing a permissionless network of searchers and hiding transactions from the public mempool. These searchers cannot frontrun or sandwich user transactions. Instead, they capture value through backrunning. Anytime a searcher backruns a user’s transaction, the searcher keeps up to 10% of the value and sends the other 90% back to the user as a rebate.

Install MEV Blocker here: [https://cow.fi/mev-blocker](https://cow.fi/mev-blocker)

### Use an MEV-Protected DEX

![10-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/10_what_is_mev_16deedca85.png)

As MEV has become more prevalent, decentralized applications (especially decentralized exchanges) have begun offering creative protection solutions to users. For example, many DEXs offer an “auto-slippage” feature which determines the optimal slippage for user trades, reducing the chances of price exploitation.

[CoW Swap](https://swap.cow.fi/#/) is a meta DEX aggregator that finds the best prices for trades and provides comprehensive MEV protection. The protocol uses a unique trading mechanism that relies on batch auctions and intents to achieve the best outcomes for users. Thanks to a powerful combination of delegated trade execution, batch auctions, and protected transaction flow through MEV Blocker, CoW Swap users benefit from thorough MEV protection on all trades.

Try CoW Swap here: [https://swap.cow.fi/#/](https://swap.cow.fi/#/)

## Maximal Extractable Value — Ethereum’s Existential Battle

MEV is a critical problem for the Ethereum ecosystem because it undermines the fundamental principles of fairness and transparency that blockchain technology aims to uphold. The ability of sophisticated actors to extract value from everyday traders pushes users away and discourages the broad adoption of decentralized technologies.

Addressing — and eventually solving — MEV is essential to keeping Ethereum a robust, innovative, and user-friendly platform for all participants. To this end, CoW DAO is working hard to secure a decentralized future by creating products that ensure a fair and protective decentralized financial system.

Learn more about CoW DAO, its mission, and its various products here: [https://cow.fi/](https://cow.fi/).

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MEV is a $1.3 billion problem for Ethereum, but what exactly is it?

What is MEV? — Maximal Extractable Value Explained


## TL;DR

-   During the month of  **May**, CoW Protocol handled a total volume of  **$2.4B**  and generated a surplus of  **$16.5M**
-   In exciting news, the CoW Swap widget got integrated by Safe {Wallet], MEV Scanner was launched, and CoW DAO Revenue & CoW AMM Performance dashboards went live
-   In terms of Governance, CoW DAO executed CIPS 43 & 44

## Protocol Stats

This month, CoW Protocol settled a total of  **$2.4B.**

![1-may-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_may_2024_highlights_a5aa5bc848.webp)

The top batches worth highlighting are the following:

-   **Batch with the highest % of CoW trades**  **(**[**Transaction details**](https://explorer.cow.fi/tx/0x80335524b00f7fb0ca810781b8097acd9f3a26c160a3829e6d2fbe49caa08fc0?tab=orders)**)**. The total batch volume was  **$2,165,670**, and it was created by two traders who were perfectly CoWed for  **90% ($1.9M)**  of their volume. One trader was buying  **WETH-WFTM**, and the other trader was selling  **WETH-WFTM**.

![2-may-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_may_2024_highlights_3a87975f5a.webp)

-   **Batch containing the highest volume**  **(**[**Transaction details**](https://explorer.cow.fi/tx/0x93f390d0a9ba487cadca006270ec5b092df9a1104438fdb7f630a0cbf64271c8?tab=orders&vis=transfers)**)**: The total batch volume was  **$15,968,035.14** and it was created by three traders who were swapping  **DAI** to **USDC, ETH** to **BTRFLY,** and **WETH** to **TOKE**.

![3-may-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_may_2024_highlights_c5df911595.webp)

-   **Batch with the highest amount of surplus**  **(**[**Transaction details**](https://explorer.cow.fi/tx/0xc8c849f6e8f1638b366782946b2004b6c2225f74fe9821004e9107d7b3788531?tab=orders)**)**: The total batch volume was  **$8,534,108.21** and it was created by a single trader who was swapping  **ETH to**  **USDC**. This trader achieved the largest surplus for the month of May by getting  **$173,922.78 USDC**  extra, which was roughly 2**%**  surplus.

![4-may-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_may_2024_highlights_152ab79f09.webp)

During the month of  **April**, the top 10 traders traded a total of  **$22M.**

![5-may-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/5_may_2024_highlights_8e3c3abf09.webp)

In the table below you can see the total volume for this month’s biggest trades. The most active trader executed a whopping  **$5.6M**  in trades with CoW Protocol this month.

![6-may-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/6_may_2024_highlights_c078f604e4.webp)

## Solvers

In  **May**, solvers generated a total of $16M in surplus, which is money in the pockets of traders.

![7-may-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/7_may_2024_highlights_c0bac7f1ea.webp)

Below you can find a breakdown of how each solver performed in May.

![8-may-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/8_may_2024_highlights_5277340481.webp)

## Governance

It has been a hectic month in terms of governance! The CoW cannot be stopped 💪

![9-may-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/9_may_2024_highlights_25544c8f9c.webp)

## Executed Proposals

The DAO executed three important proposals this month:

-   [CIP-43: Operational CoW DAO Safe Renewal](https://snapshot.org/#/cow.eth/proposal/0xcf0cea1d434e3036d07cb61d3d155b2bd45af0d83d280897eb11ce69f5e1f34b)
-   [CIP-44: Reduced bonding requirements](https://snapshot.org/#/cow.eth/proposal/0x1b6f1171633ec3d20c4370db37074aa1bd830486d4d0d6c26165915cc42d9412)

## Draft Proposals

This month, there was one new proposals asking for feedback before moving into the next phase, final CIPs, in their current form:

-   [CIP-Draft: Balancer and CoW jointly creating CoWAMM pools](https://forum.cow.fi/t/cip-draft-balancer-and-cow-jointly-creating-cowamm-pools/2429)

Make sure to read them and leave comments — your feedback is highly appreciated and will help move these important topics forward. If you are interested in submitting a proposal to the CoW DAO, make sure to use the following  [template](https://forum.cow.fi/t/cip-0-template/28).

## CoWmunity News

-   [Safe{Wallet} launched Native Swaps powered by CoW Swap widget](https://x.com/CoWSwap/status/1790352311124213912)
-   In collaboration with CoW Grants,  [MEV Scanner was launched](https://x.com/CoWSwap/status/1796184453007458496)  — a new tool to find how much MEV various wallets have suffered. Available on X, Discord, and Telegram!
-   Released the new  [CoW DAO Revenue Dashboard](https://x.com/CoWSwap/status/1792657133861056513)  so that anyone can check in real time how much money CoW DAO is making.
-   [Published a CoW AMM digest](https://forum.cow.fi/t/4-months-of-cow-amm-what-we-have-learned-and-the-next-steps/2432)  explaining all things happening around CoW AMM for the 4 months that it has been live
-   [Released a CoW AMM Dune Dashboard](https://x.com/CoWSwap/status/1788616025635967222)  that includes stats like aggregate pool APYs and CoW AMM performance compared to a reference pool.
-   [CoW AMM got extensively covered on the latest Blockworks Research deep dive on LVR.](https://x.com/blockworksres/status/1791184122951704758)
-   Hear our  [story how we got started in crypto](https://x.com/CoWSwap/status/1791891046668136919)
-   Had our say in the DOJ episode with our  [“MEV is theft” tweet](https://x.com/CoWSwap/status/1790889428887470243)
-   [FairyCoW Swap launched](https://x.com/CoWSwap/status/1787514538692096264)  its programmable encryption on top of CoW Protocol orders
-   Published an example of what  [optimal settlements in DeFi look like](https://x.com/CoWSwap/status/1787893735453564992)
-   Participated in  [FuruRadio Episode 8](https://x.com/furucombo/status/1790773019872465355)  twitter spaces cover all things Solver related
-   Published several blog articles:  [How to Avoid MEV Bots](https://blog.cow.fi/how-to-avoid-mev-bots-38c63584921e),  [What is a Smart Contract?](https://blog.cow.fi/what-is-a-smart-contract-13a7f33ed7c7), and  [What is Slippage in Crypto?](https://blog.cow.fi/what-is-slippage-in-crypto-59937f801663)

## Product Updates

**Backend**

The backend team has been working hard to improve the product infrastructure. In  **May**, we:

-   Allowed solvers to simulate orders without needing to hit another backend endpoint
-   Worked on solver competition by verifying solver quotes
-   Worked on collocated driver solver quoting
-   Worked on backend refactoring to enable running a circuit breaker in the autopilot (a requirement for actual colocation where solvers run their own drivers)
-   Merged CoW AMM fixes, unblocking further progress on the CoW AMM feature
-   Worked on Arbitrum deployment, including various fixes, gas price estimator, and a core component that subscribes to new blocks from the blockchain
-   Made further progress on full colocation, creating an execution plan and starting implementation
-   The backend team attended DappCon

**Frontend**

The frontend team has been working hard on improvements in the UI front, as well as the overall UI infrastructure. In  **May**, we:

-   Fixed automatic IPFS publishing with a new ENS deployment (good for the decentralization of CoW Swap and the protocol): [https://cowswap.eth.limo](https://cowswap.eth.limo/)
-   The frontend team had a retreat in Turkey, where they worked on several new and upcoming features
-   Launched CoW Swap and the CoW Explorer on Arbitrum
-   Launched EIP 6963 (injected wallets), reducing the number of default wallets and finally supporting Rabby and all wallets that support the standard
-   Worked on several features that will soon be revealed

## Open Job Positions

### Marketing

[Content Marketing Manager Remote or Lisbon](https://boards.eu.greenhouse.io/cowswap/jobs/4343031101)

### Other

[Name Your Role Remote — Lisbon](https://boards.eu.greenhouse.io/cowswap/jobs/4341959101)

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Welcome back to another CoW Update, where we break down the most notable developments of the last few weeks at CoW DAO.


CoW DAO May 2024 Highlights

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This article summarizes the “Order Flow Auctions on the MEV Supply Chain” talk presented by CoW Swap at the Prague DeFi Summit

Understanding Order Flow Auctions


Maximal extractable value, or MEV, is a pernicious form of price exploitation that is responsible for over $1.3 billion in losses for everyday traders. Most MEV takes place on the Ethereum ecosystem and adversely affects transactions across decentralized exchanges, liquidity pools, NFT marketplaces, and more.

MEV is captured by MEV bots programmed  to seek out and exploit price differences. Since blockchain markets are built to be always-on, there are always arbitrage opportunities on networks like Ethereum. MEV bots exploit beginners and seasoned traders alike, so it’s important to understand how they work and how to avoid them.

## What is MEV?

Before diving into the specifics of how to avoid MEV bots, let’s first make sure we understand MEV conceptually.

Maximal Extractable Value is, as the name suggests, a measure of the maximum amount of value that can be extracted from the contents of a given Ethereum block. Ethereum transactions are not all equally valuable, and validators (the parties responsible for creating the blocks) can pick and choose how to order transactions in blocks to maximize their profits.

This means that transactions are not necessarily executed in the order they are received; instead, they are arranged in a way that maximizes the compensation for validators.

![1-how-to-avoid-mev-bots.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_how_to_avoid_mev_bots_ffb5692931.webp)

_How MEV occurs in an Ethereum block_

Upon order submission, Ethereum transactions get sent to a “mempool” where they wait to be added to a block. In this mempool, MEV bots (also known as “searchers”) can view pending transactions and bribe validators to reorder them, exploiting the little guy and profiting in the process.

## What is an MEV Bot?

An MEV bot is a program designed to monitor decentralized exchanges, NFT marketplaces, lending platforms, and other on-chain venues to spot profit opportunities. There are several distinct types of MEV bots, each targeting different kinds of transactions.

**Trading MEV bots**: The most common type of MEV bots exploit decentralized exchanges that users rely on to swap cryptocurrencies. They specifically take advantage of the mechanisms used by  [automated market makers (AMMs)](/learn/cow-protocol-glossary#:~:text=amm).

When users trade on decentralized exchanges, they set a slippage tolerance to manage the price difference between the time an order is submitted and when it actually executes. Normally, slippage tolerances range from around 0.1% for stable assets like stablecoins, to 1–2% for blue-chip cryptos like Ethereum, and sometimes upwards of 10% for highly volatile cryptocurrencies like memecoins.

![2-how-to-avoid-mev-bots.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_how_to_avoid_mev_bots_311ef2c62c.webp)

_How a sandwich attack occurs_

DEX MEV bots exploit the slippage tolerance set by users to manipulate trades through a technique called a “sandwich attack.” In a sandwich attack, MEV bots identify a target trade and execute a frontrunning trade just before it, driving up the asset’s price to the slippage tolerance limit. Once the victim’s transaction goes through and raises the price further, the bots dump the token, keeping the profits for themselves.

**LP MEV bots**: Liquidity providers (LPs) on decentralized exchanges can also fall prey to MEV bots. MEV for LPs is known as “[loss versus rebalancing” or LVR](/learn/what-is-loss-versus-rebalancing-lvr). This value extraction arises from the arbitrage between a given LP pool and a reference rebalancing pool that has more up-to-date pricing.

LVR is a problem on decentralized exchanges because price discovery for assets typically occurs off-chain. Centralized exchanges like Binance generally have more liquidity for tokens so they serve as the most accurate source of truth for up-to-the-minute prices.

MEV bots exploit this arbitrage opportunity by continuously trading against DEX pools, capturing upside for themselves at the expense of the LPs.

**NFT MEV bots**: MEV bots can also hijack NFT mints through a process called “frontrunning.” If an MEV bot detects a transaction in the mempool from a user attempting to purchase a valuable NFT, it can submit an order to buy the NFT for itself that executes before the user’s transaction. This is similar to frontrunning swaps on DEXs but applied to NFT mints instead.

## How to Avoid MEV Bots

While MEV is a pervasive problem across all of Ethereum, there are multiple ways to keep yourself safe.

### Use tight slippage when trading

The simplest way to defend against MEV is by setting a low slippage tolerance.

Since MEV exploits slippage for price manipulation, transactions with a lower slippage tolerance provide searchers with less opportunity to exploit trades.

For users not using any other MEV protection tools, setting a lower slippage tolerance can serve as an initial line of defense. However, it’s not a complete solution. Setting the slippage tolerance too low can often result in failed transactions. Even with optimal slippage, MEV bots may still manage to extract value from your trades.

### Trade on pools with large liquidity

Fundamentally, MEV relies on arbitrage opportunities. One way to reduce exposure to such arbitrage is to restrict your trading only to pools with large liquidity. On these pools, individual trades won’t have much  [price impact](/learn/cow-protocol-glossary#:~:text=Price%20impact), so it will be more difficult for MEV bots to extract value.

This strategy limits much of DeFi, of course, as there are constantly new coins launched, and even popular coins may suffer from low liquidity on certain exchanges or during certain times.

### Install an MEV protection RPC

An increasingly popular type of MEV protection that provides a comprehensive solution to the problem is the use of an MEV blocking RPC like  [MEV Blocker](https://mevblocker.io/).

An RPC (Remote procedure call) is a piece of software that sits between a user wallet and the blockchain, transmitting transactions. Normally, RPCs are a boring piece of blockchain infrastructure. Recently, however, specialized RPCs have begun incorporating extra security guarantees for transactions before they reach the blockchain.

The most popular specialized RPC endpoint is  [MEV Blocker](https://mevblocker.io/). As its name suggests, MEV Blocker provides protection against MEV across the entire Ethereum network. This RPC manages a permissionless network of searchers and conceals transactions from the public mempool. These searchers cannot frontrun or sandwich user transactions; instead, they capture value through backrunning. Whenever a searcher backruns a user’s transaction, they keep up to 10% of the value and return the remaining 90% to the user as a rebate. This means that even when a transaction leaves money on the table, MEV Blocker ensures users get most of that value back.

MEV Blocker protects all types of Ethereum transactions, not just swaps, and is compatible with all Ethereum wallets. You can install the MEV Blocker RPC endpoint by following the instructions  [here](https://mevblocker.io/).

### Use intent-based trading solutions

While RPC endpoints provide protection against MEV across many different types of trades, the most comprehensive solutions take place at the application level.

In recent years, there has been a surge in the popularity of intent-based trading solutions like CoW Swap, with leading exchanges like 1inch and Uniswap launching their own intent-based solutions in 1inch Fusion and Uniswap X. Unlike traditional decentralized exchanges, intent-based trading solutions rely on professional execution parties known as “solvers’’ to execute trades on behalf of users.

Delegating execution to professional third parties helps users get the best prices for their trades, as solvers can determine the optimal liquidity sources to tap into. It also means that the risk of MEV gets taken on by the solver themselves, and users are protected from direct price exploitation.

![3-how-to-avoid-mev-bots.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_how_to_avoid_mev_bots_523b1b6663.webp)

_The flow of a transaction on CoW Swap_

### (For LPs) Use an MEV-capturing AMM

Until recently, there wasn’t a great solution to MEV in the form of loss-versus-rebalancing (LVR). LPs basically had to accept that providing liquidity for tokens comes with a tax paid to the MEV bots that constantly rebalance the pools (at the expense of the liquidity providers themselves).

This all changed, however, with the launch of  [CoW AMM](https://cow.fi/cow-amm) — a first-of-its-kind MEV-capturing AMM that redirects profits from pool rebalancing to liquidity providers. CoW AMM works sort of like MEV Blocker in that it makes the MEV bots work FOR users rather than against them. To trade against the liquidity in CoW AMM pools, solvers must bid to provide the most surplus to the pool, thereby giving the majority of LVR profits to the LPs.

## Why MEV bots are bad for Ethereum

As a permissionless, public platform, Ethereum serves as a battleground of opinions on whether MEV is good, bad, or should even be allowed in the first place.

Those sympathetic to the practice argue that MEV is a natural market mechanism that enhances market efficiency and encourages price discovery. While litigating the specifics of the issue is beyond the scope of this article, there are important arguments to be made for why MEV bots are harmful to individual users.

![4-how-to-avoid-mev-bots.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_how_to_avoid_mev_bots_c7aafd4451.webp)

_A snapshot of total MEV value extraction_

### Reduce fairness

At its core, value extraction prioritizes sophisticated traders who have the means and know-how to exploit transactions and profit off minute arbitrage opportunities.

Users who may simply be making trades on exchanges or minting NFTs have no way to compete with these value extractors unless they themselves are capable of writing better bots to protect their transactions.

### Disproportionately target beginners

Those new to DeFi are particularly vulnerable to being exploited. The world of decentralized trading is complex for beginners, who may not even understand settings like slippage tolerance, making them easy prey for bots waiting to take advantage of inexperienced traders.

This creates a negative equilibrium for decentralized trading that may drive newcomers away, hurting the ecosystem as a whole.

### Engage in market manipulation

While there are arguments to be made for MEV encouraging market efficiency and price discovery, this is not the case with every type of MEV.

For example, trading MEV bots rely on exploiting slippage tolerances by raising prices up to a threshold and then selling immediately after in a sandwich attack. In this scenario, the AMM does not benefit from price discovery, but instead experiences an artificial pump-and-dump at the expense of a single trader. In traditional markets, such a move could be considered market manipulation as it adds nothing to the market and is designed solely to profit off a market participant.

## CoW DAO: Protecting Ethereum Users from Negative Outcomes

Ultimately, the goal of Ethereum is to serve as a public platform that enables innovation. MEV as a problem emerges from a largely unrestricted marketplace. This benefits innovation by encouraging novel market mechanisms, but it also poses risks to uninformed traders. For this reason, it’s important for users to be aware of the solutions available for protecting themselves.

Regardless of what side of the MEV debate you stand on, most of us agree that we don’t want our trades exploited. To this end, CoW DAO has your back with products that protect you from Ethereum’s dangers and work to ensure positive outcomes.

Install MEV Blocker here:  [www.mevblocker.io](http://www.mevblocker.io/)

LP on CoW AMM:  [https://cow.fi/cow-amm](https://cow.fi/cow-amm)

Swap on CoW Swap:  [www.swap.cow.fi](https://swap.cow.fi/#/swap?utm_source=medium&utm_campaign=protect-from-mev-bots-article)

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The nasty culprits of MEV lurk in every corner of Ethereum… Find out how to keep yourself safe


How to Avoid MEV Bots

A smart contract is an executable program on a blockchain network. Smart contracts make up the backbone of the web3 industry as they enable many of the use-cases that blockchains are known for including staking, swapping, lending, borrowing, and much more.

Blockchains eliminate the need for a central authority or intermediary when it comes to running a mass, decentralized network of nodes. Smart contracts bring these benefits to specific use-cases by enabling the creation of decentralized apps (dApps).

Smart contracts were first popularized with the launch of the Ethereum blockchain in 2015. Ethereum also includes a programming language for creating smart contracts known as “Solidity.”

## How do Smart Contracts Work?

Smart contracts are created as computer code that is hosted and executed on a blockchain network. A decentralized set of nodes keep a copy of the entire state of the blockchain, including all deployed smart contracts, in order to ensure that the smart contracts are executed in a reliable and transparent way.

Let’s take a look at the process of creating and deploying a smart contract:

**Contract Creation**: Developers write smart contracts using programming languages compatible with the blockchain, such as Solidity for Ethereum. The code within the smart contracts include rules for execution and the logic necessary for the smart contract to perform its function — such as lending, swapping, borrowing, etc.

**Compiling**: After it’s written, the smart contract is compiled into bytecode. This is the machine-readable language that execution environments such as the Ethereum Virtual Machine (EVM) use.

**Deployment**: Once it’s compiled, the smart contract is deployed to the blockchain through a transaction that includes the contract’s code. This transaction is then broadcast to the network and assigned a unique address on the blockchain, similar to how blockchain wallets have addresses.

**Trigger**: Smart contracts are designed to automatically execute when predefined conditions are met. They can be triggered by various events, including receiving a certain amount of cryptocurrency, the expiration of a timer, receiving a trigger from an external data source, and more.

**Execution**: Once a contract is triggered, blockchain nodes execute the contract’s code. Since every node on the network independently runs the code, the execution is verified and validated multiple times. This multi-party validation is what provides the security and transparency smart contracts are known for.

**State Change**: All actions taken by a smart contract are treated as transactions. These transactions can change the state of the contract, interact with other contracts, alter user balances, and more.

**Results**: The state change caused by the execution of the smart contract is recorded on the blockchain and assimilated by the various nodes. Changes in balances, variables, ownership records, and more are recorded on the blockchain in an immutable manner.

**Continuous Interaction**: Smart contracts can remain on the blockchain indefinitely, ready to be triggered again under the right conditions.

An important aspect of smart contracts is that they are permisionless, meaning that anyone can develop and deploy a smart contract on any public blockchain. All they have to do is pay the necessary gas fees to deploy the smart contract.

## What are Smart Contracts Used For?

Smart contracts are at the heart of decentralized apps (dApps). They power the entire world of decentralized finance (DeFi) as well as other fields like blockchain insurance, gaming, NFTs, social networks, and much more.

### Decentralized Exchanges

dApps that enable trading, like Uniswap, rely on smart contracts for processing user funds, finding liquidity, and executing swaps.

More complex decentralized exchanges such as  [CoW Swap](https://swap.cow.fi/#/swap?utm_source=medium&utm_campaign=smart-contracts-article)  use smart contracts to power solver competitions where multiple independent parties find liquidity on behalf of users. In this case, smart contracts are essential for enforcing the rules of the competition and ensuring users get the best deal for their trades.

### Lending & Borrowing Platforms

Platforms like Aave allow blockchain users to take out overcollateralized crypto loans without relying on traditional counterparties. These dApps utilize smart contracts to allow users to lend out their crypto assets or borrow against them.

The platform works by having users deposit crypto tokens into liquidity pools managed by smart contracts and allowing borrowers to take out loans from these liquidity pools by providing collateral. Smart contracts automatically enforce the terms of the loan, such as collateral requirements, interest rates, and repayment terms. They also managing liquidations whenever necessary.

Additionally, on-chain lending platforms use algorithmically determined dynamic interest rates, which adjust based on the current supply and demand for each asset in the pools. Smart contracts calculate and update these rates in real-time, ensuring that lenders receive competitive returns and borrowers pay fair rates.

### Liquidity Providing

Exchanges that rely on automated market makers (AMMs) use smart contracts not only for the swap process, but also for allowing users to provide liquidity.

[AMMs](/learn/cow-protocol-glossary#:~:text=amm)  allow users to trade assets without the need for a centralized intermediary, or even a traditional orderbook. Whenever a user swaps tokens, they interact with the appropriate liquidity pool’s smart contract. The contract calculates the amount of tokens that can be received based on the current ratio of tokens in the pool, with the goal of ensuring that the pool remains balanced. The transaction is then executed automatically by the smart contract without requiring a traditional buyer-seller match.

### Staking

Many smart-contract-enabled blockchains, such as Ethereum, use proof-of-stake consensus mechanisms. These systems require users to lock up, or “stake,” tokens in order to validate the state of the blockchain. Smart contracts are essential to this process.

Tokens used for staking are locked in a smart contract that ensures that the tokens cannot be spent elsewhere while they are staked. This contract typically specifies conditions such as the minimum staking period, the minimum and maximum stake amounts, and other rules governing the staking process.

Smart contracts also calculate the rewards distribution for stakers, select which validators should create the next block, slash (penalize) validators in case of misconduct, and facilitate unstaking and withdrawals.

**In summary, smart contracts are crucial to the functions of modern-day blockchains.** They ensure these systems run according to certain rules, with no down-time, and with set rules for processing all submitted transactions. All with no centralized control or trusted intermediary!

## What are the Benefits of Smart Contracts?

So far, we’ve seen that smart contracts ensure that dApps are online 24/7 and function without the need for counterparties. Below we take a look at some additional benefits.

**Automation**: Smart contracts are automatically executed, meaning they effectively eliminate counterparty risk. Various parties in transactions also have their funds transferred automatically without having to wait for signatures, notaries, or other forms of manual verification.

**Transparency**: Smart contracts deployed on blockchains are publicly visible, meaning anyone can audit the code and determine what the smart contract does. This transparency encourages trust as malicious code can be quickly identified and there is no doubt about what steps a smart contract will take when executed.

**Immutability**: As a corollary to transparency, smart contracts are also immutable, meaning that they cannot be changed without these changes becoming public. This adds an additional layer of transparency which ensures smart contracts perform what they are supposed to with no malicious code and without censoring outputs.

## What are the Limitations of Smart Contracts?

The main downside of smart contracts is (aptly) known as “smart contract risk” — which is the risk that the smart contract has a bug that prevents it from executing properly or puts user funds at risk.

A powerful benefit of smart contracts is that they are immutable, meaning no one can sneak changes in. This can also prove to be a headache, however, if a smart contract is deployed with an error. For this reason, it’s extremely important that code deployed on blockchains is as error-free as possible. In service of this goal, the cottage industry of smart contract audit services has emerged to help make sure deployed code has no bugs and smart contract risk is well managed.

## How Smart Contracts Enable Decentralized Finance

Decentralized finance, or “DeFi” is an emerging field that aims to transform the way individuals move money, ending the reliance on centralized intermediaries like banks.

![1-what-is-a-smart-contract.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_what_is_a_smart_contract_80275c1ffb.webp)

A core DeFi function is the ability to swap cryptocurrencies from one to another permissionlessly. One of the leaders in this space, CoW Swap, is a meta DEX aggregator that enables the most efficient and price optimal swaps in DeFi.

CoW Swap relies on smart contracts for much of its functionality. Not only do smart contracts enable the nuts and bolts of processing user funds, they also govern the solver competition that sets CoW Swap apart from other decentralized exchanges.

Smart contracts ensure that CoW Swap users receive the best prices for their trades through a decentralized solver competition where independent third parties compete for the right to settle user trades. The best solution is algorithmically determined based on which solver provides the most surplus to users. Thanks to smart contracts, CoW Swap users know that they are getting the best deals for their trades.

Give CoW Swap a shot and put its smart contracts to work for you:  [swap.cow.fi](https://swap.cow.fi/#/swap?utm_source=medium&utm_campaign=smart-contracts-article).

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Smart Contracts enable the majority of decentralized apps and are critical to modern blockchain ecosystems


What is a Smart Contract?

## TL;DR

-   During the month of  **April**, CoW Protocol handled a total volume of  **$2.38B**  and generated a surplus of  **$16.6M**
-   In exciting news, CoW DAO began a  [token buyback program](https://twitter.com/CoWSwap/status/1785339850394304608), MEV Blocker  [started collecting revenue](https://x.com/CoWSwap/status/1778084900610228559), and CoW Swap ran an “[I’m feeling lucky”](https://x.com/CoWSwap/status/1774725067567681674)  campaign for April Fool’s day
-   In terms of Governance, CoW DAO executed  [CIP-40: MEV Blocker Fees](https://snapshot.org/#/cow.eth/proposal/0x67aaf4f3e14f833ea496a5cf29d3c58cd12e36a72b7f36c60393083b87422070),  [CIP-41: Claim and Delegate CoW DAO’s SHU Token Allocation](https://snapshot.org/#/cow.eth/proposal/0x86686d2546586696370f87313cf1dff4705e9d7edeee03e560a84470eaa3f57e), and  [CIP-42: Enhancing Treasury Asset Usage](https://snapshot.org/#/cow.eth/proposal/0xb6edd841020478bf3c10b51a897c4bde511f11ddf53bf6352edc0fe2b949518a)

## Protocol Stats

This month, CoW Protocol settled a total of  **$2.38B.**

![1-cow-dao-april-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_cow_dao_april_2024_highlights_36cbd49453.webp)

The top 3 batches worth highlighting are the following:

-   **Batch with the highest % of CoW trades (**[**Transaction details**](https://explorer.cow.fi/tx/0xf191aa1a7280c1c5ea51c91f11d3b1d3456c57ec37712923b6d030453571b09c?tab=orders)**):**  The total batch volume was  **$2.26M**, and it was created by two traders who were CoWed for  **$2,000,000, (88.5%)**  of the total volume. One trader was buying USDC, the other was selling USDC.

![2-cow-dao-april-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_cow_dao_april_2024_highlights_cdd6a84049.webp)

-   **Batch containing the highest volume (**[**Transaction details**](https://explorer.cow.fi/tx/0xe71b7b029dd274087ef0148d9af8203b62cd0368fb42b6231c4db5dfb985d240?tab=orders&vis=transfers)**):**  The total batch volume was  **$15,474,023** and it was created by two traders — one swapping  **USDT for USDC**  and one swapping  **ETH for FRAX**.

![3-cow-dao-april-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_cow_dao_april_2024_highlights_fa24438f19.webp)

-   **Batch with the highest amount of surplus (**[**Transaction details**](https://explorer.cow.fi/tx/0xfc720a40a9cf1366b7a00c6a4f0f72a64316e07143ba523e672b12ca4b2244f6?tab=orders)**):**  The total batch volume was  **1,000 ETH**, and it was created by a trader swapping ETH for WBTC. They received  **1.05 WBTC (2.09%)**  as surplus.

![4-cow-dao-april-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_cow_dao_april_2024_highlights_97d7d45c4c.webp)

During the month of  **April**, the top 10 traders traded a total of  **$40,343,807.**

![5-cow-dao-april-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/5_cow_dao_april_2024_highlights_861a8be332.webp)

In the table below you can see the total volume for this month’s biggest trades. The most active trader executed a whopping  **$14,687,148**  in trades with CoW Protocol this month.

![6-cow-dao-april-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/6_cow_dao_april_2024_highlights_0947456c82.webp)

## Solvers

In  **April**, solvers generated a total of  **$16M**  in surplus, which is money in the pockets of traders.

![7-cow-dao-april-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/7_cow_dao_april_2024_highlights_e3f24ac5b9.webp)

Below you can find a breakdown of how each solver performed in April.

![8-cow-dao-april-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/8_cow_dao_april_2024_highlights_0b729fd1b0.webp)

## Governance

It was an active month in terms of governance! The CoWs cannot be stopped 💪

![9-cow-dao-april-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/9_cow_dao_april_2024_highlights_ccaeab6849.webp)

### Executed Proposals

The DAO  **executed three important proposals**  this month:

-   [CIP-40: MEV Blocker Fees](https://snapshot.org/#/cow.eth/proposal/0x67aaf4f3e14f833ea496a5cf29d3c58cd12e36a72b7f36c60393083b87422070)
-   [CIP-41: Claim and Delegate CoW DAO’s SHU Token Allocation](https://snapshot.org/#/cow.eth/proposal/0x86686d2546586696370f87313cf1dff4705e9d7edeee03e560a84470eaa3f57e)
-   [CIP-42: Enhancing Treasury Asset Usage](https://snapshot.org/#/cow.eth/proposal/0xb6edd841020478bf3c10b51a897c4bde511f11ddf53bf6352edc0fe2b949518a)

### Draft Proposals

There were no new draft proposals this month.

## CoWmunity News

-   With CIP-40 passing, MEV Blocker  [began earning revenue from builders](https://x.com/CoWSwap/status/1778084900610228559)
-   CoW DAO began converting all collected protocol fees from ETH to COW, effectively creating a  [buyback program for the COW token](https://twitter.com/CoWSwap/status/1785339850394304608)
-   MEV Blocker  [received an Etherscan integration](https://x.com/CoWSwap/status/1785007216485130550)  that allows users to view pending transactions submitted through the private RPC
-   CoW Swap  [supported Safe’s token launch](https://x.com/CoWSwap/status/1782433684219638205)  by offering pre-launch limit orders
-   CoW Swap welcomed April with a  [one-day-only “I’m Feeling Lucky” swap feature](https://x.com/CoWSwap/status/1774725067567681674)
-   Enabled limit orders for  [amounts larger than the current token balance a user has in their wallet](https://x.com/CoWSwap/status/1777504272487223712)
-   The Den multisig project  [integrated the CoW Swap widget](https://x.com/CoWSwap/status/1782412887778333001)  for easy swaps
-   The CoW Swap team traveled to Token 2049 to represent the project

## Product Updates

### Backend

The backend team has been working hard to improve the product infrastructure. In  **April**, we:

-   Finalized the partner fee implementation
-   Cleaned up rank-by-surplus and fee features
-   Worked on exempting CoW AMM orders from protocol fees
-   Tested support for 0x liquidity
-   Worked on colocating Gnosis solvers as quoters
-   Implemented performance improvements to make the system more stable with colocated price estimator

### Frontend

The frontend team has been working hard on improvements in the UI front, as well as the overall UI infrastructure. In  **April**, we:

-   Improved responsiveness on the CoW Swap widget
-   Launched support for creating limit orders beyond the current wallet balance as well
-   Launched the partner fee for the CoW Swap widget
-   Supported a number of integrations including Nanse, Den, Shapeshift, Memeswap, and more
-   Iterated on proposals for adding cross-chain swaps to CoW Swap
-   Worked on migrating CoW Swap blog content to an internal CMS

## Open Job Positions

### Engineering

[Support Engineer with Python](https://boards.eu.greenhouse.io/cowswap/jobs/4332254101)

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CoW DAO April 2024 Highlights

Slippage is the difference between the price at which a cryptocurrency order is submitted and the price at which it’s executed.

Since crypto prices fluctuate constantly, it’s necessary to set a “slippage tolerance” for every trade which allows users to accept a slightly higher or slightly lower price for their trades at execution time.

## What is Slippage?

Slippage is the amount that a trade price may vary by between the time the trade is placed and the time it actually executes.

To better understand slippage, let’s take a look at an example.

Let’s say a user places an order to buy 1 ETH while the price of ETH is exactly $3,000. By the time the order executes, however, ETH has shifted slightly in price and the user ends up only paying $2,980 for 1 ETH. The $20 difference between the $3,000 that they initially placed their order at and the $2,980 per ETH price that the order eventually executed for is known as slippage.

## What is a Slippage Tolerance?

![1-what-is-slippage.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_what_is_slippage_0b1a557216.webp)

_The slippage setting on_ [_CoW Swap_](https://swap.cow.fi/#/swap?utm_source=medium&utm_campaign=slippage-article)

Decentralized exchanges require users to set a “slippage tolerance” percentage every time they make a trade. This determines how much deviation the trader is willing to accept in the price of the asset they are trading.

For example, if a user wants to buy 1 ETH, it might cost them $3,000 at the time they place their trade, but by execution time that price may have changed to $2,950 (approximately 2% less). If they had no slippage tolerance, their trade would fail, potentially still incurring gas fees and forcing them to resubmit the transaction.

Meanwhile, if they set a slippage tolerance of 2% when they place their trade, their trade would be able to execute at prices 2% below or 2% above the quoted price. In this example, this would allow the trade to go through as long as 1 ETH is between $2,940 and $3,060 at execution time.

All decentralized exchanges use slippage tolerances for user trades, so it’s important to understand the concept and know what percentage to use.

## What Slippage Tolerance Should I Use?

As a rule, you should try to use the smallest slippage you can get away with. On most exchanges, the default slippage tolerance is between 0.5% and 2%, however, the optimal slippage tolerance depends on the type of asset you’re trading.

Generally speaking, the more volatile a crypto asset is, the higher a slippage tolerance you’ll need to use.

**For stable assets**: Assets like stablecoins generally require a low slippage tolerance because their prices don’t fluctuate by much. Exchanges specializing in stablecoins (such as Curve) set the default slippage tolerance for these assets at between 0.25% and 0.5%.

**For standard assets**: The standard slippage tolerance for most trades is between 0.5% and 2%. This is a good range to stick to when trading established assets with medium volatility profiles such as Ethereum.

**For volatile assets**: When it comes to cryptocurrencies whose prices jump wildly — such as memecoins or new token launches — users will often need to use a higher slippage tolerance than 2%. There is no hard and fast rule here. Depending on the volatility of the asset, user trades may require a double-digit slippage, maybe even in the high double-digits, in order for the trade to go through.

It’s important to understand, however, that setting a high slippage tolerance leaves you vulnerable to price exploitation in the form of maximal extractable value (MEV).

## The Dangers of High Slippage

While setting a high slippage tolerance helps ensure that your transaction goes through, using too high of a slippage tolerance can be dangerous.

Blockchains like Ethereum process transactions sequentially, meaning that transactions in a block execute one after the other. This, combined with the mechanism of  [automated market makers (AMMs)](/learn/cow-protocol-glossary#:~:text=amm), means that value-extracting bots can strategically place transactions before and after your trade to exploit your slippage tolerance and extract value from you. This type of price exploitation is known as maximal extractable value (MEV).

### Sandwich Attacks

![2-what-is-slippage.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_what_is_slippage_e0af2a8fb5.webp)

_The flow of a sandwich attack_

A  [sandwich attack](/learn/what-is-a-sandwich-attack-and-how-can-you-protect-yourself)  is a form of MEV that can occur whenever a user places a trade with a high slippage tolerance. Specifically, this is a slippage tolerance that is larger than what the market price may call for.

When a user places this trade, an MEV bot (known as a “searcher”) places another transaction before the user transaction, pushing the price of the traded asset up to the original user’s maximum slippage tolerance. The original user’s transaction then goes through, pushing the price up even further. Finally, the searcher sells the asset, cashing out on the price difference.

In the end, the user loses out because their transaction could have gone through at a lower slippage. Instead, the searcher forced the user’s transaction to execute at the limit of its slippage tolerance and kept the difference for themselves.

This isn’t a rare occurrence either, MEV is a systemic problem for chains like Ethereum where MEV losses total over $1.3 billion to date.

## What is Auto-Slippage?

Unfortunately, there is no perfect way to predict what the ideal slippage should be for every trade. In crypto, users are often competing against more sophisticated trading parties and bots who can take advantage of their sub-optimal traders for their own profit.

To protect users from MEV, some exchanges offer auto-slippage functions which automatically calculate the slippage tolerance that trades should use based on the assets they are trading and market conditions.

## CoW Swap: Premium Auto-Slippage and Delegated Trade Execution

![3-what-is-slippage.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_what_is_slippage_4170bdeb89.webp)

One of the exchanges with the most advanced auto-slippage features is CoW Swap. CoW Swap is an intents-based DEX aggregator that uses third parties known as “solvers” to execute trades on behalf of users. Solvers calculate the optimal slippage tolerance for user trades and take on all the risks of MEV.

![4-what-is-slippage.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_what_is_slippage_4f3c2ce1e4.webp)

In fact,  [data shows](https://blog.cow.fi/do-cows-slip-age-less-389150154f84)  that CoW Swap offers a low default slippage the overwhelming majority of the time compared to 0x and 1inch.

On CoW Swap, you can make the perfect trade every time, even if you’ve never heard of “slippage” before!

Trade worry-free at  [swap.cow.fi](https://swap.cow.fi/#/swap?utm_source=medium&utm_campaign=slippage-article).

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Slippage occurs in most crypto trades, and it’s an important concept for traders to understand


What is Slippage in Crypto?


A DEX aggregator is a platform that searches multiple decentralized exchanges to find the best prices for crypto trades.

The rise of permissionless trading venues known as decentralized exchanges (DEXs) allow users to swap between virtually any cryptocurrency assets. Navigating multiple decentralized exchanges, however, can be cumbersome and inefficient.

This is where a decentralized exchange (DEX) aggregator comes in.

DEX aggregators are decentralized applications that search decentralized exchange trading platforms (like Uniswap, Balancer, and others) to find the best prices for any given trade. DEX aggregators have become pivotal to the world of decentralized finance (DeFi) by providing a single trading platform for users looking to get the best deal on their swaps.

## How does a DEX aggregator work?

DEX aggregators search various sources of liquidity to find the best trade route for on-chain assets.

Since liquidity is often fragmented across various sources, different decentralized exchanges may quote different prices for the same asset. DEX aggregators “aggregate” quotes from decentralized exchanges and fulfill user orders at the best available price. Sometimes, DEX aggregators may even route a single trade across multiple decentralized exchanges to reduce  [price impact](/learn/cow-protocol-glossary#:~:text=Price%20impact)  and provide better execution.

There are multiple types of DEX aggregators and the last few years have seen ever-more advanced versions of these platforms become available.

### Traditional DEX Aggregators

![1-what-is-a-dex-aggregator.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_what_is_a_dex_aggregator_b90efd4ea4.webp)

_1inch DEX Aggregator_

Traditional DEX aggregators such as 1inch have been around for years. Their interfaces look very similar to those of regular decentralized exchanges. A user is presented with a swap module that takes in two cryptocurrencies: a sell token and a buy token. After the user clicks “swap,” the aggregator automatically finds the best liquidity for the trade and executes the transaction on-chain.

### Meta DEX Aggregators

![2-what-is-a-dex-aggregator.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_what_is_a_dex_aggregator_2323d5b3ed.webp)

_DeFi Llama Meta DEX Aggregator_

Meta DEX aggregators are a step up from traditional aggregators. As the “meta” name implies, they aggregate DEX aggregators. This leads to better liquidity coverage across more venues, while still providing users with a single interface for their trades.

### Intent-Based DEX Aggregators

![3-what-is-a-dex-aggregator.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_what_is_a_dex_aggregator_198d1d6719.webp)

_CoW Swap Intent-Based DEX Aggregator_

Intent-based aggregators are the most advanced type of DEX aggregator out there.

They not only aggregate on-chain liquidity across exchanges and other aggregators, they also delegate execution to third parties known as “solvers.” These third parties provide additional sources of liquidity by including private inventory and, in certain cases, even matching trades peer-to-peer. This avoids protocol fees and makes for the most efficient trades in DeFi.

## Benefits of Using a DEX Aggregator

DEX aggregators provide a number of benefits, simplifying trading and providing better outcomes for users.

**Better Prices**: DEX aggregators look across multiple on-chain decentralized exchanges to find the best prices for any given token pair. Since most on-chain trading relies on  [automated market makers (AMMs)](/learn/cow-protocol-glossary#:~:text=amm), liquidity may be fragmented across various exchanges. As their name suggests, aggregators collect this liquidity in one place, giving traders the best deal for their swaps.

**Convenience**: By using a DEX aggregator, traders can reliably get good prices for their trades in one place without having to check multiple exchanges.

**Price Impact Protection**: Fragmented liquidity can sometimes make for shallow pools, meaning large trades experience significant  [price impact](https://blog.cow.fi/cow-protocol-glossary-ad7313a2c71#:~:text=Price%20Impact). Aggregators can break up trades across multiple exchanges, reducing price impact and providing better prices.

**MEV Protection**: In the case of intent-based DEX aggregators, solvers execute trades on behalf of users—protecting them from price exploitation in the form of  [maximal extractable value (MEV)](/learn/understanding-mev-protection).

Fragmented liquidity often makes finding the best route for trades difficult. DEX aggregators bring this liquidity back together and take the work of finding the best prices off the backs of users.

## What is the Best DEX aggregator?

There are a number of DEX aggregators on the market today. By market share, the most popular DEX aggregator is 1inch. However, when it comes to innovation, intent-based protocols like CoW Swap go the furthest.

## CoW Swap: The Leading Intent-Based Aggregator

![4-what-is-a-dex-aggregator.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_what_is_a_dex_aggregator_8768b6d9fb.webp)

CoW Swap is a leading innovator in the intent-based aggregator space. It’s the second most popular DEX aggregator after 1inch, and a leader among DAO & Safe wallets.

Whales and DAOs (as well as retail users) rely on CoW Swap as their aggregator of choice because CoW Swap does more than just aggregate liquidity. It also provides comprehensive  [MEV protection](/learn/understanding-mev-protection)  and enables price optimizations — such as  [CoWs](/learn/what-are-cows-on-cow-swap)  — that traditional aggregators can’t. Thanks to its intent-based architecture, CoW Swap supports 22 solvers that compete with each other to find the best prices for each user trade, and even provide price surplus on top.

While other aggregators claim to provide the best prices, CoW Swap’s architecture is built from the ground up to incentivize the best prices and the most surplus for trades, all in an easy-to-use, worry-free interface.

Give CoW Swap a try for yourself at  [swap.cow.fi](https://swap.cow.fi/#/swap?utm_source=medium&utm_campaign=dex-aggregator-article).

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Decentralized exchange (DEX) aggregators are used to find the best prices for user trades


What is a DEX Aggregator

Since its inception, DeFi has relied on  [automated market makers (AMMs)](/learn/cow-protocol-glossary#:~:text=amm)  directly to facilitate the majority of trading volume. More recently, however, auctions have emerged as an innovative trading mechanism that addresses some of the major shortcomings of AMMs.

Below, we examine these shortcomings and compare and contrast two popular auction solutions— Dutch auctions and batch auctions.

## The Shortcomings of AMMs

CF-AMMs, first proposed by Gnosis in 2017 and later popularized by protocols like Uniswap, are a natural fit for a world of frequent token launches and volatile assets. The core function of a CF-AMM is the rebalancing of token prices as orders come in. These AMMs rely on permissionless liquidity pools to facilitate trades for any ERC-20 token pair.

Due to their design, however, CF-AMMs leave traders exposed to price exploitation in the form of  [maximal extractable value (MEV)](/learn/understanding-mev-protection). Since orders on AMMs get executed sequentially, malicious parties can re-order trades in the Ethereum mempool and take advantage of users. MEV has become a lucrative industry for the most resourceful traders out there, but those profits come directly out of the pockets of everyday users.

The propensity of AMMs to be exploited indicates that continuous-time venues may not be the ideal solution for trading on decentralized exchanges.

## The Benefits of Auctions

![1-batch-auctions-vs-dutch-auctions.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_batch_auctions_vs_dutch_auctions_20effdf8c3.webp)

At its core, Ethereum is an auction — each block is limited in space, so validators auction off “blockspace” to the highest bidders. It turns out that a similar mechanism works well when it comes to trading. Auctions have presented a viable alternative to continuous-time trades in a new field known as “[Order Flow Auctions](/learn/understanding-order-flow-auctions).”

There are several points to consider when examining how auctions make sense in the context of blockchains:

1.  Blockchains aren’t continuous, so trading on a continuous system doesn’t make sense. It only leads to a “first come, first serve” mode of operation that ultimately becomes a race to the bottom.
2.  Auctions work to benefit traders as there can be multiple bidders for any given order, providing better prices by aggregating fragmented liquidity.
3.  Grouping multiple orders together in an auction presents opportunities for matching liquidity peer-to-peer rather than having to tap on-chain AMMs.

Auction mechanisms are not monolithic however. There are multiple types of auctions to take into account when considering what may make the most sense for Ethereum traders.

## Dutch Auctions

![2-batch-auctions-vs-dutch-auctions.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_batch_auctions_vs_dutch_auctions_fbaf900f7b.webp)

_([Source](https://medium.com/coinlist/a-primer-on-dutch-auctions-525036d24d10))_

One of the most common auction mechanisms is the Dutch auction. Dutch auctions work by offering an asset at a high starting price and then lowering the price over time until a willing bidder is found. This method identifies buyers quickly, making for a fast settlement.

Trading solutions like  [UniswapX](https://blog.uniswap.org/uniswapx-protocol)  employ Dutch auctions to settle trades with the speed of a traditional AMM, but with some added benefits.

### Pros

**Solver Competition**: Multiple parties, or “solvers,” can bid on a given asset, finding the most competitive price for the user’s assets.

**MEV Protection**: Dutch auctions protect users from MEV by relying on a third party for execution, meaning the user is never exposed to an AMM where their trade could be front-run or sandwiched.

### Cons

**Centralized**: Market makers have to have the assets in their inventory, leading users to essentially be at the mercy of the liquidity that the bidding parties have on hand.

Dutch auctions provide important benefits over continuous order trading. However, they only support auctioning one token at a time and they suffer from liquidity fragmentation as liquidity for a single token is spread across various venues.

It was this problem that inspired the creation of Gnosis Protocol V1 — the precursor to CoW Swap. This protocol relied on a different auction mechanism: the batch auction.

## Batch Auctions

![3-batch-auctions-vs-dutch-auctions.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_batch_auctions_vs_dutch_auctions_7431306f4d.webp)

_An illustration of the batch auction mechanism on CoW Swap_

A batch auction groups together a set of orders intents and executes the entire batch as a single transaction.

This allows multiple users to trade multiple assets within a single auction (unlike Dutch auctions). Having multiple orders in a single batch even enables  [peer-to-peer swaps](/learn/what-are-cows-on-cow-swap)  which provide better prices than any on-chain venue.

Finally, while Dutch auctions rely on a price-decay bidding process, batch auctions encourage solvers to find the best execution route for each trade, incentivizing better execution rather than just the quickest settlement.

### Pros

**Solver Competition & MEV Protection**: Just like Dutch auctions, batch auctions rely on a delegated execution model where solvers compete to find the best prices for users and protect orders from MEV.

**Surplus Capturing Orders**: Batch auctions provide an extra layer of efficiency over Dutch auctions by grouping multiple orders together. This allows liquidity to be shared between orders peer-to-peer, providing better prices than any on-chain venue. When orders  _do_  have to go on-chain, batching provides gas efficiency, further contributing to savings.

**Multiple Trades Per Auction**: Batch auctions aren’t limited to just a single asset per auction. This means that a single settlement may include multiple traders, each trading a different asset.

### Cons

**Speed**: While other modes of trading settle orders instantaneously, batches have to be open for some period of time to collect orders before executing them on-chain. Speed issues can be mitigated by executing one batch per Ethereum block, making batch auctions run at the speed of Ethereum block settlement.

Batch auctions make sense as a natural fit for Ethereum, mirroring the Order Flow Auction mechanism of the block but at the dApp level. Today,  [CoW Swap](https://swap.cow.fi/#/swap?utm_source=medium&utm_campaign=dutch-vs-batch)  is the largest production-scale implementation of batch auctions for DeFi trades.

## The CoW Approach to Batch Auctions

![4-batch-auctions-vs-dutch-auctions.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_batch_auctions_vs_dutch_auctions_eb922dc3cf.webp)

[CoW Swap](https://swap.cow.fi/#/swap?utm_source=medium&utm_campaign=dutch-vs-batch)  utilizes batch auctions to ensure traders get optimal prices while being protected from MEV.

The process starts with traders sending signed “intent to trade” messages to an order book, which CoW Swap then groups into batches. Solvers then search both on-chain and off-chain liquidity pools for the best prices. An auction is conducted for each batch to select the solver that provides the highest price surplus (the difference between the quoted and actual execution prices) for the orders. Finally, the winning solver executes these orders on-chain, ensuring users benefit from a uniform clearing price for all assets.

The future of batch auctions lies in targeting smaller batches where one batch is equal to one Ethereum block. This mitigates all speed issues related to batch auctions, making them execute as quickly as any other type of DeFi trade.

large_Batch auctions vs Dutch auctions.png

medium_Batch auctions vs Dutch auctions.png

small_Batch auctions vs Dutch auctions.png

thumbnail_Batch auctions vs Dutch auctions.png

Batch auctions vs Dutch auctions.png

Auctions are all the rage these days… but which auction method is really the best?


Batch Auctions vs. Dutch Auctions in Crypto


## TL;DR

-   During the month of  **March**, CoW Protocol handled a record-breaking total volume of  **$3.42B**  and generated a surplus of  **$23.4M**
-   In exciting news, CoW Protocol saw its  [largest month ever in terms of trading volume](https://dune.com/queries/2508216/4127586), the CoW team touched grass with an off-site retreat in Portugal, and a protocol fee report  [showed 130 ETH generated with no impact on user retention](https://twitter.com/CoWSwap/status/1773163707331461620?s=20)
-   In terms of Governance, CoW DAO executed  [CIP 39](https://snapshot.org/#/cow.eth/proposal/0xd4b23381a63b19d971e625e1fcef6ffa26d6d685df8b28ca590c251506669a53)  and received several important proposals regarding  [MEV Blocker fees](https://forum.cow.fi/t/cip-40-mev-blocker-fees/2366),  [CoW DAO’s SHU token allocation](https://forum.cow.fi/t/cip-41-claim-and-delegate-cow-daos-shu-token-allocation/2360), and  [strategies for enhancing treasury asset usage](https://forum.cow.fi/t/cip-42-enhancing-treasury-asset-usage/2361)

## Protocol Stats

This month, CoW Protocol settled a total of  **$3.42B.**

![1-cow-dao-march-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_cow_dao_march_2024_highlights_2ba332d346.webp)

The top 3 batches worth highlighting are the following:

**1. Batch with the highest % of CoW trades (**[**Transaction details**](https://explorer.cow.fi/tx/0x613e4155d95f1f9ca7e15a210e54a6b446c5f69ae2638da572289cddc099e4aa?tab=orders&vis=transfers)**):**  The total batch volume was  **$89,900**, and it was created by two traders who were CoWed for  **$85,813, (95.5%)**  of the total batch volume. One trader was buying USDC, the other was selling USDC, and the CoW was facilitated through a common hop in WETH.

![2-cow-dao-march-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_cow_dao_march_2024_highlights_1e110aa48d.webp)

**2. Batch containing the highest volume (**[**Transaction details**](https://explorer.cow.fi/tx/0xe2f795665577f65b4985b6003761ab8e6364222cbec122388b7ee467644dd712?tab=orders)**):**  The total batch volume was  **$20,193,757** and it was created by a single trader swapping  **ETH for USDC**.

![3-cow-dao-march-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_cow_dao_march_2024_highlights_5e00b79ce8.webp)

**3. Batch with the highest amount of surplus (**[**Transaction details**](https://explorer.cow.fi/tx/0xe2f795665577f65b4985b6003761ab8e6364222cbec122388b7ee467644dd712?tab=orders)**):**  The batch with the highest surplus was the same as the batch with the highest volume, for a total volume of  **$20,193,757** and a surplus of  **325,762 USDC (1.58%).**

![4-cow-dao-march-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_cow_dao_march_2024_highlights_adfaa341fe.webp)

During the month of  **March**, the top 10 traders traded a total of  **$44,898,507.**

![5-cow-dao-march-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/5_cow_dao_march_2024_highlights_468f2d3834.webp)

In the table below you can see the total volume for this month’s biggest trades. The most active trader executed a whopping  **$19,601,868**  in trades with CoW Protocol this month.

![6-cow-dao-march-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/6_cow_dao_march_2024_highlights_3095ac6111.webp)

## Solvers

In  **March**, solvers generated a total of  **$23M**  in surplus, which is money in the pockets of traders.

![7-cow-dao-march-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/7_cow_dao_march_2024_highlights_e1caf63a45.webp)

Below you can find a breakdown of how each solver performed in March.

![8-cow-dao-march-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/8_cow_dao_march_2024_highlights_2c3cb003af.webp)

## Governance

It was an active month in terms of governance! The CoWs cannot be stopped 💪

![9-cow-dao-march-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/9_cow_dao_march_2024_highlights_d5eee98f7e.webp)

## Executed Proposals

The DAO  **executed one important proposal**  this month:

-   [CIP-39: Continued funding for development services — Service Agreement №3](https://snapshot.org/#/cow.eth/proposal/0xd4b23381a63b19d971e625e1fcef6ffa26d6d685df8b28ca590c251506669a53)

## Draft Proposals

This month,  **there were three new proposals**  asking for feedback before moving into the next phase, final CIPs, in their current form:

-   [CIP-40: MEV Blocker fees](https://forum.cow.fi/t/cip-40-mev-blocker-fees/2366)
-   [CIP-41: Claim and Delegate CoW DAO’s SHU Token Allocation](https://forum.cow.fi/t/cip-41-claim-and-delegate-cow-daos-shu-token-allocation/2360)
-   [CIP-42: Enhancing Treasury Asset Usage](https://forum.cow.fi/t/cip-42-enhancing-treasury-asset-usage/2361)

Make sure to read the proposals and leave comments — your feedback is highly appreciated and will help move these important topics forward. If you are interested in submitting a proposal to the CoW DAO, make sure to use the following  [template](https://forum.cow.fi/t/cip-0-template/28).

## CoWmunity News

-   In March, CoW Protocol had its  [largest month ever](https://dune.com/queries/2508216/4127586), with a trading volume of over  **$3.4 billion**. The CoW is quickly becoming a bull 😈

![10-cow-dao-march-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/10_cow_dao_march_2024_highlights_ae68c0eeda.webp)

-   The CoW team came together in Portgual for a yearly off-site that included a hackathon, presentations, and valuable in-person quality time
-   After taking the DeFi world by storm in February, CoW AMM  [received a Safe App announced by none other than Steve Ballmer](https://x.com/CoWSwap/status/1767587714826956807)  in a new video
-   A  [first report](https://twitter.com/CoWSwap/status/1773163707331461620?s=20)  of the newly-enabled out-of-market limit orders has identified they’ve generated 130 ETH for the protocol with no negative impact on user retention
-   The marketing team featured a new  [Widget](https://x.com/CoWSwap/status/1770489389900292344?s=20)  campaign, added new terms to the  [CoW glossary](https://x.com/CoWSwap/status/1765396565504717225?s=20), and posted a  [transaction highlight featuring surplus-capturing limit orders](https://twitter.com/CoWSwap/status/1773759519522533509?s=20)
-   CoW Protocol  [joined in the call to unblock crypto](https://x.com/CoWSwap/status/1765756459755634824)  together with some of the biggest names in DeFi
-   Anna from the CoW team was featured on the  [Deus Ex DAO](https://x.com/CoWSwap/status/1764621816633385090?s=20)  podcast
-   The blog received an update with a new article: “[MEV Bots: Switch From Searcher to Solver](/learn/mev-bots-switch-from-searcher-to-solver)”

## Product Updates

**Backend**

The backend team has been working hard to improve the product infrastructure. In  **March**, we:

-   Replaced orders with custom appdata
-   Transitioned solvers to a new API
-   Made steady progress on protocol and partner fees
-   Rolled out verified quotes on staging

**Frontend**

The frontend team has been working hard on improvements in the UI front, as well as the overall UI infrastructure. In  **March**, we:

-   Released CowSwap 1.62.0 which includes a partner fee option for the Cow Swap Widget, a “recreate limit order” option which allows users to duplicate their limit orders in a couple of clicks, and a redesign of the fee display
-   Prepared the CoW Swap “I’m Feeling Lucky” feature as an April Fool’s joke
-   Worked on a feature that allows placing limit orders for amounts beyond what a user currently has in their wallet

## Open Job Positions

### Engineering

[DevOps Engineer](https://boards.eu.greenhouse.io/cowswap/jobs/4311312101)

large_cow-dao-march-2024-highglights-cover-photo.webp

medium_cow-dao-march-2024-highglights-cover-photo.webp

small_cow-dao-march-2024-highglights-cover-photo.webp

thumbnail_cow-dao-march-2024-highglights-cover-photo.webp

cow-dao-march-2024-highglights-cover-photo.webp

Welcome back to another CoW Update, where we break down the most notable developments of the last few weeks at CoW Protocol.


CoW DAO March 2024 Highlights

After three years and thousands of hours of research with crypto whales, DeFi degens, finance bros, and specialized fortune tellers called “blockchain oracles”, CoW Swap has discovered that the secret to investing in crypto is simply  getting lucky.

That’s why CoW Swap is proud to announce its newest innovation — the “I’m Feeling Lucky” button.

That’s right — inspired by Google’s iconic search feature, CoW Swap is adding a splash of luck to web3. Just select a sell token, tap “I’m Feeling Lucky”, and let CoW Swap’s best-in-class solver network buy a random shitcoin for you.

## Putting the “luck” in “hodl”

Have you ever seen a crypto millionaire and thought “Damn, that was all luck!”

Wish you could “get lucky” the same way?

Well now you can.

Just head over to  [CoW Swap](https://swap.cow.fi/#/swap?utm_campaign=blog-feeling-lucky)  and use the “I’m Feeling Lucky” button right in the swap modal to let luck pick your new favorite token!

![1-feeling-lucky.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_feeling_lucky_609c959c95.webp)

## How to get lucky

To get lucky, simply:

1.  Navigate to  [CoW Swap](https://swap.cow.fi/#/swap?utm_campaign=blog-feeling-lucky)
2.  Pick ETH or a stablecoin as your sell token
3.  Click the “I’m feeling lucky” button where the “Swap” button normally appears
4.  CoW Swap will then pick a random “lucky” token for you as your “buy” token
5.  ????
6.  Profit!!!! (not financial advice)

Don’t worry — you’ll have a chance to confirm your trade before you place it. If you trust the luck of the CoW draw, simply click “Swap” once your random token appears and your transaction will proceed as normal.

## Luck out with CoW Swap this April 1

So if you’re tired of being the fool, let CoW Swap turn your luck around. No joke, the feature is real and  [live on CoW Swap](https://swap.cow.fi/#/swap?utm_campaign=blog-feeling-lucky)  for both Ethereum Mainnet and Gnosis Chain!

They say anything goes up in a bull market… While we can’t guarantee that your lucky token will pump, we can promise that your trades will always be backed by CoW Swap’s signature MEV protection and the best prices in DeFi.

Degen in peace this April 1 and let luck take the wheel with  [CoW Swap](https://swap.cow.fi/#/swap?utm_campaign=blog-feeling-lucky)!

large_feeling-lucky-cover-photo.webp

medium_feeling-lucky-cover-photo.webp

small_feeling-lucky-cover-photo.webp

thumbnail_feeling-lucky-cover-photo.webp

feeling-lucky-cover-photo.webp

Find your lucky clover in CoW Swap’s greener pastures


CoW Swap Introduces “I’m Feeling Lucky” Mode for DeFi Trades


## TL;DR

-   During the month of  **February**, CoW Protocol handled a total volume of  **$1.8B**  and generated a surplus of  **$15.1M**.
-   In terms of Governance, CoW DAO executed CIP-36,37 & 38.
-   In exciting news, CoW Protocol launched the 1st MEV capturing AMM (CoW AMM), got COW token listed in tokenunlocks, and started playing around voiceover videos!

## Protocol Stats

This month, CoW Protocol settled a total of  **$1.80B.**

![1-february-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_february_2024_highlights_8bc23c3684.webp)

The top 3 batches worth highlighting are the following:

-   **Batch with the highest % of CoW trades (**[**Transaction details**](https://explorer.cow.fi/tx/0x070c090c7fd7e371c170f2e381cdbd4f4ab81553a9d74469aa32a5e89b5748d1?tab=orders)**):**  The total batch volume was  **$1,502,953.2**, and it was created by three traders. Two of these traders were CoWed for  **$374,483.44, (99%)**  of the total batch volume. One trader was buying  **$374K of LINK**  and the other trader was selling  **$374M of LINK**  (Getting settled via partial fills from their total of  **$1.1M LINK**  sell order)**.**

![2-february-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_february_2024_highlights_124f5c0396.webp)

-   **Batch containing the highest volume (**[**Transaction details**](https://explorer.cow.fi/tx/0xa50f8b71fff77e767e333401e5caca468860b21ea9d2e15e81e9d52fe41cee7b?tab=orders&vis=transfers)**):**  The total batch volume was  **$11,038,754.45** and it was created by a trader who was swapping  **ETH**  to  **stETH**.

![3-february-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_february_2024_highlights_99850e7562.webp)

-   **Batch with the highest amount of surplus (**[**Transaction details**](https://explorer.cow.fi/tx/0x40850075f7c6fda7c27abe24f8f49e0b52ff5222fe3c737da4457ab768f2b522?tab=orders)**):**  The total batch volume was  **$567,243.73** and it was created by a single trader who was swapping  **ETH**  **to**  **USDT**. This trader achieved the largest surplus for the month of  **February** by getting  **283,933.46 USDT**  extra, which at the time of trade was roughly **50.05% surplus**.

![4-february-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_february_2024_highlights_6cadcb51cc.webp)

During the month of  **February**, the top 10 traders traded a total of  **$21.8M.**

![5-february-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/5_february_2024_highlights_da09bce9a4.webp)

In the table below you can see the total volume for this month’s biggest trades. The most active trader executed a whopping  **$6.4M**  in trades with CoW Protocol this month.

![6-february-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/6_february_2024_highlights_06a8c9ba99.webp)

## Solvers

In  **February**, solvers generated a total of  **$15.17M**  in surplus, which is money in the pockets of traders.

![7-february-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/7_february_2024_highlights_f5eb61a440.webp)

Below you can find a breakdown of how each solver performed in February.

![8-february-2024-highlights.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/8_february_2024_highlights_2144302bca.webp)

## Governance

It was a hectic month in terms of governance! The CoWs cannot be stopped 💪

## Executed Proposals

The DAO  **executed two important proposals**  this month:

-   [CIP-36: Adjusting and renewing the solver rewards budget](https://snapshot.org/#/cow.eth/proposal/0x4e58f9c1208121c0e06282b5541b458bc8c8b76090263e25448848f3194df986)
-   [CIP-37: Increasing liquidity for the COW token via Programmatic Order Framework and FM-AMM](https://snapshot.org/#/cow.eth/proposal/0xbe6a5e04cc284cc88adb0cee505b7bf090e5aabf4e21b2d2168b29cb03d90404)
-   [CIP-38: Solver Computed Fees & Rank by Surplus](https://snapshot.org/#/cow.eth/proposal/0xfb81daea9be89f4f1c251d53fd9d1481129b97c6f38caaddc42af7f3ce5a52ec)

## Draft Proposals

This month,  **there were no new proposals.**

Make sure to read the proposal and leave comments — your feedback is highly appreciated and will help move this important topic forward. If you are interested in submitting a proposal to the CoW DAO, make sure to use the following  [template](https://forum.cow.fi/t/cip-0-template/28).

## CoWmunity News

-   Launched  [CoW AMM](https://x.com/CoWSwap/status/1757783798601986400?s=20), the first live AMM which solves LVR. The new AMM aimed at protecting liquidity providers from the dangers of MEV got quite coverage in the media and across various influencers:  [The block](https://www.theblock.co/post/277425/cow-dao-amm-exchange-mev?utm_source=twitter&utm_medium=social), [DL news](https://www.dlnews.com/articles/defi/new-cow-swap-amm-will-stop-mev-bots-and-save-users-millions/?utm_source=twitter&utm_medium=organic_social&utm_campaign=), [Blockworks](https://blockworks.co/news/cow-dao-mev-capturing-amm), [Binance](https://www.binance.com/en/feed/post/2024-02-14-cow-dao-launches-mev-capturing-automated-market-maker-to-address-lvr-problem-4118740461410), [Delphi Digital](https://members.delphidigital.io/feed/cow-swap-releases-lvr-aware-amm), [CoinMarketCap](https://coinmarketcap.com/community/articles/65cd7aa4639eda40936e4b80/), [EthDailly](https://ethdaily.io/cow-protocol-mev-capturing-amm/), [CoinLive](https://www.coinlive.com/news-flash/442186), [Cryptonews](https://cryptonews.net/news/other/28559567/), [CryptoEconomy](https://crypto-economy.com/cow-dao-launches-automated-market-maker-to-fight-arbitrage-bots/), [OutlierVentures](https://x.com/OVioHQ/status/1758534586881942002?s=20),  [CryptoCondom](https://x.com/crypto_condom/status/1757785824484102356?s=20), [Martin K](https://x.com/koeppelmann/status/1757794954586329217?s=20), [Shoal Research](https://x.com/pt1mfv_/status/1757963151222440096?s=20), [0xKermo](https://x.com/0xKermo/status/1758892911796658541?s=20), [0xSalazar](https://x.com/0xSalazar/status/1759333374865682742?s=20), [PaulIronFinance](https://x.com/paul_ironforce/status/1757784723370160393?s=20)
-   [Revamped the UI](https://x.com/CoWSwap/status/1762153353956766022?s=20)  to make it easier for users to understand what they are trading and the amounts they are expected to receive
-   Hosted a  [twitter space to explain all things CoW AMM](https://x.com/CoWSwap/status/1761035749636362532?s=20)  and the inner workings of how it actually solves LVR.
-   To boost CoW AMM outreach, marketing prepared a pair of meme videos to get everyone’s attention around the first MEV capturing AMM.  [Jamie Dimon](https://x.com/CoWSwap/status/1760740193773212031?s=20) &  [Wolf of Wall street](https://x.com/CoWSwap/status/1763232025081753674?s=20)
-   [COW token got listed on tokenunlocks](https://x.com/CoWSwap/status/1762522857697911089?s=20)  and now all the information regarding the COW tokenomics can be easily found there.
-   [COW Tokens can now be leveraged to borrow DAI thanks to Ajnas permissionless pools](https://x.com/CoWSwap/status/1759132605335601201?s=20)
-   Said goodbye to our longtime  [Goerli Network friend](https://x.com/CoWSwap/status/1753099953403310084?s=20)  which was replaced by the new Sepolia Testnet
-   Prepared a new  [monthly stats summary for MEV Blocker](https://x.com/CoWSwap/status/1754539321359806696?s=20)  stats throughout the month
-   [MasterCoW´s treasure hunt](https://x.com/CoWSwap/status/1754877940175688106?s=20)  came to an end as someone was able to decipher all the clues and claim the prize
-   Felix went on  [Leviathian News](https://x.com/CoWSwap/status/1755158002720444619?s=20)  to cover all things CoW Swap
-   Started gathering UX research and feedback on how can CoW Swap Limit orders improve ([Poll 1](https://x.com/CoWSwap/status/1755565833739292693?s=20),  [Poll 2](https://x.com/CoWSwap/status/1759989378066038957?s=20),  [Poll 3](https://x.com/CoWSwap/status/1762619014369407131?s=20))
-   Worked on multiple blogspost aimed at improving CoW Swap´s SEO results:  [January 2024 Monthly highlights](https://x.com/CoWSwap/status/1756486330627084549?s=20),  [What does an MEV Blocker do?](https://x.com/CoWSwap/status/1756828056134754522?s=20),  [CoW DAO launches 1st MEV Capturing AMM](https://blog.cow.fi/cow-dao-launches-the-first-mev-capturing-amm-bc7199e217a3),  [What is LVR?](https://x.com/CoWSwap/status/1761070004844511477?s=20)
-   Anna & Andrea jumped on  [Strange water podcast to discuss](https://x.com/CoWSwap/status/1759899359095709866?s=20)  how a fair competition of solvers fixes DeFI.

## Product Updates

**Backend**

The backend team has been working hard to improve the product infrastructure. In  **February**, we:

-   Simplified transaction submission logic for solvers
-   Implemented several changes in the backend to make it compatible with CoWAMM
-   Looked into providing more attractive quotes by allowing internalization of trades to Solvers
-   Developed a new automated spam protection system for the backend
-   Removed goerli infra
-   Worked on adapting all backend solver logic to rank by surplus instead of score
-   Moved the entire node infra to Reth.

**Frontend**

The frontend team has been pushing hard for several improvements in the UI front, as well as the overall UI infrastructure. In  **February**, we:

-   Deprecated Goerli from the front end
-   Revamped the entire UI with a new modal: Display confirmation information while signing to be able to compare values in the app and in the wallet, Custom recipient displaying unification, “Order submitted” popup styles fixes, “Order confirmed” screen styles fixes
-   Shipped the new CoW AMM landing page
-   Worked on several fixes such as handling errors, Sepolia crash, Twap order cancelation issue, Issue with localstorage growing too much
-   Made several improvements to the Widget
-   Events from widget to integrator (order submitted, order filled, etc.)
-   Sounds and images customization
-   Hide connect/account button in the header
-   Option to disable “Connect wallet” button
-   Improve wallet provider integration between app and integrator

## Open Job Positions

There are currently no open positions.

Convinced you can contribute to Cow Protocol?  [Get in touch](https://discord.com/invite/cowprotocol)

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CoW Protocol February 2024 Highlights

Maximal extractable value (MEV) has become a controversial topic in the DeFi community over the last few years as the practice has gained wider adoption. Some blockchain projects take steps to protect their users from suffering MEV, but there are also advocates of the practice who argue that it contributes to market efficiency and validator compensation.

[CoW DAO](https://cow.fi/)  creates products that protect Ethereum users from negative outcomes, so it’s clear that participants in the DAO are no fans of MEV. The technical innovations that MEV searchers have pioneered in the pursuit of maximizing profits, however, are indeed impressive.

Thankfully, this tech can be put to good use in a way that benefits users and still makes money: Rather than being MEV searchers, these users should consider becoming CoW Protocol solvers.

## What is a Searcher?

Searchers are DeFi market participants, most often bots, that monitor pending Ethereum transactions for arbitrage opportunities.

Captured arbitrage is known as  [maximal extractable value (MEV)](/learn/understanding-mev-protection), and it’s a pernicious form of price exploitation that occurs across all types of transactions. To date, MEV has cost traders over $1.5 billion in losses. Most of these losses have been facilitated by searchers who pocket a large portion of the arbitrage for themselves.

## What is a Solver?

![1-switch-from-searcher-to-solver.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_switch_from_searcher_to_solver_7763c26103.webp)

CoW Protocol is a meta DEX aggregator that relies on bonded third parties known as “[solvers](https://docs.cow.fi/cow-protocol/concepts/introduction/solvers)” to execute user trades. The protocol uses an  [intents-based trading system](https://docs.cow.fi/cow-protocol/concepts/introduction/intents)  where user intents get grouped into  [batches](https://docs.cow.fi/cow-protocol/concepts/introduction/batch-auctions). The solver that can execute the orders at the best price wins the right to settle the batch (find out more about how CoW Protocol works  [here](https://docs.cow.fi/category/concepts).)

Solvers are compensated in COW tokens for settling batches, incentivizing them to compete to find better prices and win the right to execute user intents. In return for this compensation, solvers provide users with a number of benefits including:

-   Finding optimal prices for the trades in a batch
-   Protecting users from MEV by executing transactions on their behalf
-   Providing abstraction that allows for benefits like gasless trades, transaction bundles, directly tapping into LPs, and more

## Searchers vs. Solvers

Fundamentally, searchers and solvers optimize for the same thing: maximizing profits. However, they serve different purposes, so their incentives diverge.

Searchers make money by performing MEV attacks on vulnerable transactions — giving users worse prices and keeping the difference for themselves. Searchers are incentivized to maximize their profits while ensuring that they are bidding enough for their transactions to be included in the next block.

In Ethereum, searchers work to out-bid each other to have their transactions included and make money. This is similar to what solvers do on CoW Protocol. The difference, of course, is that  **searchers benefit validators while solvers benefit users.**

## Why Become a Solver?

The fundamental difference between searchers and solvers is that searchers extract value from user transactions while solvers add value to them.

MEV may be a profitable enterprise in the short-term, but it hurts users and makes for a more toxic ecosystem. This turns potential new entrants away, feeding a vicious cycle — after all if there are no users left, who will searchers make money off of?

Solvers are the opposite: they take the same tech but they leverage it for the benefit of users. This cycle is virtuous, rather than toxic. Users achieve better prices, so they’re incentivized to use the product more, which means more order flow and better compensation for solvers.

From a technical standpoint, the methods searchers use to find arbitrage opportunities can be used to instead find solutions to batches. Searchers can leverage their existing nodes, algorithms, servers, AMM-indexed liquidity, simulation services, and more to become a good solver. This means that the lift to turn a searcher into a solver is relatively minor, while the upside is significant.

## Who can be a Solver?

CoW Protocol was the first DEX to implement intent-based trading, a model that the entire DeFi industry is now moving towards. This means that  [opportunities for solvers](https://dune.com/cowprotocol/solver-info)  will only grow in the coming years.

Thanks to a permissionless structure, anyone can become a solver. The main requirement is to put up a bond which serves as a guarantee that the solver will follow the  [rules](https://docs.cow.fi/cow-protocol/reference/core/auctions/competition-rules)  or risk getting slashed.

Solvers that do well find good solutions to the  [batch auction problem](https://docs.cow.fi/cow-protocol/reference/core/auctions/the-problem). They also generally:

-   Develop an efficient optimization algorithm
-   Identify and solve special problem instances that are easy to solve
-   Consider diverse liquidity sources
-   Integrate external market makers

## How to Become a Solver

Transforming a searcher setup into a solver setup or writing a new solver takes some technical expertise. We won’t go into it in this article, but you can find the requirements and specifications for becoming a solver in the  [CoW Protocol solver documentation](https://docs.cow.fi/cow-protocol/tutorials/solvers).

We also answer questions and provide technical support through the CoW Protocol  [Discord](https://discord.gg/cowprotocol).

Happy solving!

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Searchers make Ethereum worse for everyone, but with just a few tweaks they could contribute to the ecosystem instead


MEV Bots: Switch From Searcher to Solver


The vast world of DeFi offers many kinds of tokens, with more being added every day. Decentralized aggregators like CoW Swap allow users to swap between practically any two ERC-20 tokens, but sometimes you need to manually add a custom token before you can trade it.

## Add Custom Tokens

In order to display user balances, CoW Swap queries the blockchain to see what tokens a wallet holds. To ensure a smooth user experience, this analysis is limited to tokens included on official token lists such as CoinGecko.

![1-add-custom-tokens.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_add_custom_tokens_a00d95fa40.webp)

For this reason, your wallet may hold tokens that don’t show up in your balance on CoW Swap. This doesn’t mean you can’t trade them! The CoW Protocol network of  [solvers](https://docs.cow.fi/cow-protocol/concepts/introduction/solvers)  searches all available liquidity to bring you the best prices, even for tokens outside of the default lists.

To trade custom tokens, you simply need to add them to the UI. Here’s how:

## Step 1

Navigate to CoW Swap and click “Select a token.”

![2-add-custom-tokens.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_add_custom_tokens_c80ddc6351.webp)

## Step 2

A token list will come up. Here you can either search the name of your token or enter the contract address in the search box.

![3-add-custom-tokens.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_add_custom_tokens_f8dd21ae8e.webp)

## Step 3

For maximum security, you should always paste the official token contract address into the search box. This prevents any form of manipulation or phishing.

![4-add-custom-tokens.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_add_custom_tokens_1ee5946e85.webp)

For ERC-20 tokens, the contract address starts with “0x” and is followed by 40 characters. You can usually find it by looking up the token you want to trade on reputable websites like  [CoinGecko](https://www.coingecko.com/).

_Note: While rare, it is possible for token lists to show the wrong contract address. Always check the official channels of the project you are trading for the most up-to-date information on token contract addresses._

## Step 4

Once you’ve found the token you’re looking for, click the “Import” button to add it to CoW Swap.

![5-add-custom-tokens.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/5_add_custom_tokens_da75a6cce1.webp)

## Step 5

Ensure you’ve entered the correct token address and click “Import.”

![6-add-custom-tokens.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/6_add_custom_tokens_160c90e632.webp)

## Step 6

Once imported, you will be able to trade the token on CoW Swap. Tokens only need to be imported once per browser.

![7-add-custom-tokens.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/7_add_custom_tokens_149eafcaa6.webp)

If you have any questions or need help importing tokens, feel free to reach out to us on  [Discord](https://discord.com/invite/cowprotocol)  or on  [X](https://twitter.com/CoWSwap). Happy swapping!

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How to Add Custom Tokens on CoW Swap

Providing liquidity to automated market makers (AMMs) like Uniswap has become one of the most popular ways to earn yield in crypto.

While other yield-bearing methods like staking and lending depend on protocol economics and aggregate market demand, there is always alpha in providing liquidity. Between new token launches, incentive programs from ecosystem grants, and ever-evolving AMM models, liquidity providing is one of the most mature sectors for earning returns on crypto assets.

However, liquidity providing has one major downside: it is subject to a pernicious form of price exploitation known as loss-versus-rebalancing (LVR).

LVR is a form of maximal extractable value (MEV) responsible for more price exploitation than all other forms of MEV combined. Many liquidity providers haven’t even heard of LVR, but it costs them 5–7% of their liquidity, resulting in hundreds of millions lost each year. In fact,  **when accounting for LVR, many of the largest liquidity pools are not profitable for LPs at all**.

How can this be? Let’s examine how liquidity providing works to learn what loss-versus-rebalancing is and where it comes from.

## What is LVR

First coined by a  [team of researchers from Columbia University](https://arxiv.org/abs/2208.06046), LVR is a form of arbitrage that occurs whenever an AMM has an outdated (stale) price in comparison to some other trading venue.

Arbitrageurs exploit this difference by trading from the AMM to the more liquid exchange (usually a centralized exchange like Binance), correcting the arbitrage and extracting value from LPs in the process.

To better understand LVR as a process, however, we first need to understand the nature of automated market makers, as well as the pre-cursor to LVR — impermanent loss.

## The CF-AMM Design

Most AMMs (such as Uniswap) are examples of constant function automated market makers—CF-AMMs.

These AMMs take in two assets and automatically re-calculate prices after each trade to ensure ample liquidity at all times. As one asset gets depleted, the other must trade at a higher price in order to maintain a constant ratio where the value of all “A” tokens in a pool is equal to the value of all “B” tokens.

CF-AMMs use the constant product function  _x*y=k_  to calculate the ratio of assets, where  _x_  and  _y_  are the two tokens and  _k_  is the constant maintained. Thus, all trades on a CF-AMM can be mapped on the constant product function curve:

![1-what-is-lvr.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_what_is_lvr_8d10b97884.webp)

### Liquidity Positions

Let’s look at an example of providing liquidity which will help illustrate the design (and shortcomings) of CF-AMMs.

Let’s say that the price of ETH is $1,000 and we have 2 ETH worth $2,000 that we would like to earn yield on. We can start by providing liquidity to, say, an ETH-USDC pool. In order to do this, we must first split the value of our holdings into 50% ETH and 50% USDC (remember, most AMMs require LP positions to be split 50/50 between your two assets.)

> **LP Position:**   
> 1 ETH   $1,000 USDC  
> _Total value: $2,000_

Over time, we earn LP fees on this position for our service of providing liquidity to traders. So our $2,000 is slowly growing by just sitting in a liquidity pool… sounds great, right?

## Loss-Versus-Holding (Impermanent Loss)

In our example, we’re making free money off LP fees up until the moment ETH starts to move in price. This is where we risk incurring “impermanent loss” which can be thought of as the opportunity cost of our LP position compared to what we would have had if we just held the assets (without putting them in a liquidity pool). That’s right—LPing is not automatically better.

Let’s take a look at how this shakes out for our particular example:

In an extreme scenario, let’s say the price of ETH jumps from $1,000 per ETH to $4,000 per ETH. The liquidity pool will adjust so that our assets are still 50% ETH and 50% USDC.

To calculate the new position, we use the formula  [_x=√(p1ETH∗p2ETH_](https://medium.datadriveninvestor.com/impermanent-loss-in-defi-the-risks-involved-in-providing-liquidity-67c54fdf1cfc)_)_,  where _p1ETH_ represents the original price of ETH and _p2ETH_ represents the new price of ETH. Solving for  _x_  will give us the updated (dollar-denominated) value of each asset after the AMM re-calculates prices back to 50/50 in this new price environment.

The  _sqrt(1000*4000) = 2,000_, meaning that the dollar value of each asset in our liquidity pool will be $2,000 after the recalculation. This leaves us with $2,000 USDC, and 0.5 ETH in our liquidity pool, for a total of $4,000. We started out with $2,000 and we end up with $4,000 — doubling our money.

> **Original LP Position:**   
> 1 ETH   $1,000 USDC  
> _Total value: $2,000_  
>    
> **New LP Position:**  
> 0.5 ETH   $2,000 USDC  
> _Total value: $4,000_

That’s great! …until we look at what we could have made if we had just  _held_  our 1 ETH and $1,000 USDC without ever putting them in a liquidity pool in the first place.

If we had held, our 1 ETH would be worth $4,000, which in addition to our original $1,000 USDC would leave us with $5,000 net. That’s $1,000 more than what we end up with through the liquidity pool!

> **Original LP Position:**   
> 1 ETH   $1,000 USDC  
> _Total value: $2,000_     
> 
> **New LP Position:**  
> 0.5 ETH   $2,000 USDC  
> _Total value: $4,000_   
>   
> **Holding Position:**   
> 1 ETH   $1,000 USDC  
> _Total value: $5,000_

This difference is known as “divergence loss,” or, more colloquially, “impermanent loss.”

It’s “impermanent” because if the price of the assets were to return to their original value ($1,000 per ETH in our example) the loss would be reversed and the value of our LP position (excluding yield earned) would be equal to the value of a portfolio where we had just held. So impermanent loss can also be conceptualized as “loss-versus-holding.”

If we begin thinking about counterfactual scenarios where rather than LPing, we had taken some other course of action with our money, a world of possibilities opens up. The first, “loss-versus-holding,” we just covered. The second, “loss-versus-rebalancing,” is the topic at hand that we now turn to.

## Loss-Versus-Rebalancing (LVR)

In the case of impermanent loss, if an asset begins and ends a time period at the same price, there is no loss incurred by the LPs. However, it turns out that there is a portfolio scenario which would have made money even in the case of an asset beginning at and returning to the same price. This would be a “rebalancing” portfolio.

Rather than leaving your money in an AMM or simply holding, in a rebalancing portfolio you trade your way up the price curve when it’s going up and trade down when it’s going down, effectively “rebalancing” your portfolio in real time.

**“Loss-versus-rebalancing” is the difference in value between an LP portfolio and a rebalancing portfolio.**

Let’s look at another example.

### LVR in numbers

Say we start with an LP position of 1 ETH and $1,000 USDC.

Over time, the price of ETH jumps from $1,000 to $2,000. Using the  _x=√(__p1ETH∗p2ETH__)_  formula, we can calculate that our new LP holdings would consist of 0.71 ETH and $1,414 USDC, meaning we sold 0.29 ETH for $414 during the AMM recalculation. This gives us a total portfolio value of $2,828 and a loss-versus-holding value of $172.

After some more time, the price of ETH goes back down to $1,000 where it started. Here, the values of both our LP portfolio (minus fees) and our holding portfolio are equal at $2,000, with a loss-versus-holding of $0.

> **Original LP Position:**   
> 1 ETH   $1,000 USDC  
> _Total value: $2,000_  
>  
> **LP Position After Price Move**:  
> 0.71 ETH   $1,414 USDC  
> _Total value: $2,828_  
>   
> **LP Position After Price Reversion:**   
> 1 ETH   $1,000 USDC  
> _Total value: $2,000_
>      
> **Holding Position:** 
> 1 ETH    $1,000 USDC  
> _Total value: $2,000_

But what about the loss-versus-rebalancing?

![2-what-is-lvr.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_what_is_lvr_3902628499.webp)

[_Image Source: Delphi Digital_](https://members.delphidigital.io/learn/loss-versus-rebalancing-lvr)

When compared to a rebalancing portfolio executed on a liquid exchange such as Binance, our LP and holding portfolios underperform — even in the case where prices return to their original value.

The rebalancing portfolio starts at the same 1 ETH and 1,000 USDC. When the price of ETH goes to $2,000,  we copy the LP trade (selling 0.29 ETH), but we do so at the current market price of $2,000 through a liquid non-AMM exchange, earning $580 for the trade instead of the $414 we got on the AMM, for a net LVR of $166. Copying the same trade on the way down, we buy back our 0.29 ETH for $290, instead of the $414 we would have to pay through the AMM, netting another $124 in LVR.

> **Original Rebalancing Portfolio Position:**   
> 1 ETH   $1,000 USDC  
> _Total value: $2,000_  
>  
> **Rebalancing Portfolio Position After Price Move**:  
> 0.71 ETH   $1,580 USDC  
> _Total value: $3,160_  
>  
> **Rebalancing Portfolio Position After Price Reversion:**   
> 1 ETH   $1,290 USDC  
> _Total value: $2,290_

So the performance of our three portfolios (ignoring LP fees) looks like this:

![3-what-is-lvr.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_what_is_lvr_cb9ed4cb9e.webp)

### The LVR math

For any given price movement, LVR can be calculated using the formula “[_a(p-q)_](https://a16zcrypto.com/posts/article/lvr-quantifying-the-cost-of-providing-liquidity-to-automated-market-makers/)” where  _a_  is the quantity of the asset being sold,  _p_ is the “real” market price, and _q_ is the “stale” AMM price.  (_Note: “a” is a positive number when selling and a negative number when buying.)_

Unlike impermanent loss, LVR  **depends on price trajectory and volatility**. This intuitively makes sense… the more price moves there are, the more opportunities for arbitrage. The volatility of a given market can be derived using the famous “[Black-Scholes](https://www.investopedia.com/terms/b/blackscholes.asp)” options-pricing model, and is represented by  _σ_  — a lowercase sigma.

For CF-AMMs,  [instantaneous LVR can be calculated as](https://a16zcrypto.com/posts/article/lvr-quantifying-the-cost-of-providing-liquidity-to-automated-market-makers/) [_σ²/8_](https://a16zcrypto.com/posts/article/lvr-quantifying-the-cost-of-providing-liquidity-to-automated-market-makers/). There are also more complex LVR formulas which sum instantaneous LVR to find the overall LVR of any given AMM. Find these formulas, along with a technical explanation of how the numbers were derived, in  [this video](https://www.youtube.com/watch?v=XmHBiFApDXA&ab_channel=CMUCylabCryptoSeminarSponsoredbyAlgorand)  and  [this blog post](https://anthonyleezhang.substack.com/p/automated-market-making-and-loss)  by Anthony Lee Zhang, a co-author of the original LVR paper.

## LP Returns in Practice

So far, we have the concept of LVR but we’ve ignored one very important factor: LP fees. After all, LPs don’t deposit money into AMMs out of charity, they do it to earn yield.

Now that we have a reliable formula for calculating loss-versus-rebalancing, we can look at historical data to answer the question “How often do LP returns exceed LVR losses?”

Using the LVR formula, the authors of the original paper  [concluded](https://arxiv.org/abs/2208.06046)  that, in an environment of 5% asset volatility,  **a Uniswap pool would need to turnover 10% of its entire volume each day in order for LP fees of 30 basis points to offset LVR losses.**

However, we can get even more specific by retroactively looking at historical data. DeFi researcher Atis Elsts, wrote up a  [retrospective of 2023 LP returns](https://atise.medium.com/uniswap-v2-still-a-good-deal-for-liquidity-providers-a-retrospective-of-2023-11475e9d8610)  that shows real data on loss-versus-holding and loss-versus-rebalancing for ETH throughout the year.

### 2023 Loss-Versus-Holding

ETH began the year at around $1,200 and closed around $2,300. LPs outperformed a holding portfolio of 50/50 ETH/USDC by an aggregate 1–2% after fees.

![4-what-is-lvr.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_what_is_lvr_f07c7346db.webp)

![5-what-is-lvr.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/5_what_is_lvr_ca2c29b635.webp)

_Images: 2023 LP versus holding strategies &  2023 LP PnL over holding strategy_

### 2023 Loss-Versus-Rebalancing

Mapped alongside volatility, we can see that, as expected, loss-versus-rebalancing is highly correlated.

![6-what-is-lvr.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/6_what_is_lvr_b227cef436.webp)

Elsts mapped LVR (red line) versus expected fees on WETH/USDC Uniswap v2 positions and WETH/USDC v3 positions across three fee tiers. We can see that  v3 LP positions closely tracked LVR, while v2 positions largely outperformed it.

![7-what-is-lvr.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/7_what_is_lvr_f5972b65fd.webp)

According to Elsts, the reason for the large discrepancy between v3 and v2 positions is that v2 sees primarily “core” (non-arbitrage) trading volume while a majority of v3 trading volume is arbitrage.

![8-what-is-lvr.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/8_what_is_lvr_a4f9fb874d.webp)

![9-what-is-lvr.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/9_what_is_lvr_3d859d861e.webp)

_Images: Uniswap v2 volume makeup & Uniswap v3 volume makeup_

So here we finally get to the $500 million question: How can LPs protect themselves from LVR?

## Solutions to LVR

There are multiple proposed solutions to the LVR problem, each with its own set of tradeoffs.

**Oracle designs**: One of the most popular suggestions for solving the LVR problem involves using price oracles to feed AMMs the most up-to-date prices for assets. The oracle model is well-tested in DeFi, but an oracle-informed AMM would require significant design changes to current AMM models and introduce new problems around ensuring that the oracle always provides the most current price data.

**Decreasing block times**: Some proposals argue that  [increasing trade frequency](https://atise.medium.com/liquidity-provider-strategies-for-uniswap-v3-loss-versus-rebalancing-lvr-ee0ffdf1f937#:~:text=mitigating%20lvr)  by decreasing block times will result in even more granular arbitrage opportunities. This would theoretically increase the number of trades that arbitrageurs have to make, with the larger LP returns hopefully outpacing LVR.

**Batch auction designs**: While decreasing block times might mitigate the price lag AMMs experience, going in the opposite direction sounds even more promising. First proposed by Andrea Canidio and Robin Fritsch in the paper “[Arbitrageurs’ profits, LVR, and sandwich attacks: batch trading as an AMM design response](https://arxiv.org/abs/2307.02074v4#5.2),” a new category of “Function-Maximizing” AMMs forces traders to trade against AMMs in batches, creating a competition between arbitrageurs which eliminates LVR.

## CoW AMM

The  [CoW AMM](https://cow.fi/cow-amm)  is the first production-ready implementation of an FM-AMM and it’s designed to capture LVR on behalf of LPs, now live on [Balancer](https://balancer.fi/pools/cow).

[Backtesting research](https://arxiv.org/pdf/2307.02074v3.pdf)  conducted for a 6 month period during 2023 shows that CoW AMM returns would have equaled or outperformed CF-AMM returns for 10 of the 11 most liquid, non-stablecoin pairs.

![10-what-is-lvr.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/10_what_is_lvr_f4853d5593.webp)

The CoW AMM works by having  [solvers](https://docs.cow.fi/cow-protocol/concepts/introduction/solvers)  compete with each other for the right to trade against the AMM.

Whenever there is an arbitrage opportunity solvers bid to rebalance the CoW AMM pools. The winning solver is the one that moves the AMM curve higher.

![11-what-is-lvr.gif](https://celebrated-gift-f83e5c9419.media.strapiapp.com/11_what_is_lvr_2618a64372.gif)

[Learn more about the CoW AMM here](https://cow.fi/cow-amm), and  [contact us](https://cowprotocol.typeform.com/cow-amm-lpers?utm_content=widget-page-footerCTA-read-docs&utm_medium=web&utm_source=LVRarticle)  if you are interested in setting up a liquidity pool.

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Liquidity providers lose more than $500 million to LVR every year, but what exactly is it?


What is Loss-Versus-Rebalancing (LVR)?

CoW DAO, which builds user-protective products like CoW Swap and MEV Blocker, is launching the first MEV-capturing AMM — CoW AMM.

While CoW DAO’s other products protect traders from MEV, CoW AMM is the first product from CoW DAO built to protect liquidity providers. CoW AMM is the first product on any blockchain to tackle the LVR problem head on.

## The LVR Problem

First described by Jason Milionis, Ciamac C. Moallemi, Tim Roughgarden, and Anthony Lee Zhang in the paper  [Automated Market Making and Loss-Versus-Rebalancing](https://arxiv.org/abs/2208.06046), LVR is defined as the losses LPs incur due to arbitrage bots constantly rebalancing liquidity pools.

Research suggests that:

-   Liquidity providers for major token pairs lose 5–7% of their liquidity due to LVR¹
-   In aggregate, arbitrageurs are responsible for well over $500M in LP losses every year²
-   LVR accounts for more MEV than frontrunning and sandwich attacks combined

LVR disincentivizes liquidity provision in DeFi, restricting its potential utility and growth. And LVR is a contributing factor to block-builder centralization, which many people consider undesirable for Ethereum as a whole.

## How CoW AMM Works

The CoW AMM is a special kind of automated market maker designed to help liquidity providers capture MEV from arbitrageurs. According to research by Andrea Canidio and Robin Fritsch in the paper “[Arbitrageurs’ profits, LVR, and sandwich attacks: batch trading as an AMM design response](https://arxiv.org/pdf/2307.02074v3.pdf),” the most promising way to capture LVR is by using batch auctions to rebalance liquidity pools based on surplus.

![1-cow-dao-launches-cow-amm.gif](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_cow_dao_launches_cow_amm_303d6058bb.gif)

CoW AMM, therefore, works as follows:

1.  Liquidity providers deposit tokens into protected CoW AMM liquidity pools
2.  This liquidity becomes available to CoW Swap traders, who can access it similarly to other sources of liquidity
3.  Solvers bid to rebalance CoW AMM pools whenever there is an arbitrage opportunity
4.  The solver that offers the most surplus to the pool wins the right to rebalance the pool

This design eliminates LVR by capturing arbitrage value for LPs and shielding it from MEV bots.

Said another way: while most AMMs allow arbitrageurs to make money at the expense of their LPs, CoW AMM protects this money for the LPs instead.

## Expected Outcomes

Research suggests that CoW AMM LPs will fare as well if not better than CFAMM LPs.  [Backtesting over 6 months in 2023](https://arxiv.org/pdf/2307.02074v3.pdf)  shows that LP returns on CoW AMM would have been equal to or greater than returns on Uniswap in 10 of the 11 most liquid, non-stablecoin pairs.

## Why is CoW DAO launching CoW AMM?

Launching CoW AMM is a natural extension of CoW DAO’s mission to protect Ethereum users from MEV. With two successful products (MEV Blocker and CoW Protocol) aimed at traders, the time is right to extend MEV protection to liquidity providers.

LVR is a large problem, estimated to be responsible for over $500M in value lost to MEV bots every year — more than all trading-related forms of MEV combined.

CoW DAO is uniquely capable of bringing an FM-AMM design to market, as it relies on a surplus-capturing solver network to balance liquidity pools. CoW Protocol currently runs the largest solver competition on Ethereum, with 19 active solvers.

**Find out more about CoW AMM here:** [**cow.fi/cow-amm**](http://cow.fi/cow-amm)

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The novel AMM design protects liquidity providers from MEV bots by eliminating LVR (loss-versus-rebalancing), which costs LPs more than $500M every year


CoW DAO launches the first MEV-capturing AMM

CoW DAO develops the most user-protective products in Ethereum - so you can do more with less worry.

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