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Staking Circle
Staking Circle
Jun 26, 2024
6 min read

Exploring the Defi Ecosystem w/ CoW Swap

Exploring the Defi Ecosystem w/ CoW Swap

CoW Swap, leveraging CoW Protocol, optimizes trading through batch auctions to improve efficiency and User-Experience. The CoW Token is essential to CoW DAO governance and compoensates solvers for their participation. Users benefit from increased security and, potentially, improved profits due to interoperability with other protocols. In addition, CoW Swap is undergoing a significant rebranding effort to make the platform more accessible and user-friendly. This rebrand is intended to improve user understanding and engagement. For further insights and upcoming developments, check out the highlights below:

X Spaces: Exploring the Defi Ecosystem with CoW Swap

Speakers:

  • Alex Viñas: Product Marketing & Business Partnerships (X Profile) @ CoW Swap (X Profile)

Index:

  1. Bear market Experience
  2. CoW Swap Overview
  3. MetaDex Aggregator Explained
  4. Security Measures for CoW Swap
  5. CoW Token and CoW DAO
  6. User Yields and Rewards
  7. Final Remarks

1. Bear market Experience

  • The bear market revealed the true motives and perseverance of people in the crypto space:

You see the true faces of people in the darkest times, right? So here it's the same, you know. You saw who was here for what and for what reasons and you know cards were upside down like flipped so everyone could see everyone's cards

  • The individuals who stayed kept their roles and helped create better outcomes: “I mean the ones that stayed have maintained their position and things have evolved and to a better outcome.

2. CoW Swap Overview

  • CoW Swap is built on the CoW Protocol which uses batch auctions:

CoW Protocol is the first trading protocol to actually leverage intents in Ethereum when we launched this in 2020. (...) But the whole idea was that we were going to leverage batch options to actually achieve better settlements for the users.

unnamed.png (Source)

  • Users sign orders for trades, which are grouped together and solved by solvers competing against each other:

So the whole idea was to create a protocol that would actually batch orders into a single auction and then have this competition of solvers who would compete to win the right to settle the orders. Within this competition, the solver that won would actually be the one that would settle this intent to trades either with a private liquidity, on-chain liquidity or any other means like peer-to-peer orders that the users would do.

  • Solvers find the most efficient transaction routes and carry out transactions, ensuring trades are completed at a consistent price:

CoW Swap is your common Dex interface let's say where you're used to what you're seeing and from there what you basically do is you sign an order that says that I am willing to accept me selling my token A for my token B. And then from there this order gets registered into the actual order book protocol. and then it's passed on to these solvers for them to find the most optimal route for settlement.

unnamed.png (Source)

3. MetaDex Aggregator Explained

  • CoW Swap is a MetaDex aggregator, compiling quotes from individual aggregators:

When you connect to CoW Swap and request a quote you're actually getting exposed to all the single aggregators all at once. This way you know that in the event that the tokens you're trading Paraswap might be better off that 1inch, for example, and you're covered because you're also asking Paraswap for a quote and vice versa

  • Users receive rates from various sources, ensuring they receive the best routes and prices thanks to solver optimization:

So the whole point from that angle is that basically instead of having the users be the ones that execute the transactions, basically what we have is this, as we mentioned, this system of solvers that compete for the right to set up the user's order. And basically these solvers are the ones responsible for executing the orders on chain.

4. Security Measures for CoW Swap

  • Users only have to approve the CoW Protocol smart contract for safe trading:

The cool thing is that the users aren't really exposed to anything because to leverage everything that protocol has to offer, you only need to approve the protocol smart contract. So in the event that you want to trade some new token that the solver might have to do, We're the one that's doing the approval on your behalf so that you don't have to worry about the approval that you've done with your wallet.

  • CoW Swap uses a double verification system to ensure the agreed limit price is upheld in settlements:

The CoW Protocol settlement contract itself, the transactions are not able to ignite as long as they can do it. If the result that the solvers propose is less than the limit price that you signed via the order. So actually there is a double verification system in which the settlement contract validates that you actually made the correct signature and also that you are the owner of such funds.”!

5. CoW Token and CoW DAO

  • CoW token sets the course of CoW DAO and any possible revenue:

We do have a token, it's called CoW. It's an easy decision to name. And the role within the ecosystem of the CoW token is first to control the direction of the CoW DAO, right? To basically have a say on where the DAO is going, what the DAO is doing, and of any possible revenue that it might generate through all these products.

unnamed.png (Source)

  • Solvers receive CoW tokens as rewards for correctly settling batches:

Then also, another part in which for the token is actually used is for incentivizing the solver competition. So each solver gets rewarded CoW tokens for settling correctly the right batch.

  • A veModel and liquidity pool rewards could happen, but it would rely on CoW DAO voting:

So this is possible but it's something for the DAO to vote on and decide. It's something that we haven't actually played around with yet but definitely it's something that is doable.

  • Token issuance is controlled by the DAO, with a budget allocation vote happening about every 6 months for solver incentives:

So basically the way it goes is that the DAO did the airdrop with the initial TGE and from there certain chunks of the emissions were set (...) and then every six months more or less the DAO gets a vote on how much is the solver budget, how much of the tokens are we actually allocating for the solver competition.

6. User Yields and Rewards

  • The DAO offers liquidity incentives on Balancer, but there isn't a staking system within the DAO:

There are other ways in which there are other protocols that actually offer yield with the token or whatever, but within the DAO itself, this is something that besides the liquidity incentives that we have on Balancer and whatever, we don't have.

7. Final Remarks and Follow-Up

  • Follow Alex and CoW DAO on Twitter for updates on products and events. A major rebrand of CoW Swap has started to make it more user-friendly and easier to understand:

Twitter is the best place to follow me and also both the protocol, CoW Swap. We actually, like while we were on the top, we just launched a major rebrand for making CoW DAO more understandable and actually easier to grasp the different product lines that CoW DAO is tackling

  • For upcoming events at ETHCC, LRTfi Summer, and BTC Summit, check Twitter for the most recent news:

Staking Circle: “As you guys know, just a final reminder, you will have two events at ETHCC, both LRTfi Summer and BTC Summit. You can look into our Twitter profile as well to find the latest on the events. The latest sponsors have already been out. We have a pretty packed alpha ready for you guys, so don't forget to stay tuned.”

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