The First Project Report: What is the CoW Protocol for Anti-MEV Transactions?

In 2023, when UNIswap launched UniswapX, the market received not admiration but controversy. UniswapX was accused of plagiarizing CoWSwap and 1inch. Curve officials claimed that 1inch and CoWSwap had already changed the rules of the game, and UniswapX was not the first. CoWSwap emphasized its pioneering position as Intent Based Trading.
On November 12th, The First spot trading area will launch the CoW Protocol ecological token COW. As the current leading DEX aggregator, what is CoWSwap? What are the ecological advantages of CoW Protocol and how is it different from UniswapX? Why is UniswapX accused of "copying" CoWSwap instead of 1inch?
What is the CoW Protocol?
CoW Protocol is a DEX aggregator with MEV protection for transactions. It matches transactions with various on-chain liquidity sources through batch auctions. It can provide users with better prices and save a lot of money in gas fee optimization and liquidity provider fees.
The Cowswap module in the CoW protocol shows significant innovation and advantages compared to the traditional automatic market maker (AMM) model. It does not pursue real-time execution of transactions, but adopts a strategy of off-chain order summary and batch processing to determine a more fair and unified settlement price. This mechanism not only optimizes the trading process, but also brings users a better trading experience
CoW Protocol deeply understands the potential threat of miner extractable value (MEV) to transaction fairness. In order to fundamentally solve this problem, Cowswap chose to develop the second version based on the Gnosis protocol, which was developed by the Gnosis team. By summarizing off-chain orders and unifying on-chain settlement, Cowswap effectively avoids preemptive transactions and sandwich attacks caused by MEV, creating a more fair and transparent trading environment for users.
Its core mechanism cleverly integrates the essence of batch auction and peer-to-peer trading, ensuring that each participant can lock in the most competitive transaction price. This mechanism is strengthened through a permissionless architecture, achieving seamless connection and broad inclusiveness of participation. As the core driving force of price discovery, it is deeply rooted in the concept of "Coincidence of Wants" (CoWs). It maximizes liquidity potential by accurately capturing the overlapping moments of transaction demand, ensuring efficient and accurate transaction execution. This mechanism not only optimizes pricing strategies, but also effectively reduces gas costs and execution risks, as all transactions are executed in batches rather than individually.
In the operational landscape of the CoW protocol, solvers play a crucial role. As a key force in optimizing transaction exchange rates, they compete fiercely for the right to execute transactions as a reward for obtaining the best exchange rate. This competitive situation forces solvers to fully utilize all on-chain liquidity resources, including decentralized exchanges (DEXs) and DEX aggregators, to ensure the successful completion of transaction orders.
In short, Cowswap not only provides users with a better trading experience through its unique transaction processing mechanism, but also solves the problem of unfairness in transactions through technical means, creating a safer and more reliable trading space for users.
Operation Mechanism of CoW Protocol
In traditional trading markets, market makers play a key role in providing liquidity, while in the current decentralized exchange (DEX) field, this responsibility is mostly borne by liquidity providers. However, CowSwap, with its unique batch auction mechanism, matches CoW orders for traders and opens up a new trading path.
On the CowSwap platform, when two traders each hold the assets required by the other, the system can directly match their trades without relying on market makers or liquidity providers for matching. This innovative mechanism not only brings the best price to individual traders, but also eliminates transaction fees generated through intermediate links, achieving maximum trading efficiency.
In addition, CowSwap also supports users to trade directly through CoW. For orders that cannot be settled through CoW, the system will automatically transfer them to the Automatic Market Maker (AMM) for matching. If CoW orders are included in the batch auction order, small orders will be fully matched first, and the remaining unmatched orders will be matched again by the liquidity market integrated by CowSwap. Finally, the settlement price of the entire order will be based on the remaining order price obtained through external liquidity, ensuring fairness and transparency of the transaction.
CowSwap introduces the concept of "searchers" for transactions that rely on external liquidity matching on the chain. As a third-party tool within the protocol, searchers compete to find the best transactions on the chain, and then publish matching transactions in batches after matching off the chain. The protocol strictly limits the slippage of searchers in executing transactions, making the arbitrage space for MEV minimal. At the same time, batch order settlement is only submitted by certified searchers, further compressing the operational space for miners and MEV arbitrageurs.
CoW transactions do not require third-party liquidity, so there are no transaction costs. On the other hand, transactions on CowSwap have transaction fees, which consist of basic execution fees and protocol fees, some of which are used to incentivize searchers to provide the best transactions. Currently, users only need to pay gas fees (basic transaction fees), and protocol fees are temporarily waived.
CowSwap now supports current buy and sell orders, and the transaction process only requires one off-chain signature. After the user submits the transaction, the searcher will be responsible for matching, and only payment is required when the order is executed. Failed transactions do not require any fees.
Currently, CowSwap has integrated Uniswap's liquidity resources and will continue to expand in the future. It plans to integrate the liquidity of more DEXs such as Balancer to provide richer trading options and better service experience.
CoW Protocol Technology Core
As an innovative decentralized trading mechanism, CoW Protocol aims to optimize transaction security and integrity, addressing the challenges of DeFi and cryptocurrency trading.
It uses batch auctions, peer-to-peer transactions, and off-chain order matching, allowing users to sign exchange intentions and have solvers compete to provide the best exchange rate and execute transactions, reducing pre-run and slippage risks.
Solvers create Coincidence of Demand (CoWs) by batch processing transactions to improve transaction efficiency and cost-effectiveness. When direct matching is not feasible, solvers compare quotes from different sources to ensure competitive pricing. The CoW Protocol also implements measures to protect users from miner extractable value (MEV) attacks and reduce malicious behavior through the network of solver algorithms.
The governance and infrastructure are supervised by CowDAO, and COW token holders participate in decision-making, enjoying benefits such as CowSwap fee discounts, aligning with the long-term success and security of the protocol. CoW Protocol promotes direct peer-to-peer transactions between users, reduces slippage and transaction costs, and ensures optimal execution rates through extensive scanning of decentralized exchanges and aggregators.
CoW Protocol team and financing information
CoW Protocol is led by Anna George (co-founder and CEO) and Olga Fetisova (data leader). The team has a deep technical background and industry experience, dedicated to building a secure and fair decentralized trading platform.
In March 2022, CoW Protocol completed a $23 million private funding round. Investors such as 0x, 1kx, Blockchain Capital, Ethereal Ventures, Robot Ventures, SevenX Ventures, Delphi Digital, Hack VC, mgnr, Dialectic, Collider Ventures, imToken Ventures, LongHash Ventures, P2P Capital, Kronos Research, etc. raised $15 million, and the remaining funds were raised from 5,000 community members.
CoW Token Economics
The native token of CoW Protocol is COW, and its token economics design aims to promote the governance, incentives, and value capture of the protocol. Total supply: 1 billion COW tokens. In terms of governance, COW token holders can participate in the governance of CoW DAO, vote to determine the key parameters and development direction of the protocol, and protect the common interests of the community. COW tokens are used to reward solvers who provide the optimal transaction path in the protocol, motivating them to continuously optimize transaction execution and improve User Experience.
Its main allocation method is as follows:
Cow DAO Treasury: 44.4% (444,000,000 COW)
Development team: 15% (150,000,000 COW)
Community investors: 10% (100,000,000 COW)
Gnosis DAO：10% （100,000,000 COW）
Airdrop: 10% (100,000,000 COW)
Partners: 10% (100,000,000 COW)
Consultants: 0.6% (6,000,000 COW)
CoW Protocol plans to implement a protocol fee mechanism, and part of the revenue will be used to repurchase and destroy COW tokens, aiming to reduce market supply and potentially increase token value.
Analysis of the Future Value of CoW
Overseas analysts predict that if Cowswap successfully implements the "fee switch" strategy, which uses ETH or stablecoins to pay solver rewards, the publishing volume of COW is expected to significantly decrease by more than 40%. The implementation of this proposal means that CoW Protocol will have the ability to independently collect fees. As transaction demand continues to grow, protocol fees will be continuously injected into the DAO treasury in the form of COW tokens, effectively reducing the circulation of COW in the market.
From a theoretical perspective, multiple factors such as the increase in Cowswap's real income, the decrease in circulation, and the MEV protection and intention narrative provided are all positive factors for its token price. Under the joint action of these factors, the market value of COW is expected to increase.
However, we must also be aware that there is still a significant gap between Cowswap and leading companies in the DEX field in terms of market value and scale. Therefore, whether Cowswap can continue to attract users and expand market share will become a key factor in determining its future development.
Now, COW token is about to be launched on The First trading platform's spot area, providing users with a fast and convenient trading channel. Can COW replicate UNI's leadership in the DeFi ecosystem? We wait and see.