Hey folks, in today’s article I’m going to be doing a deep dive on CowSwap, a DEX aggregator, and why I’m not only invested in their native token $COW, but why it’s really the first place I go to if I’m wanting to make any type of trade on Ethereum mainnet. Also perhaps most bullish, I’ll go over why it isn’t much of a surprise that we’ve seen $COW explode in price over the last couple months:
What I’ll break down in this article, is not only why $COW is getting re-priced, but why for $COW holders, this bull-run (pun intended) might just be just the beginning.
Similar to the core of any DEX aggregator, CowSwap will split your trades into multiple pieces, trying to find the trader the best price as it looks through the rates of different AMMs and private liquidity pools. What makes CowSwap particularly unique is that the platform also sees if there’s coincidentally another trader wanting to make a reciprocal trade (hence the name Coincidence of Wants), therefore settling against those reciprocal traders if it means getting the user a better price.
On the front end, the user will submit their intent for how much they’d ideally like their trade to be, and on the backend, “solvers” will compete with one another to find the most price efficient way to get the user that trade. The beauty behind CowSwap’s efficiency is that often times (and I would say personally on big orders for me it’s about 8 out of 10 times), there will actually be a surplus of tokens for your swap. Yes, a surplus — you’ll actually get more tokens than you agreed to swap for. To date, CowSwap has generated 9 figures in surplus for it users:
MEV-resistant: CowSwap’s “intents”-based system also offers users MEV protection, because instead of your transaction getting submitted directly onto a public mempool, the solver, who essentially is executing the trade for you and is taking on all the MEV-risk, will pre-optimize your trade in ways so that it won’t be exploited by a sandwich attacker. If you’re unfamiliar with MEV sandwich attacks, I highly recommend that you check out one of my recent PSAs
The dismal truth behind CowSwap is that up until recently, CowSwap actually has been at a net negative profit:
Despite being a stellar DEX, CowSwap’s primary revenue stream (at least prior to CIP-34 which I’ll get into later) was the gas saved from batch transactions. In other words, users get charged the same gas they would be levied if they were doing the transaction alone, yet CowSwap captures the gas fees from each additional order, netting the extra gas as extra revenue.
Batch transaction fees can be lucrative when gas fees are particularly high, yet at the same time CowDAO’s revenue model was actually proving to be unprofitable if the transaction and gas fee(s) that the user signed as an intent was less than it actually cost to execute. For instance if the user agreed and signed to pay $30 dollars in transaction fees and gas, but the final bill ended up being $40 dollars, then CowDAO would be the one that had to foot the extra $10.
Due to the bleed out, CowDAO had been discussing over the last few months how to rectify this problem, and it was only a matter of time that a fee switch got turned on to help the CowDAO treasury and the $COW token itself.
Passed unanimously earlier this month, the Cow DAO passed an initiative to finally turn on the fee switch that would allow the Cow DAO to start experimenting in ways in order to capture some of the revenue that so many users (and solvers) were benefitting from.
Although still in its infancy, the first fees that have been employed are with CowSwap’s limit orders — currently a 50/50 split is levied on any surplus that’s made from your transaction or else up to a 1% fee on the total transaction volume of the trade, whichever one is lower. The hope is that over the next 6 months this sort of fee structure will get turned on for market orders too, but the devs are currently just testing it out on limit orders first since there’s no embedded gas estimation with limit orders.
OGs of CowDAO will tell you that CowSwap is probably one of the most trusted DEXes out there, and oSnap simply just provides another reason why. Last September, UMA’s oSnap was integrated into CowDAO’s voting infrastructure, making it much more decentralized and less prone to single-point-of-failure exploitations.
With oSnap, once a proposal is passed the vote is executed automatically through their treasury held on the DAO’s designated Safe wallet, allowing transactions approved by the DAO to be validated all on-chain without the need of a multi-sig.
Using a gasless voting mechanism, oSnap utilizes UMA’s optimistic oracle to verify any associated transaction data resulting from the passed proposal itself. In the case of a potential dispute, $UMA stakers will have a round of voting where all voters are incentivized (currently up to 32% APR) to vote correctly or otherwise risk getting slashed if they do not.
By getting a set of human eyes on the data, UMA adds yet another layer of protection to prevent malicious proposal or transactions from going through.
As voted in CIP-34, the fees upon limit order may just be the tip of CowSwap’s profitable iceberg, and I’m certain that we’ll see additions and tweaks to different possible fee implementations over the next several months.
Additionally one of the longstanding goals for the CowSwap team was to finally make its way across to different L2s, something that many (including myself) have been asking for quite some time. On a recent interview with CEO Anna George, she reported that a first addition could come as early as Q2, and even beyond that the CowDAO team has also been looking into incorporating cross-chain swaps.
CowSwap is one of those protocols where if you use once, you’ll probably never use another DEX again. Not only can you usually get a surplus and best possible rates on your transactions, but there’s several other budding cool features that I didn’t talk about including:
▹TWAP (Time Weighted Average Price) orders
▹Programmable orders — which can help prevent people from getting loans liquidated
▹“Cow Hook” transactions — which allow users to combine multiple transactions all into one single transaction
What’s clear after pouring through different docs and hanging out in their discord is that the entire model for CowDAO and CowSwap is to help give their users the best possible transactions at the most price efficient costs. If the people behind CowSwap are able to find the best way to extract some of that revenue while at the same time incentivizing users with some of the best swap-rates out there, I think the ceiling for $COW will be significantly higher than the $0.40 cents we saw this past week.
Are you a frequent CowSwapper? What’s the most surplus you’ve ever saved in one single transaction? Feel free to let me know if the comments below.
And as always, thanks for taking the time to read this and be sure to follow me on twitter (https://twitter.com/CryptosWith) to get all my latest updates. Also, looking for a gift for your Crypto-loving/hating friend? Give them a REKT journal to cheer them up!
Disclaimer: This is not financial advice and this is for educational and entertainment purposes only. Please as always, do your own research and find what investments are best for you. Cheers everyone!
