Earlier this week, I did a deep dive on a new DEX trading protocol called CowSwap, which combines many good features into what is possibly the most complete trading experience in Defi.
- First, you no longer publish a fee-paying transaction to the public mempool. Instead, you sign a transaction and submit it off-chain to the CowSwap relayer, which handles all the execution. For you, this means you can safely set a very low slippage tolerance because you only ever pay a fee if your trade succeeds.
- Second, and this gets us to real innovation, CowSwap looks for so-called “coincidents of wants” or CoWs before sending your order to the regular on-chain exchanges. For example, if one trader wants to buy ETH at a certain price and another wants to sell it, these two can be matched without paying any LP fees. Off-chain solvers can look at this orderbook and submit optimal matchings that among others, guarantee that all trades in a certain batch have to settle at the same uniform price. Because there’s no point in reordering trades that have the same price, this also eliminates MEV as well.
- Only after all coincidents have been exhausted, CowSwap sends the rest of the order to the on-chain exchanges via smart routers like 1Inch
If you didn’t get all of that immediately, don’t worry – neither did I, and that’s why I invited Felix Leupold from CowSwap and Gnosis to answer my remaining questions. Please enjoy my conversation on CowSwap with Felix Leupold.
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