<\/p>\n
A coincidence of wants, Felix Leupold explains, is \u201can economic phenomenon where one party would like to purchase an asset that another party wants to sell, and the other party wants to buy another asset that the first party wants to sell.\u201d<\/p>\n
Enter the creation of the CoW protocol, built on the notion of two parties with opposite interests.\u00a0<\/p>\n
The advantage is that the trading parties can forgo the complications of trading into another medium of exchange, like money, and instead trade directly.<\/p>\n
Leupold, the technical lead at CoW Swap, explains the trading mechanism\u2019s advantages on the 0xResearch podcast (Spotify<\/a>\/Apple<\/a>), allowing for more efficient trading and, according to Leupold, mitigating the problem of MEV<\/a>.<\/p>\n Due to the \u201cCambrian explosion\u201d of a vast variety of tokens in the DeFi<\/a> space, market liquidity is highly fragmented, Leupold says. To create liquidity between the wide variety of token pairs, market makers need to \u201cstep in and provide liquidity,\u201d he says.\u00a0<\/p>\n If instead, a \u201cholistic approach\u201d can look at the \u201centire preference expression of the world\u201d once per block, Leupold says, \u201cyou can re-aggregate that fragmented liquidity space and find those coincidences of wants.\u201d<\/p>\n Importantly, such an arrangement cuts down on MEV \u2014 or maximum extractable value \u2014 attacks, where traders incur losses by being \u201csandwiched<\/a>\u201d or front-run<\/a> by opportunistic bots. \u201cTraditionally, if you want to trade token A for token B on Ethereum<\/a>, you go directly to an [automated market maker<\/a>] interface or a DEX<\/a> aggregator,\u201d he says.\u00a0<\/p>\n \u201cThe algorithm will find you the best on-chain route for your trade,\u201d he says, and \u201cgive you back a transaction that you, with your MetaMask<\/a> account, will submit to the blockchain to execute that trade.\u201d<\/p>\n The problem takes place because of an \u201casynchronous aspect,\u201d Leupold says, as time passes between receiving the \u201coptimal route from whatever API you\u2019re using\u201d and the transaction being sent to the public mempool to be mined.<\/p>\n \u201cDuring that time,\u201d he explains, \u201cprices can change,\u201d and MEV actors can extract profit at the expense of traders.\u00a0<\/p>\n Using batch auctions in CoW Swap, the user instead signs \u201ctrade intent\u201d in an off-chain message that sets a limit, Leupold explains. \u201cI want to sell token A for token B, and here\u2019s my limit price. But I don\u2019t care exactly how it is executed.\u201d<\/p>\n The user then hands off the intent to \u201csolvers,\u201d Leupold says, a \u201cdecentralized network of matching engines.\u201d They compete to find the best execution path at the time that the order is being made valid, he says.<\/p>\n As opposed to individual trades, orders are aggregated into batches, Leupold says. \u201cAll the trades that are placed into the API, within a 30-second window roughly, are placed into the same batch.\u201d The solvers that find the optimal trade solution then receive the right to execute the batch.<\/p>\n \u201cAll these risks, these complexities of managing your own transaction,\u201d Leupold says, \u201care now taken care of by a professional entity.\u201d\u00a0<\/p>\n Podcast host Dan Smith<\/a> observes that the solution sounds a lot like MEV-Boost<\/a>, where builders work to solve transactions for proposers, but Leupold says the process is exactly the opposite in effect.<\/p>\n \u201cIf there are two people trading the same asset in the same batch,\u201d he explains, \u201cthen the protocol enforces that there is only one price per token per batch.\u201d<\/p>\n The two trades would be cleared \u201cat exactly the same price,\u201d Leupold says. \u201cThere\u2019s no concept of first come, first serve or some kind of ordering, fair ordering. There\u2019s just uniform price clearing, one price per token per batch.\u201d This method removes \u201call kinds of MEV,\u201d according to Leupold.<\/p>\n On CoW Swap, he says, \u201cif there\u2019s two people trading the same asset, you actually need to have a uniform price clearing, so [there\u2019s] no difference between buy and ask.\u201d<\/p>\n Unsophisticated users who don\u2019t know how to \u201cboost\u201d their way to priority over others in the public mempool can be protected by the CoW Swap mechanism, Leupold says, and \u201cnot have to worry about all these games that are being played in the Dark Forest<\/a>.\u201d<\/p>\n Get the day\u2019s top crypto news and insights delivered to your email every evening.\u00a0Subscribe to Blockworks\u2019 free newsletter<\/a>\u00a0now.<\/strong><\/p>\n Want alpha sent directly to your inbox? Get degen trade ideas, governance updates, token performance, can\u2019t-miss tweets and more from\u00a0Blockworks Research\u2019s Daily Debrief<\/a>.<\/strong><\/p>\n Can\u2019t wait? Get our news the fastest way possible.\u00a0Join us on Telegram<\/a>\u00a0and follow us on\u00a0Google News<\/a>.<\/strong><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":" A coincidence of wants, Felix Leupold explains, is \u201can economic phenomenon where one party would like to purchase an asset that another party wants to sell, and the other party wants to buy another asset that the first party wants to sell.\u201d Enter the creation of the CoW protocol, built on the notion of two […]<\/p>\n","protected":false},"author":2,"featured_media":141644,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[230,225,221,227,226,228,229,60,223,224,222],"class_list":["post-141643","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cryptocurrency","tag-brave","tag-coinbase","tag-crypto","tag-decentralised","tag-decentralized","tag-decentralized-exchange","tag-erc-20","tag-featured","tag-meme-coin","tag-robinhood","tag-solana"],"_links":{"self":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts\/141643","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/comments?post=141643"}],"version-history":[{"count":2,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts\/141643\/revisions"}],"predecessor-version":[{"id":146893,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts\/141643\/revisions\/146893"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/media\/141644"}],"wp:attachment":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/media?parent=141643"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/categories?post=141643"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/tags?post=141643"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Batch auctions<\/h2>\n
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