What is CoW Swap and how does it work?

CoW Swap is a decentralized trading app on Ethereum and other networks that runs on CoW Protocol. Instead of sending a swap to one exchange, you sign a message saying what you want to trade and the least you will accept. Outside parties called solvers then compete to fill that order.

What is CoW Protocol?

CoW Protocol is the system behind the CoW Swap interface. On a typical DEX, you sign a transaction that executes directly against a pool. On CoW Protocol, you sign an intent, which its docs describe as a set of trading conditions rather than an executable transaction. A settlement contract checks your signature and those conditions before anything happens onchain, so you cannot receive less than you signed for. Our guide to intents in crypto covers the wider idea.

The docs list some practical effects. You can pay network fees in the token you are selling instead of holding ETH, and failed transactions cost you nothing.

How do CoW Swap batch auctions work?

CoW Protocol gathers signed orders offchain and auctions them to solvers. Solvers are independent parties who search for the best way to settle orders. They can use onchain liquidity pools, private market makers or other users' orders.

Solvers can bid on one order or on a group of orders. The protocol throws out group bids that would give any order less than it could get alone. It then picks the set of winning bids that gives users the most surplus in total.

The name comes from "coincidence of wants," or CoW. If one trader wants to sell DAI for ETH and another wants to sell ETH for DAI in the same batch, a solver can match them directly. That skips liquidity pools, so neither side pays pool fees, and it uses less gas. If only part of an order matches, the rest is filled through onchain liquidity.

How does CoW Swap MEV protection work?

MEV bots profit by seeing a pending swap and placing trades around it, such as front-running. CoW Protocol makes this harder in two ways. Users sign intents rather than broadcasting swaps that bots can copy. And within a batch, the same token pair settles at one consistent price, so the order of trades inside the block does not change the result. The winning solver must honor each user's signed limits and takes on the execution risk.

Who runs CoW Swap and what is the COW token?

CoW Protocol grew out of Gnosis. In March 2022 it spun out of GnosisDAO by launching its own DAO and raised $23 million in a token round, according to The Block. COW is a governance token that lets holders take part in decisions about the protocol. CoW DAO's docs say 1 billion COW were created at launch, with inflation capped at 3% a year. COW exists on Ethereum with bridged versions on networks including Gnosis Chain, Arbitrum One, Base and Polygon. See what is a DAO for how this kind of governance works.