Macauley Peterson

CoW Swap is spelled with funny capitalization deliberately. Aiming for a Coincidence of Wants (CoW) underpins its unique approach compared to other decentralized exchange (DEX) venues. Unlike typical decentralized exchanges, CoW Swap facilitates direct order matching among traders before considering traditional liquidity pools.



By avoiding on-chain liquidity pools, traders save on LP fees and gas costs, leading to better trade prices. This method also safeguards against MEV attacks by facilitating peer-to-peer swaps, thus eliminating opportunities for transaction hijacking. CoWs are particularly effective in large trades or for assets with lower liquidity.



They can also result in lower slippage, and are part and parcel of the protocol’s primary goals: to ensure fair trading conditions by developing features that directly benefit users.



On the Bell Curve podcast (<a href="https://open.spotify.com/episode/4M7CNfjg0C2BD6SpyPFuaI">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/a-deep-dive-into-batch-auctions-season-6-episode-5/id1641356619?i=1000634764006">Apple</a>), Anna George, CEO and co-founder of CoW Protocol, discussed how the project&#8217;s latest feature — programmatic orders — is expanding the ways that traders can automate their strategies.



By making use of <a href="https://docs.cow.fi/tutorials/how-to-place-erc-1271-smart-contract-orders/the-basics-of-erc-1271">ERC-1271</a>, CoW allows users “to add any type of on-chain interaction before and after a normal swap,” George told Blockworks’ Michael Ippolito and co-host Dan Robinson.



For instance, how about setting up to execute 100 different <a href="https://app.blockworksresearch.com/glossary#time-weighted-average-price-twap">TWAP</a> orders, then updating the frequency for all of them with a single signature?



Or put in place stop-loss orders and automatic dollar-cost averaging (DCA) schemes, fully on-chain?



The feature empowers users to automate complex trading strategies, portfolio management, and even <a href="https://blockworks.co/tag/daos">DAO</a> treasury operations.



Sharing the guest mic on Bell Curve, Ludwig Thouvenin, founder of Sorella Labs, elucidated the mechanisms behind the “plague” of Maximal Extractable Value (<a href="https://blockworks.co/tag/mev">MEV</a>) —&nbsp;also known as Loss versus Rebalancing (LVR) — which makes passive liquidity providing unprofitable.



He noted that 80% of volume on Uniswap is arbitrage. Due to Ethereum’s 12-second block times, DEX LPs are constantly living in the past when it comes to price, while centralized exchanges with an order book operate in “continuous time.”



“MEV arises because you have this sequential execution of transactions,” Thouvenin explained. “You have different prices for one asset and one block, and then they are arbitrarily ordered or someone else is purposefully ordering them in a specific way to maximally extract slippage.”



This notion of “stale” price quotes is exploited by vertically integrated <a href="https://blockworks.co/news/blocknative-drops-mev-boost">block builders</a>, who take advantage of asymmetric information — knowledge of centralized exchanges’ prices — and bid to win Ethereum’s block auction so as to be the first to extract value from the passive LPs.



“Sorella” means “sibling” and the company’s Angstrom project, built on <a href="https://blockworks.co/news/uniswap-v4-dex-hooks">Uniswap V4 hooks</a>, aims to group all transactions of a given asset into one big happy family sharing the same price.



The technique, called batch auctions, removes the arbitrageur&#8217;s edge — its opportunity for nearly riskless profits which, Thouvenin says, are “not supposed to exist in a well functioning market.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG6907710932" width="100%"></iframe>







“That&#8217;s a philosophical question [and] I think it&#8217;s more so an existential question for blockchain in the sense that this value, from MEV, is most of the time extractive — someone is losing — and we see this with LPs today.”



George agreed, saying, “[Automated Market Makers] that we know today may be at risk of disappearing because it’s not profitable or efficient.”



Ludwig expects that passive LPs overtime will strictly employ third-party services through which to provide their liquidity and have it managed for them — an efficient solution, “so long as you remove that inherent loss that occurs every time there&#8217;s some toxic [order] flow.”



Thus, Angstrom’s goal is to redirect the value to the LP.



“You have to design the application whereby you are cognizant of the fact that some MEV opportunity is going to be created, but when it is, the application itself has to effectively give the right to someone,” he said.



“You have to be in control of who actually gets to extract that value.”



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decentralized exchanges

Sorella and CoW Protocol have something in common: Making on-chain exchanges work better

Michael Bodley

With decentralized crypto exchange Uniswap leapfrogging the $1.5 trillion mark in terms of trading volume, digital asset industry participants are once again getting bullish on Web3 liquidity solutions.&nbsp;



The sentiment shift of crypto traders increasingly tapping <a href="https://blockworks.co/tag/uniswap">Uniswap</a>, the world’s largest decentralized exchange (DEX), may have spillover effects to competing crypto-native products.&nbsp;



The $1.5 trillion volume milestone for Uniswap (<a href="https://blockworks.co/price/uni">UNI</a>) reflects a $500 billion cumulative volume increase for the DEX since April 2022 — when it passed $1 trillion in total trading volume since launch.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The Uniswap Protocol has officially passed $1.5T in trading volume 🚀 <a href="https://t.co/Fjd8IP7ngc">pic.twitter.com/Fjd8IP7ngc</a>&mdash; Uniswap Labs 🦄 (@Uniswap) <a href="https://twitter.com/Uniswap/status/1650565791291518976?ref_src=twsrc%5Etfw">April 24, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Uniswap Labs did not make a representative available for comment. Early this month, <a href="https://blockworks.co/news/uniswap-mobile-app-in-apple-store">Apple approved the developer’s iOS mobile app</a>, an initiative that had been long in the making.&nbsp;



Uniswap eclipsing $1.5 trillion total trading volume comes at a time when crypto native and Wall Street traders of digital asset products alike are paying close attention to the regulatory landscape in the US and beyond. And it hits when a number of crypto-native DEX competitors are seeing opportunities to compete in a crowded sector by offering innovative incentives to traders, according to a <a href="https://www.blockworksresearch.com/research/a-solidly-study">recent Blockworks Research report</a>.&nbsp;&nbsp;



Read more: <a href="https://blockworks.co/news/sec-defi-proposed-exchange-definition">What the SEC’s Proposed ‘Exchange’ Definition Could Mean for DeFi</a>



Markus Levin, the co-founder of XYO, told Blockworks in an exclusive statement that Uniswap’s rise is indicative of trader appetite for top DeFi products remaining strong, adding that DeFi is “truly unstoppable” at this point in the market cycle.&nbsp;



The $1.5 trillion volume mark, Levin said, demonstrates the desire for decentralized trading setups that “[cut] out the middleman and excessive fees, creating billions of dollars in advantage for investors and users — billions not sucked up by some obscure fee-charging scheme.”



DeFi adherents may take issue with centralized crypto exchange counterparties — the likes of Coinbase and Kraken — as well as Wall Street trading solutions for digital asset products, which they say impose prohibitive fees on their provisions for Web3 liquidity.&nbsp;



Levin’s XYO oversees the <a href="https://blockworks.co/price/xyo">XYO</a> protocol and related projects within its ecosystem. He positioned the Uniswap’s volume bump as yet another indicator that it is “high time” that lawmakers in Washington, DC, pass DeFi legislation that “protect innovation within our countries alongside its investors.”



Added Levin: “The SEC is attempting to enforce against DeFi without creating new laws.”



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All Eyes on US Regulation as Uniswap Eclipses $1.5T Trading Volume

Sebastian Sinclair

Decentralized exchange trading activity has begun to pick up steam, with some of the DEX sector’s biggest players booking a notable bump in trading volumes this week.



Ethereum-based Uniswap was leading the pack toward the end of the work week in New York, hovering around the 50% mark of total DEX volume, equating to a week-over-week double-digit jump to around $12 billion, data from <a href="https://defillama.com/dexs" target="_blank" rel="noreferrer noopener">DeFiLlama</a> shows.



Its closest rival, PancakeSwap was holding steady around 8% via the same market cap metric — up about 20% since the week prior, clocking in around $2.1 billion. The DEX still leads on <a href="https://twitter.com/Blockpour/status/1623668554137751552?s=20&amp;t=ihhtwohhnDZvzdZcS-9Kjw" target="_blank" rel="noreferrer noopener">trader count</a> on Binance’s BNB Chain.



Notable DEXes Curve and SushiSwap have also seen significant increases in trading volumes,  jumping 12% and 63% respectively, in the last seven days through early Friday morning in New York. 



Average increase for volumes across all DEXes popped 16% or so on the week. 



Unlike centralized exchanges, which are run by a single entity, decentralized rivals are built on decentralized infrastructure — including smart contracts — allowing traders to swap assets directly with one another, eliminating the need for an intermediary.&nbsp;



Their popularity has continued to grow following the fourth quarter collapse of the centralized FTX — leaving the funds of retail and institutional investors alike frozen to this day.



Decentralized exchanges that were battle-tested last year, have come out on top, according to Toby Chapple, head of trading for the Australian trading firm Zerocap.



“The use of smart contracts on public blockchains cures a large part of counterparty-related issues related to centralized single-point entities,” Chapple told Blockworks. “The smart contracts themselves handle the crisis exactly as the rules that govern them said they would — they liquidated market participants as per the terms of the DEX.”



That’s now especially true for some market participants up in arms over the SEC’s move against centralized entity <a href="https://blockworks.co/news/kraken-settles-sec-crypto-staking-program">Kraken to shutter its US staking operations</a>. Hester Peirce, a long-tenured SEC commissioner, went as far as to <a href="https://blockworks.co/news/sec-commissioner-speaks-out-kraken">blast her own agency as “paternalistic” and “lazy”</a> in terms of Gensler’s most recent crypto crackdown. 



The centralized exchange settled with the SEC without confirming, nor denying fault, and agreed to pay a $30 million fine in the process.  



“Staking is never going away,” Bill Hughs, senior counsel and director of global regulatory matters at ConsenSys, told Blockworks in a statement. “Access to it will only grow because that is what people all around the world will demand.”



Staking remains crucial to scores of <a href="https://blockworks.co/news/proof-of-work-vs-proof-of-stake-whats-the-difference">proof-of-stake networks</a>, providing a mechanism for reaching consensus — and providing reward-based incentives to validate transactions and ensure a blockchain’s stability and security. 



DAO governance participants — and other individuals looking to accrue cryptocurrencies outside of the scope of regulatory scrutiny — have continued to tap DEXes in large numbers as an alternative to centralized routes. 



The sentiment appears to be increasing, according to Chapple, as exchanges continue to roll out offerings designed to win over user trust, even considering current complications.



“Going forward, the growth of DEX&#8217;s will need to address the smart contract vulnerabilities to hacking risk that seems to still plague the industry from time to time, before mainstream adoption by TradFi can be contemplated,” Chapple said.



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centralization

DEX Trading Activity Picks Up Steam as Markets Spurn Centralization

Bessie Liu

The Uniswap Foundation is hoping to revamp the popular decentralized exchange’s governance process, giving community members more time to discuss and gauge proposals.



As is the case with DAOs, holders of Uniswap’s native token UNI can vote on potential adjustments to the protocol. They can also delegate their tokens to a third party who votes on their behalf.



Currently, proposals must pass three milestones:



<ul class="wp-block-list">
<li>First, a “temperature check” needs 25,000 UNI ($150,000) in votes across a three-day poll.</li>



<li>Then, a “consensus check” needs 50,000 UNI ($300,000) in votes on an iterated proposal across a five-day poll.</li>



<li>Thirdly, final proposers must attract 2.5 million UNI ($14.85 million) in delegations, while the actual proposal needs 40 million UNI ($237.6 million) in votes to reach quorum.</li>
</ul>



The Uniswap Foundation has pitched replacing the first three-day poll with a seven-day “Request for Comment” (RFC) period.



Devin Walsh, executive director of Uniswap Foundation, said in a post that lengthening the first period would allow the community to properly formulate opinions and provide better suggestions.



Another change would rename the second-phase “consensus check” in favor of an amended “temperature check,” which would dramatically raise the quorum threshold from 50,000 UNI ($300,000) to 10 million UNI ($59.4 million).&nbsp;



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="665" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/12/2caa9a2014409ca04e50731493c1b0b5d6157294-1024x665.png" alt="" class="wp-image-42042" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/12/2caa9a2014409ca04e50731493c1b0b5d6157294-1024x665.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/12/2caa9a2014409ca04e50731493c1b0b5d6157294-1024x665.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/12/2caa9a2014409ca04e50731493c1b0b5d6157294-1024x665.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/12/2caa9a2014409ca04e50731493c1b0b5d6157294-1024x665.png?w=396 396w, https://blockworks-co.imgix.net/wp-content/uploads/2022/12/2caa9a2014409ca04e50731493c1b0b5d6157294-1024x665.png?w=402 402w, https://blockworks-co.imgix.net/wp-content/uploads/2022/12/2caa9a2014409ca04e50731493c1b0b5d6157294-1024x665.png?w=337 337w, https://blockworks-co.imgix.net/wp-content/uploads/2022/12/2caa9a2014409ca04e50731493c1b0b5d6157294-1024x665.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/12/2caa9a2014409ca04e50731493c1b0b5d6157294-1024x665.png?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/12/2caa9a2014409ca04e50731493c1b0b5d6157294-1024x665.png?w=1297 1297w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">The Uniswap Foundation provided this handy governance chart (<a href="https://gov.uniswap.org/t/rfc-update-community-governance-process-changes/19718" target="_blank" rel="noreferrer noopener">source</a>).</figcaption></figure>



There are 37 Uniswap delegates who wield more than 2.5 million UNI to vote, Walsh said in the proposal. This means proposers only need to gather support from just two of those delegates to move their proposals along to the final stage. The Uniswap Foundation hopes to change that.



“Increasing quorum to [10 million] UNI increases the effectiveness of this phase as a signal of community support,” Walsh said. An earlier <a href="https://gov.uniswap.org/t/proposed-simplifications-to-the-uniswap-governance-process/15906" target="_blank" rel="noreferrer noopener">version</a> of the Foundation’s proposal sought a lower limit, at 5 million UNI ($29.7 million).



Walsh believes increasing the minimum quorum can drastically reduce the chances of lower quality proposals moving to the final phase. The final “governance proposal” phase would remain unchanged, including its 40 million UNI quorum threshold.



Uniswap&#8217;s native token, which DAO participants must hold to have their say, has lost 65% of its value this year, about the same as bitcoin and ether.



<h3 class="wp-block-heading">Uniswap Foundation is meant to make governance smoother</h3>



Uniswap, which runs on Ethereum, is a cornerstone of the DeFi landscape and the largest decentralized exchange by trade volume. 



While its volume has <a href="https://dune.com/queries/7867/15678" target="_blank" rel="noreferrer noopener">dropped</a> about 80% since the start of the year, it still handles about $900 million per day — more than three times second-place Curve, which is <a href="https://www.coingecko.com/en/exchanges/decentralized" target="_blank" rel="noreferrer noopener">processing</a> around $200 million. For scale, leading centralized exchange Binance <a href="https://messari.io/exchanges" target="_blank" rel="noreferrer noopener">currently</a> sees more than $7 billion in trade each day.



DAO members voted to create the Uniswap Foundation in August to <a href="https://blockworks.co/news/uniswap-to-create-foundation" target="_blank" rel="noreferrer noopener">reduce governance friction at Uniswap</a>, especially around the creation of high-impact and high-value projects.&nbsp;It was designed to improve ecosystem navigation and provide $60 million in grants to community initiatives over the next few years.



An estimated <a href="https://mirror.xyz/devi731.eth/Dy705L0V2MufftJ-x4zgAhfILw2yE18RY0lNsVN3mEA" target="_blank" rel="noreferrer noopener">$1.8 million worth of grants</a> have already been awarded to 14 different projects, spread across three categories: Protocol growth, community growth and governance stewardship.



“One of the Uniswap Foundation’s mandates is to enable better decision making by the DAO, and a pain point has been the community governance process,” Walsh told Blockworks.



Voting for its governance shakeup went <a href="https://snapshot.org/#/uniswap/proposal/0x387b5e811e9673359b98729af5c7f14a50b7d0ea9b4dcf9278686b238932e25d" target="_blank" rel="noreferrer noopener">live on Snapshot</a> on Wednesday and will last a total of seven days, ending on Dec. 21. At press time, 34 <a href="https://snapshot.org/#/uniswap/proposal/0x387b5e811e9673359b98729af5c7f14a50b7d0ea9b4dcf9278686b238932e25d" target="_blank" rel="noreferrer noopener">million UNI</a> ($202 million) has been allocated to voting in favor of the Foundation’s proposal, with only 33 UNI ($200) voting against.



“We are pleased that this proposal has received so much feedback from delegates, and are excited for these changes, if approved, to both increase the process&#8217;s effectiveness as well as reduce its operational overhead,” Walsh said.



David Canellis contributed reporting.



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