What is price improvement and why is it unique to CoW Swap?

Overview

• Many Ethereum traders receive suboptimal prices and face risks from MEV bots when trading on traditional decentralized exchanges (DEXs)
• CoW Swap is a solution that provides price improvement technology to ensure traders get the best possible prices on their trades while also enjoying MEV Protection
• CoW Swap uses batch auctions to find the optimal clearing price for all trades in a batch, as well as Coincidences of Wants (CoWs) that enable peer-to-peer transactions, among other types of optimizations
• CoW Swap improves pricing and increases market depth, providing traders with greater access to liquidity and better overall trading conditions

For far too long, Ethereum traders have been forced to deal with suboptimal pricing when trading tokens.

Unfortunately, many traders are unaware they may receive a bad deal on their trades when using traditional Decentralized Exchanges (DEXs). To make matters worse, some traders may also fall victim to manipulative MEV bots, whose damages total billions of dollars in exploited value. To learn more about MEV, check out CoW Swap’s list of articles on MEV.

How does CoW Swap work?

Figure 1: Showing how Batch Auctions work on CoW Swap

CoW Swap has introduced a revolutionary approach to trading: A delegated trading model through an Order Flow Auction that runs on “batch auctions” to find the best settlement for all the trades.

When using batch auctions, traders submit their intent to trade a particular token pair without having to settle their raw Ethereum trades directly on-chain, as the solvers (auction settlers) will be the ones creating the transaction for them. This innovative approach means that traders don’t have to fine-tune their own trading parameters — such as what liquidity pools to use and what slippage to set — all while enjoying better prices and MEV protection.

Unlike traditional DEX orders, intent-based trades protect traders from getting MEV’ed. This ensures that traders can execute their trades with greater confidence, security, and efficiency while getting the best possible price. With CoW Swap, users can trade without worrying about the typical pitfalls of trading on a DEX, and rest assured that any price improvement is forwarded to them (not kept by the protocol.)

What is price improvement?

CoW Swap is revolutionizing how traders approach decentralized exchanges by providing price improvement technology (in the form of “surplus”) that ensures they get the best possible price on every trade.

Once a trader submits an intent to trade by submitting a signed order, it gets sent to an off-chain orderbook and inserted into a batch auction where solvers can search all available on-chain liquidity to find the optimal order clearing price. CoW Swap’s batch auction mechanism helps improve pricing by batching orders together and establishing a uniform clearing price. By doing this, CoW Swap creates a more liquid trading environment that matches Coincidences of Wants (CoWs) and finds other optimizations which improve the trader’s price.

CoWs enable traders to conduct peer-to-peer transactions directly with each other, eliminating the need for intermediary AMM pools and providing a more efficient trading price.

Many times, CoWs allow traders to entirely bypass any on-chain liquidity and directly exchange tokens, avoiding slippage and any fees they might incur. In the trading UI, CoW Swap quotes the minimum price the trader will receive whenever the trade executes. In most cases, CoW Swap forwards price surplus to traders by giving them more of their purchase tokens.

Figure 2: Showing CoW Swap’s UI

To illustrate the power of CoW Swap, let’s take a look at this CoW Swap Batch Auction Settlement.

In this settlement, 8 different trades were executed in a single batch, forming a CoW and also leveraging the best possible on-chain liquidity for all traders involved. If we take a close look at the settlement, we can see that some USDC-ETH traders are overlapping meaning a portion of their trade can be matched directly in a CoW instead of tapping into an AMM. For the rest of the trades, the settlement tapped into the best on-chain liquidity available.

Thanks to the batch auction mechanism, CoW Swap provided all traders with a surplus on top of their quoted price, maximizing their returns and minimizing their exposure to risks. In this example, the average surplus was 1.66%, giving traders a bunch of extra tokens than no other DEX can give since these price improvements are only possible by leveraging batch auctions as a trading mechanism.

Figure 3: Showing a Coincidence of Wants

Find the most price improvement on CoW Swap

In an ever-evolving DeFi landscape, CoW Swap redefines the trading experience on decentralized platforms. By integrating the innovative batch auction mechanism and leveraging Coincidences of Wants, the mooo-st efficient DEX offers traders price improvement not found anywhere else, all while protecting you from MEV-related threats.

Place your first order on CoW Swap and start getting more for your trades!

About CoW DAO

CoW DAO is an open organization of developers, traders, market makers and many more community members aligned with its vision. CoW DAO is focused on fair and decentralized trading systems — in particular, building, maintaining and advancing the CoW Protocol. CoW Protocol technology powers a network of traders and solvers, enabling trustless and efficient peer-to-peer trading. Leveraging batch auctions as a key concept uniquely positions CoW Protocol as native trading infrastructure for discrete-time settlement layers like Ethereum and enables fair and accessible trading to its users.

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