CoW AMM
more TVL achieved than reference pool (beta phase)
liquidity protected from LVR
surplus captured for LPs (beta phase)
Liquidity providers expect their tokens to earn yield, but the dirty little secret of AMMs is that most liquidity pools lose money. In fact, hundreds of millions of dollars of LP funds are stolen by arbitrageurs every year1. These losses are known as loss-versus-rebalancing (LVR). LVR is a bigger source of MEV than frontrunning and sandwich attacks combined.
1 Andrea Canidio and Robin Fritsch, Arbitrageurs' profits, LVR, and sandwich attacks: batch trading as an AMM design response (November 2023).
CoW AMM eliminates LVR once and for all by using batch auctions to send surplus to LPs
1.
Liquidity providers deposit tokens into protected CoW AMM liquidity pools, where traders can access the liquidity
2.
Solvers bid to rebalance CoW AMM pools whenever there is an arbitrage opportunity
3.
The solver that offers the most surplus to the pool wins the right to rebalance the pool
4.
CoW AMM eliminates LVR by capturing arbitrage value for LPs and shielding it from MEV bots
CoW AMM LPs don't have to worry about LVR, which costs CF-AMM LPs 5-7% of their liquidity, on average.
Backtesting research conducted over 6 months in 2023 shows that CoW AMM returns would have equalled or outperformed CF-AMM returns for 10 of the 11 most liquid, non-stablecoin pairs.
Healthy liquidity for DAO tokens reduces price impact, encourages investment and discourages volatility. But DAOs can be reluctant to provide liquidity with treasury funds when their pools can be exploited by arbitrageurs. CoW AMM makes providing liquidity more attractive to DAOs of all sizes.
With LVR in the rear view mirror, providing liquidity becomes identical to running a passive investment strategy: solvers rebalance the pool at the correct market price to keep the value of its reserves equal, thereby keeping portfolios balanced and reducing risk. On top of that, liquidity providers earn surplus when they trade with CoW Protocol traders.
- Hasu
Strategy Lead at Flashbots
- Marcelo
Co-founder at Karpatkey
- Josojo
Crypto Researcher