Protocol FAQ

Protocol

What is CoW Protocol fee model?

Each executed order has a fee which is captured by the protocol. Part of the fee is paid to solvers (entities which provide order settlement solutions) to incentivize their participation.

The fee consists of the "base cost to execute the trade" and the "protocol fee" (although it is only exposed to the user as one fee). As a user, you are only signing a message to submit your trade and the underlying solver will end up submitting the transaction for you. Essentially you are paying this "base cost to execute the trade", aka "gas costs", with your sell token and the cost is already included in your price estimation. The protocol is currently subsidizing a portion of the gas costs, while the protocol fee is currently switched off.

Note that you will only have to pay fees IF your trade is executed. No more gas costs on any failed transactions!

How does CoW Protocol connect to all on-chain liquidity?

CoW Protocol can connect to all on-chain liquidity as it is a layer on top of all trading venues.

When CoW Protocol does not have enough CoWs (Coincidence of Wants) among the orders available for a batch, it taps other AMMs’ liquidity to be able to settle the traders’ orders. CoW Protocol can be connected to any on-chain liquidity sources and can therefore enjoy the benefits of concentrating the fragmented liquidity across DeFi.

How is CoW Protocol able to offer better prices?

Before using on-chain liquidity, CoW Protocol tries to find CoWs (Coincidences of Wants) within the set of currently valid orders and match them directly with one another. CoWs result in better prices because no fee is paid to the liquidity provider (e.g., 0.3% for Uniswap v2). In the case that CoW Swap does not have any CoWs, it taps into the DEX that gives the next best price. This results in the same or better performance than existing DEX aggregators.

How can I become a liquidity provider?

CoW Protocol does not have liquidity providers. Instead, it connects to all on-chain liquidity that is provided across different protocols. Since orders only incur a cost if traded, active market makers can observe the orderbook and place counter orders (creating a CoW) to prevent settling trades via external liquidity.

What are CoW Protocol's Solvers?

In CoW Protocol, instead of using a central operator or a constant function market maker to determine trade settlements, the protocol uses a party called a "solver", who is the party in charge of providing the settlement solution to the batch auctions. Solvers compete against each other to submit the best possible batch settlement solution. Each time a solver submits a successful batch settlement solution, the protocol rewards them with tokens, meaning that the protocol rewards solvers for solving the batch auction optimization problem. By meeting certain requirements, anyone can become a solver:

1. To become a solver, an Ethereum address needs to deposit a bond in the form of tokens. Asset type and amounts are pending to be defined by the CoW DAO.
2. Once the tokens have been staked (locked up), CoW DAO must vote to approve or reject the Ethereum address that will identify the solver. If the vote is successful, the solver Ethereum address will be included in the allowlist (verification) solvers contract.
3. Additionally, a solver must have the technical knowledge to create the appropriate batch settlement solutions, or take the risk of being slashed by the CoW DAO for wrongdoing.