CoW Swap for DAOs
One-third of all DAO trading volume goes through CoW Swap
CoW Swap allows all types of traders to make secure trades that are price-optimized and MEV-resistant, but the benefits of the exchange really shine when it comes to DAOs.
Decentralized autonomous organizations (DAOs) are blockchain-based collectives of individuals who come together to create a product, service, or social community. Many DAOs mint their own governance tokens and are responsible for allocating treasury funds. But when it’s time to make trades with these funds, DAOs face unique challenges not encountered by other types of traders.
These issues stem from a variety of factors:
- Placing and executing trades takes time
- Trade details are public, and announced well in advance
- Large trades create large price impact
- Large trades sizes call for large slippage tolerances
- DAOs need the best prices
- DAOs need special order types
CoW Swap’s unique trading model addresses each of these concerns, making DAO trades easier, safer, and cheaper. Here’s how:
Placing and executing trades takes time
Most DAOs rely on multi-signature wallets (like Safe, which has a CoW Swap native app) to keep their treasury funds secure. This is a great idea, but collecting signatures can be a slow and tedious process when it’s time to make a trade. In the time needed to collect signatures, prices can fluctuate — meaning that DAOs must set a high slippage tolerance for their trade (thereby opening themselves up to MEV attacks) or risk their trade reverting. Whether it’s signing the multi-sig or waiting for governance votes, delaying a trade by even a little bit can alter the best-priced execution path for the trade quite substantially.
DAOs that trade on CoW Swap don’t need to worry as much about tight signature coordination, though. This is because CoW Swap trades are optimized at the time of execution, completing for the quoted price or better.
Here’s how it works: when a user submits an order on CoW Swap, they do not actually initiate a blockchain transaction with a fixed execution path (like they do on Uniswap or 1inch, for example). Instead, traders submit orders as signed “intent to trade” messages which include trade details like the amount and type of tokens to be traded. CoW Swap’s solvers then find the best execution path for the trade and execute it on-chain for the user using this optimal path.
This means that DAOs can take their time collecting signatures, knowing that they will receive the best price for their trade once the last wallet has signed (and knowing that an artificially-high slippage tolerance will not be exploited by MEV bots).
Trade details are public, and announced well in advance
The governance process is one of the more innovative aspects of DAOs. Unfortunately, public proposals that reveal the details of large trades are a gold mine for MEV bots.
DAO trades usually begin as forum proposals discussing the specifics of the trade such as how big the trade will be, what assets will be traded, what exchange will be used, when the trade will take place, and more. Exposing this information publicly allows opportunistic traders and MEV bots to intercept and exploit the transaction.
Fortunately, CoW Swap protects every trade from MEV in several ways:
- Delegated Trade Execution: When traders submit an order to CoW Swap, algorithms known as “solvers” execute the trade on behalf of the trader. Solvers have sophisticated methods of fighting MEV and they take on the MEV risk themselves — so traders have nothing to worry about
- Batch Auctions: CoW Swap batches trades together, providing an opportunity for peer-to-peer order matching through Coincidence of Wants (CoWs). If two traders in the same batch swap assets with each other, they don’t have to use on-chain liquidity sources to fill their order, meaning they save on protocol fees and bypass MEV bots lurking in the mempool
- Uniform Clearing Prices: CoW Swap settles all trades in a batch at the same clearing price, so MEV bots cannot exploit the transactions by reordering them
These factors ensure that DAO transactions are routed in a way that prevents MEV bots from exploiting them, even if they know the trade details in advance.
Large trades create large price impact
DAO trades are usually large transactions that move the market, leading to worse prices for the DAO overall. On CoW Swap, price impact is mitigated through several factors:
- When CoW Swap finds a Coincidence of Wants opportunity, the order may be filled without accessing on-chain liquidity at all, and thus without creating a price impact
- For trades that are not fully filled by a CoW, CoW Swap makes use of multiple on-chain liquidity sources and quotes from market makers to spread out the price impact
- Special order types like partially fillable limit orders and TWAP orders spread trades out over time, further reducing price impact
The CoW Swap solvers automatically search for Coincidences of Wants and optimize the routing of each order to on-chain liquidity. All DAOs have to do is simply place their order. Special order types have to be selected in the CoW Swap UI, however, it just takes a few clicks to add them to a trade as well.
Large trades sizes call for large slippage tolerances
When it comes to DAOs, setting the right slippage for a large trade can be a complex problem.
The gap in timing between deciding on an order and actually placing it often requires DAOs to set a large slippage tolerance in order to anticipate and account for price movements. This, however, leaves room for exploitation by MEV bots.
Existing solutions like Uniswap and 1inch require DAOs to either:
- Set a tight slippage for their trades, making it likely that transactions will fail and potentially leading to a DAO re-vote.
- Set a large slippage, which leaves room for MEV attacks.
DAOs can lose thousands of dollars to MEV in a single transaction. Some real-world examples that we can look at using on-chain data include this 1,000 ETH to USDC swap from Gitcoin where the DAO lost over $10,000 to a sandwich attack, as well as this swap from Rarible where the MEV damage totaled over $8,000.
As a part of delegated trade execution, CoW Swap’s solvers automatically optimize the user-defined slippage tolerance during execution time to ensure that each trade completes without leaving money on the table (or any juicy arbitrage for those greedy MEV bots).
DAOs need the best prices
DAO treasury managers have a duty to their stakeholders to execute trades at the best possible prices. According to karpatkey, who works with ENS, Balancer, Gnosis, Lido and CoW treasuries, fulfilling this obligation is easy on CoW Swap because all trades, whether large or small, almost always receive better prices than they would through individual liquidity pools or DEX aggregators. On CoW Swap, the solver that provides the most value to the user wins the right to settle the trade; this is in contrast to the default Ethereum model where the searcher that provides the most MEV profits to the validator decides how transactions should be ordered.
Coincidences of Wants bring down the overall fee cost of any trade. This is because CoWs bypass on-chain protocols that usually charge a fee, and also because a peer-to-peer swap costs less in gas than an on-chain liquidity pool swap. For retail traders, this is an added convenience, but for large DAO trades, this can mean thousands or tens of thousands of dollars in savings thanks to price improvements.
Additionally, when a CoW Swap trade completes at a different price than the original quote, the traders always come out on top. There are several reasons why a trade might execute for a different price than the quote including MEV (which CoW Swap protects against) and asset price movement in the time between the quote and execution.
DAOs need special order types
Not only is CoW Swap well-suited to DAOs at the protocol layer, but it also offers several special order types that DAOs may find useful:
- Partially Fillable Limit Orders: CoW Swap’s surplus-capturing limit orders allow traders to place an order for a limit price that gets filled over time. This helps spread out price impact, avoids MEV, and captures liquidity at a predictable price
- TWAP Orders (Coming Soon): Time-weighted average price orders split trades up into several equal transactions that get executed over time. This reduces price impact, allows for a lower slippage tolerance, and smooths out the effects of market volatility on each trade
- Milkman: The Milkman bot ensures trades are executed for the real-time price or better by utilizing a price checker, such as a Uniswap v3 pool. Instead of setting a slippage tolerance, DAOs can utilize Milkman to determine a maximum percentage deviation from a price checker, guaranteeing that their trade will finalize at a fair market price. If a trade can’t be executed within the defined price window or better, the order is postponed until the market shifts within the set range.
- Dump Services: CoW Swap and yearn.fi have collaborated on Dump.services, a tool that allows traders to sell (dump) multiple tokens from a wallet in a single transaction
What’s more: CoW Swap’s ERC-1271 support allows DAOs to create any special order type they would like and use CoW Swap to execute it.
CoW Swap: The Best DEX for DAOs & Multi-Sigs
CoW Swap’s obsession with providing the best trade execution has earned the platform the loyalty of some of the largest DAOs and projects in web3 today — including ENS DAO, who received an $80k surplus for a $16.5 million trade on CoW Swap.
All trades, whether for DAOs or retail traders, will usually receive better prices on CoW Swap than on individual liquidity pools or DEX aggregators. DAOs can count on CoW Swap for:
- Easy trade timing with less pressure for stakeholders to coordinate
- MEV-protected trades even when trade details are publicly announced
- The best prices through slippage-capturing trade execution
- Special order types custom-tailored for DAOs
If you are a DAO interested in learning more about how CoW Swap can optimize your trades, join our Discord and give us a shout, or leave a comment in our forum.
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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