CoW DAO sets up MEV-capturing AMM for liquidity providers

Loss versus rebalancing remains a major centralizing force today, but CoW AMM is designed to solve this problem

article-image

CoW DAO and Adobe Stock modified by Blockworks

share

CoW DAO, the decentralized autonomous organization that helped build CoW Swap, is launching an MEV-capturing automated market maker for liquidity providers called CoW automated market maker (AMM).

The CoW AMM is designed to solve the ‘loss versus rebalancing’ (LVR) or ‘lever’ problem faced by liquidity providers (LP).

Most AMMs today rely on information from other exchanges to determine the market price of an asset. This means that there can be a discrepancy between the prices listed on the AMM and those listed on the exchange.

Opportunistic traders will often use this chance to arbitrage the AMM, which leads to LPs losing value. LVR, in this instance, is defined as the loss that LPs must incur as a result of arbitrage bots rebalancing liquidity pools.

According to Andrea Canidio, a senior research analyst at CoW Swap and author of the research paper Arbitrageurs’ Profits, LVR, and Sandwich Attacks, LVR is a major centralizing force today.

“It is the main reason for the current concentration in the block builder market, where three builders create more than 70% of blocks and have great control over what transactions are included in the blockchain,” Canido said.

In fact, research from Cornell University suggests that LPs for major token pairs earn less than 5-7% on their deposits because of LVR. Arbitrageurs make up an estimated $500 million in LP losses every year, becoming a driving factor in disincentivizing liquidity provision in the decentralized finance space. 

CoW AMM is designed to turn the competition into arbitrage liquidity pools that will provide an advantage to LPs. 

“In Constant Function AMMs, arbitrageurs compete to be higher in a block, and the first arbitrageur rebalances the pool at the worst possible price for the LPs. In CoW AMM, alternatively, solvers compete for the right to rebalance the pool by offering better and better prices to its LPs,” he said.

After a liquidity provider deposits tokens into a CoW AMM liquidity pool, those funds become accessible to CoW Swap traders. Solvers then compete to settle trades on CoW Swap, and bid to rebalance the AMM pools whenever there is an arbitrage opportunity. 

The solver that offers the most surplus is able to rebalance the pool, and thus protect LPs from MEV bots. 

Anyone can deploy liquidity into the CoW AMM via programmatic orders. To kick things off the ground, the CoW DAO has allocated 6 million COW and 139 WETH to increase COW/WETH market liquidity. 

Fernando Martinelli, CEO at Balancer Labs, noted in a press release reviewed by Blockworks that MEV/LVR is a key problem that is currently holding LPs back from joining AMMs.

“We at Balancer are super excited to explore custom AMM designs like CoW AMM,” he added.


Get the news in your inbox. Explore Blockworks newsletters:

Tags

Decoding crypto and the markets. Daily, with Byron Gilliam.

Upcoming Events

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

Industry City | Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

Brooklyn, NY

SUN - MON, JUN. 22 - 23, 2025

Blockworks and Cracked Labs are teaming up for the third installment of the Permissionless Hackathon, happening June 22–23, 2025 in Brooklyn, NY. This is a 36-hour IRL builder sprint where developers, designers, and creatives ship real projects solving real problems across […]

recent research

Research Report Templates (8).png

Research

Meta-aggregators like Titan and Kamino Swap improve price execution for users, making the Solana swapping landscape more competitive. Jupiter has incorporated meta-aggregation features into its latest routing engine to keep users on its front end (own the user, own the flow). At large, teams are treating swaps as a commoditized complement, offering incredibly cheap or free swaps to own the end-user and increase demand for high-margin product offerings (multi-product DeFi). On another note, the divergence in the concentration of aggregator volume between DEXs suggests increased specialization at the DEX layer by asset type.

article-image

Many community banks and credit unions feel like they missed the fintech craze — and they don’t want to miss stablecoins

article-image

BlackRock COO Rob Goldstein noted that the firm had been looking into crypto since 2017

article-image

With the June FOMC meeting coming up, the Fed remains unlikely to cut interest rates. Is this the right move?

article-image

The crypto-optional shooter is expected to release on Steam in a few weeks

article-image

The new airdrop campaign reaches 50,000 users, setting the stage for Spark’s 10-year token distribution