Sorella and CoW Protocol have something in common: Making on-chain exchanges work better

CoW Protocol adds programmatic orders to DEX traders’ toolkit, Sorella is battling toxic flow

article-image

CMP_NZ/Shutterstock modified by Blockworks

share

CoW Swap is spelled with funny capitalization deliberately. Aiming for a Coincidence of Wants (CoW) underpins its unique approach compared to other decentralized exchange (DEX) venues. Unlike typical decentralized exchanges, CoW Swap facilitates direct order matching among traders before considering traditional liquidity pools.

By avoiding on-chain liquidity pools, traders save on LP fees and gas costs, leading to better trade prices. This method also safeguards against MEV attacks by facilitating peer-to-peer swaps, thus eliminating opportunities for transaction hijacking. CoWs are particularly effective in large trades or for assets with lower liquidity.

They can also result in lower slippage, and are part and parcel of the protocol’s primary goals: to ensure fair trading conditions by developing features that directly benefit users.

On the Bell Curve podcast (Spotify/Apple), Anna George, CEO and co-founder of CoW Protocol, discussed how the project’s latest feature — programmatic orders — is expanding the ways that traders can automate their strategies.

By making use of ERC-1271, CoW allows users “to add any type of on-chain interaction before and after a normal swap,” George told Blockworks’ Michael Ippolito and co-host Dan Robinson.

For instance, how about setting up to execute 100 different TWAP orders, then updating the frequency for all of them with a single signature?

Or put in place stop-loss orders and automatic dollar-cost averaging (DCA) schemes, fully on-chain?

The feature empowers users to automate complex trading strategies, portfolio management, and even DAO treasury operations.

Sharing the guest mic on Bell Curve, Ludwig Thouvenin, founder of Sorella Labs, elucidated the mechanisms behind the “plague” of Maximal Extractable Value (MEV) — also known as Loss versus Rebalancing (LVR) — which makes passive liquidity providing unprofitable.

He noted that 80% of volume on Uniswap is arbitrage. Due to Ethereum’s 12-second block times, DEX LPs are constantly living in the past when it comes to price, while centralized exchanges with an order book operate in “continuous time.”

“MEV arises because you have this sequential execution of transactions,” Thouvenin explained. “You have different prices for one asset and one block, and then they are arbitrarily ordered or someone else is purposefully ordering them in a specific way to maximally extract slippage.”

This notion of “stale” price quotes is exploited by vertically integrated block builders, who take advantage of asymmetric information — knowledge of centralized exchanges’ prices — and bid to win Ethereum’s block auction so as to be the first to extract value from the passive LPs.

“Sorella” means “sibling” and the company’s Angstrom project, built on Uniswap V4 hooks, aims to group all transactions of a given asset into one big happy family sharing the same price.

The technique, called batch auctions, removes the arbitrageur’s edge — its opportunity for nearly riskless profits which, Thouvenin says, are “not supposed to exist in a well functioning market.”

“That’s a philosophical question [and] I think it’s more so an existential question for blockchain in the sense that this value, from MEV, is most of the time extractive — someone is losing — and we see this with LPs today.”

George agreed, saying, “[Automated Market Makers] that we know today may be at risk of disappearing because it’s not profitable or efficient.”

Ludwig expects that passive LPs overtime will strictly employ third-party services through which to provide their liquidity and have it managed for them — an efficient solution, “so long as you remove that inherent loss that occurs every time there’s some toxic [order] flow.”

Thus, Angstrom’s goal is to redirect the value to the LP.

“You have to design the application whereby you are cognizant of the fact that some MEV opportunity is going to be created, but when it is, the application itself has to effectively give the right to someone,” he said.

“You have to be in control of who actually gets to extract that value.”


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 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.

recent research

Flashnote Template Presentation (2).jpg

Research

With the recent election, it’s clear that there will be a meaningful shift in crypto regulations and legislation. Trump is likely as pro-crypto as a president can be. He launched (multiple) of his own NFT collections and is launching an Aave wrapper called World Liberty Fi. He has also spoken out and mentioned that he wants to make the United States "the crypto capital of the planet" and transform it into the "Bitcoin superpower of the world". He proposed creating a strategic national Bitcoin stockpile alongside support from Senator Cynthia Lummis, promising to retain 100% of all Bitcoin held by the U.S. government. More importantly, we’re likely to see deregulation across the board in a lot of industries, with crypto being one of them - as Trump has committed to keeping the crypto market largely unregulated. Crypto, DeFi in particular, has historically been knee-capped by overreaching and hostile governmental agencies and regulation by enforcement, as evidenced by the plethora of Wells notices and lawsuits over the past few years. With Donald Trump winning the presidency, Republicans taking control of the Senate, and being on the verge of securing the House, we think it’s likely that crypto realizes positive regulatory clarity. Below, you can find our analysts’ takes:

article-image

Solana is the crowd favorite to potentially flip Ethereum somewhere down the line, and it tends to feel realistic at times

article-image

Of course, a lot has happened since the 600+ survey respondents shared their thoughts between Aug. 15 and Oct. 1

article-image

AI’s future shouldn’t be decided by a handful of tech giants

article-image

A look at software wallet Exodus may show how an SEC shakeup could have a real impact on industry companies

article-image

Co-chairing Trump’s transition team to help fill administration positions is Cantor Fitzgerald CEO Howard Lutnick

article-image

Reflect is a delta-neutral currency protocol that lets tokens accrue yield without touching the banking system