$COW hit $1.00 yesterday What sets their exchange apart from others? They protect traders from MEV attacks, which lets @CoW DAO decrease the cost of each transaction and can even provide cash back for large trades. What is MEV and how does COW save you money? A thread

MEV stands for Maximum Extractible Value, which is the most amount of value that can be extracted from a block of transactions. Ethereum validators are able to reorganize the order of transactions processed where those that paid the highest gas fees will get their transactions processed first. This extracts the most amount of value per block for the validators by making users pay higher fees if they want to get their transactions processed faster.

MEV attacks occur when people use bots to frontrun/backrun transactions. This creates arbitrage opportunities for these bots, where traders essentially get less value out of their transactions because these bots take advantage of the price slippage of that token.

For example, if you buy 1 ETH for $3,900 on a decentralized exchange, you might actually end up getting charged more for that purchase because these bots frontran your purchase by: 1. Seeing your transaction in the chain’s mempool before it gets processed 2. Replicating this transaction but with a higher gas fee 3. Their transaction gets processed before yours because they offered more gas 4. They sell that ETH back to you at a higher price and make a profit

@CoW DAO protects traders from MEV attacks using a tool called a MEV blocker. These blockers work by rerouting transactions to a specialized network of searchers instead of being directly added to the public mempool where anyone can arbitrage these trades. Instead of arbitraging your trades, these searchers profit by backrunning them, creating revenue for them and rebates for you. How? Like so:

Decentralized exchanges use Automated Market Makers (AMMs) to balance liquidity. AMMs are responsible for keeping an even balance between a trading pair. However, if you make a large trade, there is a temporary liquidity imbalance that causes the price of the asset to drop below its real value (ex. ETH in a trading pair going from $3,900 to $3,890).

@CoW DAO specialized searchers leverage this temporary imbalance by buying that asset at the temporary lower price and reselling it right away at its actual price before other exchanges factor in the price drop. They make a profit, and a portion of this money can come back to you as a price rebate for completing your trade.

This system benefits both the trader and the exchange. They generate additional revenue from your trades, and you get more value from each trade - plus potential rebates. Their website http://cow.fi has a great article that covers this entire process far more in depth and explains everything in a technical perspective

If you’d like to learn more about AMMs and how they work in order to better understand arbitrage opportunities on decentralized exchanges, check out the AMM section of my free course! https://dcft.site/4-an-introduction-to-defi#block-b4db1a099ae24e50aacfc4a739f360e5…