How Introducing Competition Fixes De-Fi w/ Anna George and Andrea Canidio (CoW Protocol)

**Speaker A:** Foreign. **Speaker B:** Hello, and welcome back for another episode. **Speaker C:** Of the Strange Water Podcast. **Speaker B:** Thank you for joining us. Let's say I have three friends. Alice, Bob, and Charlie. Alice has five apples but wants a gallon of milk. Bob has a gallon of milk but wants a bouquet of roses. And Charlie has a bouquet of roses, but he wants five apples. Now, these are not hard problems to solve. Alice, Bob, and Charlie can all head down to the farmer's market and let the free market work this all out. Alice can head to the fruit stand and sell her apples and then use the cash to buy milk. Bob can sell his milk at the dairy and then go pick up flowers. And Charlie can sell the roses for cash to be used for apples. And yes, this definitely works. **Speaker C:** All my friends walked away with exactly what they needed. But if you look under the hood. **Speaker B:** The picture is a little less rosy. Maybe the florist noticed Bob was coming in and raised his prices. Or maybe the fruit stand just got a huge oversupply of apples and so gives Alice a bad price. And even if everyone can trade at the real market price, every leg of every transaction needed to pay taxes. **Speaker C:** But what if we were just a. **Speaker B:** Little bit smarter about solving this problem? Maybe Alice, Bob, and Charlie have all shared their goals with me and I notice that this problem can be solved internally. Or maybe these three are also friends with Edward, who realizes that if he incorporates Fred and Greg into this, everyone can actually end up with even more of what they want. This is the idea behind cowswap. Cow is an acronym that stands for coincidence of wants, a want, or also called an intent. Looks like Alice intends to trade five apples for one gallon of milk. Or maybe more applicably, Alice intends to. **Speaker C:** Swap X eth for Y Z token. **Speaker B:** Taken individually, an intent looks like a trade. But taken together, intents form an intricate puzzle with that thousands of different solutions. Cowswap is a platform for specialized entities called searchers to scan through these intents and to build different solutions. Whichever searcher is able to maximize the outcome for the users that are actually generating the intents wins the privilege of actually executing it and capturing fees from it. **Speaker C:** So this will give you enough background. **Speaker B:** For today's guests, Cowswap CEO and co founder Anna George and senior research economist Andrea Canidio. Today's conversation is an incredible look into one of the most exciting companies in crypto. We go deep into how Cowswap is built and how it works, and we go through a lot of exciting Cowswap, roadmap and Alpha. But for me, what was most interesting about Today's conversation was taking a step back and. And thinking about how Cowswap facilitates communication between offchain compute and onchain settlement as we enter the era of the modular blockchain, the age of the world computer. I am just so struck by how Cowswap has already deployed these ideas to facilitate over a billion dollars of trading volume every month. And it's only growing. One more thing before we begin. Please do not take financial advice from this or any podcast. Ethereum will change the world one day, but you can easily lose all of your money between now and then. **Speaker C:** Also, extra disclaimer. **Speaker B:** I own a small position in the cow token, and so everything I say should be taken with an extra grain of salt today. **Speaker C:** Okay, and now Anna and Andrea. Andrea, Anna, thank you so much for joining us on the Strange Water podcast. **Speaker D:** Yeah, thank you, Rex, for having us. **Speaker A:** Thank you for having us. **Speaker C:** Of course. So I'm a huge believer that the most important part of every conversation are the people in it. So can't wait to get to Cowswap and intense and figuring out how we're changing blockchain. But before we get there, can you both just give us a little bit about your background and how you found computer science and then maybe how you found crypto? Maybe Andrea first. **Speaker D:** Yeah, so I never found computer science, actually. I have a background as an economist, so I started out my career as an academic economist, did my PhD, started working as assistant professor. My main research topic has always, for a long time has been blockchain and the game theory of blockchain, the mechanism design applied to blockchain. And then I decided to switch to actually from studying things to doing things. And I think as a mechanism design expert, I think there was no better place than Cal Swap, since it is actually like the core of the thing is an auction is a mechanism. And so that's how I landed in my current position. It is a senior research economist at cowswap. **Speaker C:** And I just have to dig in a little bit more on that. I mean, at a certain point, any respectable economist looked, the first time they looked at bitcoin and crypto, thought like, this is a scam. And then some of us actually figured it out and made the transition over. But for you, what was your kind of hook that got you interested and what was the thing that made you decide to make the leap? **Speaker D:** I think when bitcoin and blockchain came out, a lot of the economists were very skeptical because it looked like a very inefficient technology to do something that we could already do better with existing technology, which was somewhat correct because obviously having a whole network of miners mining versus having a single server doing the same thing was much more, would have been much more economical. But where my kind of economist training came in was like, okay, it's technologically more efficient to have a single server, but this single server has monopoly power. So can charge fee can extract value through that. And so it was really about, hey look, there is a maybe a technologically more inefficient way to do things, but where economically from the point of view of reducing market power is actually better. So I was got intrigued through this angle. Let's put it this way. **Speaker C:** I do think that if you have any interest or experience dealing with monopoly in the real world, like crypto makes a lot more sense than if, you know, I used to work for Anheuser Busch InBev which in Europe is like Beck's Stella. It's the largest beer company in the world. And until you actually experience either getting screwed by monopoly or being able to screw other people with the power monopoly, it just kind of seems like something academic that doesn't really matter. And I think crypto is like, you have to believe that monopoly is a problem to realize that crypto is a solution. **Speaker D:** Absolutely. **Speaker C:** So Anna, how did you find the world computer? **Speaker A:** Also not directly computer science, but I was working as a data analyst at the United nations and essentially, and I think it was 2017 when there was this innovation department that was part of like a bigger apartment department where I was working at, started looking into blockchain. So essentially how can blockchain be leveraged also for international development work? And usually if the UN is looking into something, it's a sign of, oh, we already quite late. There has been already quite a bit of progress, progress in that technology. I was living in New York at the time, so I started attending meetups from consensus mostly and that's kind of how I got initially hooked into the topic. And then I switched entirely gears because I got more and more excited. I was like, okay, this is something that's actually more future driven. That's something where I had the feeling you can be more impactful in what you're doing on your day to day. And so I decided to entirely switch gears. And that's how I initially joined Gnosis and then now basically co founder with Felix in Karlswap. **Speaker C:** And I have to ask, I mean, at the UN looking at crypto in 2017, I mean I didn't even find crypto until 2021. So I'm so impressed that that was even happening. And I guess my question for you is, if you kind of had to evaluate both your specific group and the entire un, do you think the UN looks at this technology as something that is, like, interesting and solves real problems, or as something that is, you know, like, scammy and dark web and all this stuff? And how do you think the UN specifically is like, addressing this. This realm in which so many institutions kind of treat us like criminals? **Speaker A:** Right. I think it's difficult to respond for the whole organization because it has so many different departments. And it's also. I left them in 2017, so I'm not super up to date what they think about it today, but they were definitely looking into it as a technology that could be supportive. They had innovation hubs across the globe basically trying to, what are more efficient ways of doing development work? What are innovative approaches? But to be honest, I also think it was a buzzword for a lot of companies or, like, institutions or like anyone who wanted to essentially get a project funded. It was kind of also a sexy term of, like, if I include somehow blockchain, even if it doesn't make entirely sense, it can guarantee me to get some more fundings. And I think that might have been a bit part of the motivation back in 2017. **Speaker C:** You know what? At the very least, it gave us you, and it gave us some people that saw the technology and decided that they needed to shift their career to change the world in it. So even if it was just a buzzword, I guess I'm glad it happened. Great. So I think let's just dive right into Cowswap. And I think in order to understand Cowswap, we need to start with Gnosis chain. So I guess Andrea or Anna, whoever, is, like, better equipped to answer this question. Can we start a little bit about maybe, like, what is Gnosis chain? And how does the story of Cowswap fold into, like, what even this sidechain or extra chain is? **Speaker A:** Yeah. So initially, the journey with Gnosis started a long time before they became their own chain. And I think they had their ICO also in 2017, but they were already live on Ethereum before Ethereum was live. Essentially, they were already building on top. And what they initially started with was prediction markets. And from that, that was really like the initiating factor, because they were looking into building something similar on Bitcoin already. And then got in touch with Joe Lubin from Consensus, who then kind of convinced them to do. To do it on Ethereum instead. And then by working on prediction markets, that kind of had a knock on effect because for prediction markets, essentially it surfaced one problem, which was how do you actually make those outcome tokens that you create for a market tradable? How do you ensure that there's enough liquidity that even if somebody wants to sell the outcome token, there's a marketplace for this? And that was kind of the initiation of Cowswap, because the solution to this or the solution that we started to look into was batch auctions. Essentially. How can you provide liquidity for a bunch of different assets in a way that is more efficient than a normal typical order book? And the solution for this was, okay, let's batch different order types together. Basically, since 2017, we have been looking into different types of batch auctions, worked on multiple different versions, and ultimately came to what is now Cowswap, which we launched in 2021. So it's almost three years at this point. And then Gnosis Chain is basically another huge project that they took on. But I think it was about a year and a half ago or so that Gnosis basically expanded into this. And Gnosis Chain has huge advantages. It is, has significantly cheaper transaction costs. It has a very good validator set that is like really decentralized, but yeah, basically that is less related to K itself. Like really how like the role of karlswap developed out of Gluzis was related to, to prediction markets and how to create more efficient markets around it. **Speaker C:** So just to be clear, what, what was going on was that Gnosis Chain like, had they created a product and then the realization was like, okay, the product's kind of cool, but there's not really any way to trade in and out of these positions. So we need a new paradigm for that. And that was like the birth moment of Gnosis, sorry, of Cowswap, correct? **Speaker A:** Yes, correct. **Speaker C:** So I guess like you can answer this question from back at that time or today, is Cowswap itself a like independent blockchain where it's, you know, a bunch of different servers that are held in sync through some sort of consensus algorithm? And is it a single computing resource that's able to do all of these coincidence of wants? What is at the very basic level, the product that you're building? **Speaker A:** Cool. I can answer on the basic level and then we can see if Andrea wants to expand on top of it. But to try to explain it in a simple way, it's essentially, it's an application that can be deployed on any blockchain. So right now we are live on Ethereum and we are also live on Kenosis chain but we also have plans in Q2 to expand to more networks as well. So potential Polygon, Binance, Marching and many others. Kao Swap it is an application. It is on, in the really easiest way of explaining it. Dex Aggregator it's essentially a venue, a trading venue where there is basically a way for a normal user who is not necessarily especially sophisticated in trading, can go to and is guaranteed that they get the best possible execution. And this happens by having in a way an abstraction layer where the user only needs to express their intent, what they actually want to achieve from the trade. So they say I want to sell A for B and I'm willing to pay at least X amount for this and the maximum amount I'm willing to pay is this. And then we have a decentralized solver network. So it's essentially professional parties who are really equipped with understanding how does Ethereum or how does the blockchain environment actually work? What are the risks? How can those risks be circumvented? They compete with each other in finding the best possible execution path for the user and then the server who's actually able to find the best execution is the one who gets to execute the trade on behalf of the user. Then there's a bunch of ways of how we guarantee that it's really the best possible execution and to ensure that also the user is really protected in this complex environment of blockchain. Basically, even if you don't know much, make sure that you get the best possible outcome for your trade. **Speaker D:** One way to say it is that essentially there is an on chain element to the mechanism that provides pretty strong guarantees to the traders on cowswap and on top of this on chain layer, there is an off chain component which is the auction in which different solvers, as I was describing, compete to provide the best possible, we call them solution, but essentially the best possible terms of trade to our traders. And these solvers are bonded, so if they misbehave we can flash them. But I mean, in some sense right now we do sit in the middle and run this mechanism, run this auction in the interest of our user. Of course the goal is to decentralize as much as possible the architecture. But running auction on chain or in a decentralized way is an active area of development. It involves privacy because you don't want the bid to be visible by other participants in the auction. It involves. Yeah, so there are many difficulties and as I said, many companies are trying to innovate and so we think that, okay, at some point we'll be able to build this auction as a decentralized system. But I mean, from our point of view, so HouseTop intermediate, about US$1 billion monthly. We don't want to jump on the very latest technology still to be proven and expose our traders to risk. So yeah, so I think there is a bit this misconception that because something is done on chain, it's safer than a possible hybrid architecture. But we know that smart contract can have bugs. So currently we think the best trade off is to have strong guarantees on chain flush and off chain mechanism and we will be free to progressively do everything on chain or in a decentralized way as the technology matures. **Speaker C:** So I think what you guys have just explained to me is that when you are looking at the architecture, it starts with like a smart contract that exists on any chain, right? Today it's Ethereum and Gnosis chain. In the future it'll be Polygon, bnb, chain, whatever, maybe even outside of the evm. And the idea is that I, as a user, let's say I have one eth, I will tell this smart contract I'm willing to part with this one eth for 2,300 USDC and all of these, what is called an intent. My intent to sell the ETH will gather up in this smart contract. And then I think what you're saying is that you have a network, maybe not a blockchain network, but this word is very buzzwordy. But we have a group of computers that are constantly looking into that smart contract and that pool of intents and saying if I take as many of these intents as possible, I can resolve this many at the best price possible. And then the smart contract will say no one else is able to give anything better and this looks reasonable. So therefore we'll allow you to execute all the intents and then we'll give the proceeds to who they're supposed to go to and kind of continue the transaction from there. So first of all, is that correct? **Speaker D:** Yeah, that's a good, that's a good description in my view. And I was think no good. **Speaker C:** Awesome. So I guess my question for you is, when you're thinking about architecting this from a like more and more chain perspective, how, how connected are each of these chains to each other from like the cow swap perspective? So for example, if I see a bunch of intents on Ethereum that don't match and then I see a bunch of intents on Solana that don't match but like I can match them by sourcing from both of them. Is that kind of the idea behind what a multi chain cow swap looks like? **Speaker A:** That is the advanced version of a multi chain cow swap. It's something that we still need to like do significant research into what would be the best possible solution to implement this. So currently we are not supporting branches bridging yet. I think this would be like the natural next step to basically allow user X goes to cowswap and is asking oh actually I would like to have X amount of token Y and maybe it's actually not having the best liquidity on the network that the user is operating on, but maybe the best liquidity is on a chain like Polygon or whatever. So the first step would be that we allow actually this decentralized solver network to take the intent bridge over the funds, do the trade on the other network and bridge back to ensure that the user gets the liquidity from wherever it is the best available one. Then the step after is what you are describing to actually take advantage of the possibility of cows also in a cross chain environment. Well, let's now assume that user Anna, Caller, myself, we would basically want to swap A for B and then Andrea on another chain wants to swap B for A and we actually make this match possible. But this is something that will still take some time to really be to basically develop this further. There are some other providers that are really specialized in building cross chain solutions of bridging solutions who we are currently collaborating with. But yeah, that's basically the future that we envision. Because ultimately what experience do we want to have for our users is that they don't even have to worry about what network they're operating on anymore. Right. Like if you really think how does blockchain get a lot of adoption is by them not even being aware about what is the difference of Ethereum, polygon, gnosis chain, etc. Ultimately they just want to have the best possible experience. Fast execution, low fees and a smooth experience not having to deal with bridging themselves. And that's something that intends facilitate intents open up this opportunity to really abstract away this difficult user experience from users. Basically taking care of the bridging aspect themselves so that users don't have to do it. Intense facilitators. And so this is the journey we are taking. And then yes, cows specifically offered this additional benefit of even in a cross chain environment finding even more coincidence of ones what COW stands for like finding matches perfect matches for the existing trade. So it would expand on the amount of on different basically order books where we could tap into. So the more networks we are adding. But I think this is something this is even not necessarily to be solved this year, but more so a little bit of a future scenario. **Speaker D:** Let me just add. So this is all kind of the exciting opportunities that working with intent kind of open, but even sticking to what is possible right now in some sense, even if the expression of the intent for the moment you can do it on Ethereum or Agnosis chain, then on the other side there are solvers that are competing to match those trades would provide the best possible solution. And those solver could find liquidity anywhere. So for example, they could work with private market makers and have access to liquidity that is not publicly available. And to the extent that they have enough inventory, they could also find liquidity in other chains. So they could see a good price on Solana. And then essentially if they have reserves on Solana and on Mainnet, they could just essentially indirectly use the liquidity on Solana. So there is already a sense in which you do not are not bound to the liquidity publicly available on Mainnet because solver could pull liquidity from everywhere in their quest to kind of beat the other solver and be the one awarded the right to execute an offer. And then of course if we expand this to actually cause for being on other chains so on and so forth, the whole thing becomes even more exciting. **Speaker C:** Yeah. Well, I guess my question for you is, and I totally hear you that we're already talking about such future state that much of this is up in the air, but I guess as it exists today. So if I want to participate as a Cowswap solver, am I running software that you guys created that in the same. I'm an Ethereum staker, right? And I just downloaded some software and I run it and I don't even think about it. Is that kind of what it takes to be a cow swap operator or is to be a cowswap operator just to be someone that says hey, I'm going to accept what the format of the intents are in this smart contract and then I'm going to run whatever solver, whatever block builder, whatever crazy arbitrage software I have in order to just create an output that is accepted by the smart contract? What does it mean to be a solver? **Speaker D:** So from the point of view of the competition, solvers can do whatever they want. I mean we don't impose any constraint on there has to be a communication and this has to follow certain protocols. But beside that they can do whatever you want. And we do see many creative ways to be a solver. There are solvers that really optimize on access to public liquidity on Mainnet. There are solvers that clearly chose to instead cultivate very close relationship with private market makers. There are solvers that specialize in exotic tokens that require wrapping and wrapping or things that require certain specific knowledge. There are solvers that are more optimized to finding complementarities between different orders of the batch other that are less optimized for that and more optimized for that. So in a sense you can be competitive and participate in the competition and win batches and win rewards in many many ways. **Speaker C:** So yeah, it sounds like in order to be a solver you're deploying whatever strategy bespoke strategies and using whatever bespoke software it takes in order to solve the wants. And it's not really about like running the Cow swap package just to be another node in this decentralized network. **Speaker D:** No, no, no. It's not like mining that you just press and run. No, no. **Speaker A:** Then maybe to give it like simple example like what someone could be doing is essentially query API FROM 1/8 paraswap0.x as other DEX aggregators and then always check what their execution path is suggesting and what would be the best across them. This would be like a simple strategy if you want to start with something that's not highly competitive because of course the server that are deployed today are already more advanced than that. But it would be a starting point into entering the game and then expand from there trying to add on more more liquidity, come up with more sophisticated strategies and so on. So if anyone is interested to start operating a server that would be good starting point. We have information on our developer docs and also of course super supportive if anybody is reaching out to have up with the setup process. **Speaker C:** And just to be explicitly clear about what you're talking about, that is as simple as creating a standard application in your favorite programming language that all it does is check the COWSWAP smart contract, take the intents, plug them into the 1 inch or the matcha or the Paraswap API and then sending the results back to the cowswap API. And if that happens to be the best one like you'll start winning options, correct? **Speaker A:** Yeah, that would be the entryway. **Speaker C:** Well I guess so that is been looking for a moment to fit in this question, but can you talk a little bit through why what Cal Swap is built does give better results and you can, you can use the word results in however you want, but better results than like the traditional aggregators that we think of that are just basically going and checking all the pools out there. **Speaker A:** Sure, I can start and then Andrea again can expand on it I would say for multiple reasons. So first of all, Kalswap really was the first intent based aggregation model, maybe even to start, super simple. One solution is of course just to go to an existing amm. Right? All liquidity you are trading against is the one that is deployed on that amm. So if I go to Uniswap, that's all I get access to. If I go to Balancer or Balancer is actually a specific case because if Cowswap integrated, but let's say like Uniswap, Sushiswap, etc. The curve. Exactly. All you trade against is the existing underlying liquidity that's in the pools. Now you are already more advanced if you go to Dex aggregator instead. Because what a Dex aggregator does, it's essentially it splits your trade if it sees okay, it's a large order. If I only trade against Uniswap, then I have quite a bit of a price impact. So it's smarter to split the trade in two, send one to your Uniswap and send the other one to Sushiswap to leverage existing liquidity. So I already have a better trade execution there. Now what Cowswap does, it was essentially the first Dex that allowed for this intent based model and that has a few advantages. So essentially as a user you're not committing to your trade execution path yet neither to your worst slippage amount. Meaning you again you pick the sell and the buy token and you define this is the maximum slippage I'm willing to get on this trade. Obviously you try, you prefer to not get a high slippage, but as a user you need to decide if I put a 0% slippage then there's a high risk that my trade doesn't get executed because there's a lot of on chain price movement, I paid gas costs and then my trade fails and so basically just ended up spending a bunch of money for nothing. This happens on a traditional Dex aggregator. On Kaoswap you're only paying gas costs if you actually get executed. Otherwise there's no gas implemented, which is one advantage already. Another one is that you're not bound to spend entire or to publish your entire slippage tolerance willingness. Instead we have to solve a competition. So if they see, oh actually the user decided a 0.5% price slippage tolerance is acceptable to them, but we are able to set it as with only a 0.2% slippage tolerance, they will only set it with 0.2% slippage Tolerance and the remaining 0.3% cannot be extracted. So in that sense it's much more protective of the user order itself. And then essentially this I don't know how much everybody is like deep down into the rabbit hole of MEV or the risk that exists basically on chain currently by like reordering your transactions to really try to max out your slippage tolerance. This is something that is entirely avoided with cowswap. And then one huge advantage that also even though there's currently more intent based models because 1 inch and uniswap last year decided to join this fear as well, because they saw the advantages that intent based models have. But what they don't offer yet, which is really unique to Kaoswap, is again this coincidence of ones that we are able to basically match different user orders peer to peer and thus provide additional price benefits. So basically if we are able to match user orders without using on chain liquidity, we can ensure that they get less price impact, they need to pay less gas costs and they also don't need to pay the fees, the underlying protocol fees that some of the underlying protocols liquidity AMM pools would have. So there's a bunch of different price advantages that Kaoswap can offer. **Speaker C:** Yeah, I mean. Sorry Andrea, go ahead. **Speaker D:** No, no. So just to. So in a sense Carsoft belongs to the class, to a class of Dex aggregator that try to exploit competition, competition between special identities to produce better prices for the users. Unlike most of the actors in the space that use what is called Dutch auctions, essentially they auction out order by order. So there is one order auction out one winner, one order. We auction out a sort of our entire order book and solvers are able to pick orders and combine them, to batch them to try to exploit additional efficiencies by the fact of putting order together. The most evident one is coincidence of wants because if I find someone who wants to exchange a 4B and someone else wants to exchange before I just put them together. But in fact there are many types of efficiencies accessing the same amm, one saving on gas. If there is a multi hop execution you could have coincidence of what's within like in some intermediate hop. So as I said, solvers can really be creative and trying to squeeze out additional efficiency, improve even more the prices by mixing and matching order that are Available into a batch. **Speaker C:** Yeah, what you just brought up was exactly what I was going to queue on, which is that like what is special here is the introduction of competition. And I think because look like if you're not using cow swap or some sort of like intense based solver, essentially what happens when you create a transaction is you put it out, you put your baby out into the sea and then a bunch of sharks fight amongst themselves over like who gets to consume that baby. Whereas like what I'm noticing with Cowswap is like that dynamic is shifted and I can't quite like metaphorically put my head on it yet. But you are not giving up your transaction to the sharks, right? Like you're staying there to protect it until it's like time to go. And I, I wonder if you just like have any reflections or like thoughts on like how this like extra layer of competition really like drives down like prices for everyone. **Speaker A:** Just a quick comment on this. I think your metaphor is quite nice actually. It's because if you would not have this extra sort of competition layer, what would happen is exactly what you said. You expose your transaction to the public mempool and then how you call them sharks or bots or whatever would be fighting for extracting value from you. And I think what is so interesting about the car soft competition is that it's exactly reversed. They're not fighting for extracting value from you, but they're fighting for how can we get the most value back to the user? Because only the one who gets the most value back to the user is the one that wins the competition. So it's in a way a very reversed competition to what would otherwise happen to your trade. **Speaker D:** In addition to that, there is also the fact that if solvers are the big professionals and once they win the right to execute a trade, they of course announce a price to win, then they must deliver that price. So it's up to, it's their responsibility to go out and take all the necessary measures to avoid being sandwiched, so on and so forth. And actually that's one aspect and the second aspect is that now that we have like many traders and our solvers are intermediating a very large volume, it also makes sense to make an investment in the infrastructure. For example, MEV Blocker, that is another product that is developed by Kaoswap in collaboration with others, is essentially a private RPC endpoint that allows our solver, but if at anybody to communicate directly with the builder and avoid being sandwiched. But investing in this infrastructure, it makes Sense if you have a certain volume of trades that you want to protect. So even before this infrastructure, solvers were ultimately liable. So they had to make the investment to prevent being sandwiched. And then since once the volume reached a certain threshold, it made sense to make this collective investment to protect solvers and indirectly our users. **Speaker C:** Yeah, I mean there is not a better example of a protocol that gets more flexibility and can do more things with scale than cow coincidence of wants. It's like the more wants, the more you can do. So that makes a lot of sense. And I guess I still. There's something just so interesting happening here, right? Because like cow swap we have solvers but like in this crypto world, like we use this word solvers for like the. The actual block builders and like MEV bots on the first layer and I just on the base chain and I. There's just something so cool about how you guys have built basically the exact same competition that we have on Baselayer with MEV Boost and hopefully one day PBS and all this just MEV games. I guess by taking it to the application layer and just reconfiguring some of the pieces, the same competition is happening, but now like instead of the tip or the funds or whatever going to the proposer who is completely third party to the actual application, it's like you've been able to kind of keep the value contained at the application layer as opposed to like flowing down to the base layer, which is good. But as a bag holder of eth, it hurts. **Speaker A:** But sorry, why does it hurt? Because essentially what good does PBS actually do to Ethereum? Like I think ultimately it is maybe different if you would be a block builder or validator because essentially what happens is that validators of course do earn from MEV extraction. Because essentially how the supply chain works is searcher extracts value from end user, has to pay a tip to the block builder. So the block builder includes this bundle essentially. Then the block builder has to pay the validator for their block to be included and the one to be picked. And so the validator, like everybody from the supply chain earns. The only one who's screwed is the user. And it doesn't matter if you're holding these bags. You as a user of Ethereum, you don't want to be explained exploited mev, right? Like you don't want to lose this value. Why is it fair that you as a user get value extracted from you on a normal transaction? And then ultimately the other questions are, so how bullish are you on a chain that does extract millions of dollars of value from users. And that kind of leads us to the beginning of the podcast where you were asking also Andrea, how did you get into blockchain and what did economists think at the beginning? And then Andrea was saying, well at the beginning it looked like a replication of a financial system that already existed, but not, not even make it more efficient. And that's the risk we are running into if we start allowing me. We are not trying to solve it at a, at a level where users are protected because which user in a few years from like how do you get mass adoption on a chain where you'd know as a user you're still screwed. You would basically rebuild a financial system that is screwing the user. So that's something that we want to avoid. So especially if you hold E specs, I think you should be bullish on solutions that are trying to protect the user against this value extraction. **Speaker D:** Yeah, I mean I think if I cite my memory, but I think currently the top three builders build about 80% of blocks. So I think MEV is threatening the whole premise of blockchain as a decentralized system because these three entities can control which transaction get included more or less. So and that's one thing. And obviously mevs, Anna was saying decreases usage. I mean it's a tax on user, it's a tax on liquidity providers that get wrecked by arbitrageur by through what is called like lever or lvia. So anyway that arbitrageur can extract profit from liquidity and it is a tax on traders who get sandwiched and these are the main one. But then there are other sources of MEV in the context of lending protocols, which again is a tax on the users. If this wasn't there, people will use. **Speaker C:** More definitely accept the pushback. And I think that ultimately you're right and I think what it comes down to is that when you have order of magnitude changes in efficiency or speed or anything, entire new use cases for technology opens up. And I think that like once we are able to do you know like sub penny transactions where we know that no value is being like extracted for us, then you know, we can do microtransactions and that's how like create. You know I do very much agree that the less value that's extracted, the more efficient the system is and the more usage we can get. I do think that like what is different about crypto and I have trouble wrapping my hands my mind around is that inherently the, the system is based on this like Crypto economic security where like we maybe like the true safety comes from the social layer but at least like on first principles like the safety is supposed to come from the value of ETH and like I think that in the current paradigm of MEV like ETH is like particularly valuable because one like we all hope that it's going to 10x but two like there's some pretty like desirable yield opportunities through staking and I wonder what happens to like the entire crypto economic security model as like it becomes less interesting to stake. **Speaker D:** I would disagree in a sense that the amount of the there is an explicit rewards that comes from you know, new token allocated to the validator and there is an implicit reward coming from mev. So the fact that not implicit but let's say less visible from the point of view of the folks that are designing Ethereum. So they don't have control over that side of the rewards but they do have control over the explicit reward that is given out to a validator every time this validator adds a new block and that part adjusts. So there is a function with respect to how many validators there are that this rewards increases and decreases. So I don't think it's really a matter of level of rewards because that can be adjusted. It's whether this reward is explicit in the mechanism and it's under the control of the designer or it's something else that is really taken from the user and then forwarded to validators. So I mean if tomorrow the validator set shrinks because we eliminate mev, there is an automatic increase in the rewards in the explicit rewards for validator. So I wouldn't be worried about that. **Speaker C:** No, no, super fair and I guess. So this is. I'm going to take us a little bit away from cowswap for a moment and we'll come back. But something that I'm noticing especially on ETH baselayer on Mainnet and this is not like a particularly insightful comment, right, everyone's noticing it is that like we all know that on base layer there's probably not going to be financial transactions like yes, maybe like nation state level, like huge amounts but you know, like gas costs we all expect are going to be so high because of L2s and like other distributed computing pieces that like the financial activity will migrate to like L2s or just cheaper environments. And I guess my question for you guys is as we move to a phase where at Beast on Ethereum L1 most of the transaction volume and like the ETH paid will be for non financial models. Sorry, non financial transactions. Do you see a role for intents in let's say settling blob data to Ethereum? Or is what you're building around intents really specific to the trading back and forth of assets? **Speaker A:** Oh, Intense is not specific to trading. Again like Intense is essentially a way to express what you want to do with your transaction ultimately and have other parties who are more professional in doing the transaction execution take over. But I think there's a bunch of different use cases where Intense can expand. I also think it might be a little bit overhyped by. It's kind of what I said at the beginning with the United nations, like everybody was like looking into blockchain. Blockchain was a buzzword. Now last year Intense has kind of become a buzzword so. But. But it definitely is more powerful than focusing on trading activity only. I don't know. With your regards, I do agree that of course, I mean there's only so much that block space available for Ethereum so I do agree that some of the payment networks etc will move over to layer tools that are cheaper. For example, we see this with Gnosis Chain who has launched Gnosis Pay which basically for much less than a cent you can do specific transactions. But I do believe that Ethereum will still be a global settlement layer for basically coming what is like the price finding for a specific asset for example. And with that in regard there's. Those are still going to be some financial transactions on Ethereum of course of large magnitude. But yeah, to answer your question for intent specific there's definitely more users cases. A lot of them are financially related. I mean there's one layer of trading, then bigger layer of finances. But then there's also the possibility beyond like we discussed, bridging for example, in itself it's not a financial necessarily, it's not a defi product and so the broad spectrum of solution space is bigger than that. **Speaker D:** Yeah, no, fully agree and okay, there is nothing specific to as I said so as Anna said, intent is not specific to swapping and neither is specific to mainnet. So one can think of cowswap applied to other chain and to whatever and in the future also to other use case like bridging or something else. But I do believe that for the moment let's say blockchain is primarily about defi. I would say so that's the main use case. And although many L2s and sidechains are coming out with many interesting properties, the majority of liquidity is still on mainnet so yeah, so I will say it's primarily finance and finance is primarily still mainnet, I would say, because yes, you can have the perfect mechanism, but okay, payment is another thing. But large transactions, we really care about where the liquidity is. So if NL2 has the perfect infrastructure for finance, but the liquidity is on mainnet, then it's not so obvious that you want to go and make a large trade on NL2. Maybe it's still better to do it where the liquidity is. So, but again, you know, we will be, you know, there's nothing inherently to say Ethereum specific in what we do. So tomorrow things change, we can move easily. **Speaker C:** Yeah, yeah, and point taken. And I definitely agree with what both of you are implicitly and explicitly saying is that yeah, maybe there's going to be more uses for blockchain, but like right now it's finance. So like what are we even talking about? But I do foresee a world where like in very, very short term where like for example, like if intents can be just a tiny, tiny bit more expressive, like I can totally see a world where cowswap can facilitate like not only the settlement of like finance, like straight up financial trades, but also like what if my intent is I'm an L2, I need to post this set of transactions and data availability. I don't really care if it's a mantle, if it's, sorry, if it's Eigen Da, if it's Celestia, if it's like Ethereum mainnet. I just need this data to be posted somewhere like who can give me the best pricing. And to me that's like how these same types of models and systems that you're building are really, really going to be important to getting to this next phase of the modular blockchain thesis. So any thoughts on that? **Speaker D:** I don't like currently, so we not an expert in that too. But it looks to me like people feel very strongly of whether your, your, Your ref. You're posting your data on mainnet on Ethereum and in which case you are an L2 or lab or whether you post it on Celestial or some other thing, in which case you are. There's another word for this Validium or volition. Yeah, validium, exactly. Sorry. And there was recently like a whole back and forth of Twitter because I think Vitalik said that this chain is really validium because it posts on, on Celestia and there was a whole mini like storm out of this. So in some sense I take it as saying that for the moment is not exactly the same. It's not exactly like oh, just post it wherever is cheaper, I don't care. And if it makes sense because the validity and the finality or the tool really depends on the validity of finality or where you post your data and you may think that final as in Ethereum finance, final means something. And so as I said, but perhaps in the future everything will become sort of homogeneous and then it's just a matter of cost. And in which case, yes, why you can think of an intent like I want to spend less than this. Please post my blog wherever it's cheaper because different chains, different concept of finality would be more or less considered the same. But I think it's kind of far. **Speaker C:** Yeah. Or maybe even some like if it's time based stuff, right. Where like a rollup could say my intent is that within the next 48 hours this batch needs to be posted to Celestia or to Mainnet or whatever. And then like a cow swap or sorry a cow operator can say, okay, well I know it's going to be cheaper at midnight on in US time, so I'm going to just gather up a bunch of these and then post it then. But point is is that like it is super clear that intents go much further than like I have one thing and I want a other thing. Yeah, cool. So with the last few minutes here, I want us to talk a little bit about the roadmap and what you guys are really excited for in the next, I don't know, year or so of Kaoswap so I can talk a little bit of the rumblings I've seen on Twitter. I think somebody has been talking about maybe some cool integrations to do some BTC native stuff. But. But I don't want to give you too much direction other than to say like please never change the moo of the cow when I make my swaps. But otherwise like what can we look forward to as we like continue to use Cowswap over the next year? **Speaker A:** I'm going to let Andrea answer this one first because we are working on something really exciting that will launch soon. It's quite something big that especially Andrea has been working on and has been one of the brain founders of the project. So he can introduce this and then later on I can give a few additional additions on what else we are focusing on. **Speaker D:** Yes. So I think the most immediate thing that would be live hopefully within weeks, a couple of weeks or something similar like this is the creation of what internally we call it Cow amm, the scientific name in the sense that in the paper that goes with this idea, we call it function maximizing ammo to distinguish it from constant function amm, which is the standard model that essentially is based on the assumption that AMM will trade as long as it stays on the function. This new model is always instead trying to maximize the sanction, essentially try to give an even better deal to the liquidity provider. The reason why we think this is important is that as you said, Nev now is 95%. Two things. One is sandwich attacks and solving that. I think we already do it quite well. Like people can swap on cowswap and be reassured that they won't be sandwiched. And the other important actually the vast majority of MEVs, however, what is called lever or arbitrage profits. So it has a few names. And it's the idea that arbitrageurs who are informed about price changes can trade on an AMM and at advantageous price whenever there is a rebalancing effect. So essentially, whenever there is a change in the price, the first arbitrage that hit an amm, we rebalance that amm, but we do so at an advantageous price and therefore extract profits from the liquidity provider. And that's the reason why there is this whole debate or are people providing liquidity on say uniswap actually making any money or they're just losing money. And of course a lot of it depends on what is the benchmark. But there is clearly strong sense that even just by looking at how much so arbitrage bots are the one that are most willing are always top of the block because they are the one that are the willingness to pay to be top of the block is the highest because that's the most profitable type of mev. So anyway, liquidity provider are also exploited by so lose money in this other form of mev. And we've been thinking about the system which we can extend the cow swap guarantee to also liquidity provider. And so we will be launching cow AMM or an amm, a pool of liquidity that is accessible only by trading via our batch. So if you want to buy or sell to this amm, you have to first put your trade on the batch. The reason being that essentially what's going to happen the solution. So the price at which this AMM will trade will be produced again by the solver. Competition and solver will outbid each other to provide a better price to the amm. And hence every time there is a rebalancing event every time the price change and you need to change the composition of the reserves. The solver competition guarantees that the LPs in this AMM will trade at the correct price and will not be exploited. Yes. And so this has then several advantages. First of all, if you are a trader, you know that there is for specific token pairs and there is a specific AMM COW amm, you will easily find liquidity on Kaushwap because there is an AMM attached and the trade can be forwarded there. If you provide liquidity on a cow amm, we show that this is equivalent to running a passive investment strategy, because once you remove arbitrage profit, an AMM essentially behaves as if it's always trying to keep equal value of the two assets. The composition, it doesn't have to be equal, but the simplest possible constant product will give you equal value. And this has advantage from diversification. You constantly run this passive investment strategy and ultimately, if you are a DAO and you run a cow AMM with your own token, you will be providing liquidity in a very efficient way for your token because you do not lose money to arbitrage. So this will be the next few weeks, I think we'll be putting on live v1, which will be specific to cow token, pooled with ETH to provide liquidity to test and to develop the whole idea, but also support liquidity of the cow token and then expand it to other DAOs. And of course this doesn't have to be a pool of liquidity that is on a smart contract that we create, but it could be a pool of liquidity somewhere else. The only rule is that it has to have our bash, has to have exclusive access to it. So that's kind of. But we could integrate with Balancer, we knew as well it's not exclusive. So that's kind of exciting. And then, you know, Anna, maybe you can discuss other projects. **Speaker A:** Yeah, and maybe just to add on this, we really believe that this is the next innovation on AMMs. Like, it has been a known problem that AMMs are not profitable for liquidity providers. And then there's the open question, what is the futures of IMMs? Also, as other protocols, other trading venues become more efficient, like with help of Carso, for example, the coincidence of ones which is also increasingly taking over trading volume and users who use those protocols and something that is in a way, yeah, fighting lbr, that's fighting mev and it is more going in line with the general trend and is more efficient and for liquidity providers and actually can be profitable for them is basically the next step in the AMM landscape, which is, and it's really exciting because COWAM is the first as such protocol is first such AMM that is actually going live. There's a few other projects that are trying to work on similar solutions, but we don't know when they will be live. So the first really in production implementation of an LVR resistant AMM is basically going live in two, three weeks from now. So it's really exciting. **Speaker C:** Congratulations. **Speaker A:** Yeah. And then basically just to expand on it to what else we are focusing on, maybe like quite a lot actually, but maybe to pick out two more different things is one, what we launched last year was programmatic orders and there's a bunch of different order types possible with that. Not all of them are live yet, but basically the innovation spectrum around it is huge. What does Programmatic Order mean? It's basically a way that you can program an order to be executed in the future. So one implementation that's already live is a time weighted average price order that allows you for example to have a strategy of every day or every week or every once I want to sell X amount of a specific asset. You can however get much more sophisticated with that as well. You can also say let's say I have a position on MakerDAO and let's say that it's backed like I want to have a loan of DAI tokens and I back it up with ether. I can now have an basically a smart contract deployed that is checking. Oh okay. What's the price point of my backing of the asset? Is it close at risk to being liquidated? If so, increase my backing that I have to ensure my position is not being liquidated. Increase the amount of ease that I'm putting into the contract, for example and there's a bunch of different use cases possible and it's essentially super, super exciting. And we are having, we're working together with a bunch of grantees also who are looking into developing additional smart orders on top of CAR protocols. It's not just our own team working on it, but essentially anyone who has an idea can do so. And a bunch of projects are currently in the making of creating new order types. And another, the second thing I wanted to mention is that we what we also launched last end of last year was this pre and post order interaction which now allows you to really bundle a bunch of transactions together and ensure that they executed in a single trade. So that also significantly improves the the use cases that you can enable with Carlswap So simple solution would be, oh, I want to swap and bridge over, for example, or I want to lend an asset and then I want to swap it against another asset and then I want to bridge it over to something else. And there's also a bunch of endless possibilities. And there we are also currently considering if you want to create some sort of framework UI that makes it easy for other protocols to to integrate themselves. So those are like two other major projects that are in the making. **Speaker C:** So much exciting stuff is like not on the roadmap. It's like right in front of us. And I could sit here with another hour with you guys and really unpack both, like the new paradigm of AMM and just all the crazy stuff you can do with programmable orders, I guess. Yeah, programmable orders. But I guess to walk us out, I think it's worth reflecting on. So in this podcast we talk a lot about zk and what like the magic of ZK is, is that like through like essentially just math, we can do computation off chain and then like project it back in chain through verifying the proof. And like, what we're seeing is how like, the Ethereum really does become the world computer is we can project all this, like, much more intense, like hard computation into the world computer via zk. Cool. What is like, so cool to me about what you guys have already built is like, that is the vision of what you're building, which is like, we have the Kaliswap contract and so we're going to allow like a bunch of intents or just like data to collect there. And then we're going to have this like, system of like, much more advanced, very sophisticated, like high resource environments to do really, really hard computation and then just give the result back to Ethereum. And therefore, like, we can call that the computation kind of happening within Ethereum. Right? And so I think, one, I just want to take a moment to say, like, oh my God, you guys are so ahead of the curve, like, congrats. But two, just to say I think there's something so cool about crypto and no matter like how tribal our groups get, like cosmos versus Ethereum or how crazy stuff gets, like, everything really is converging on basically the same design with ZK without whatever, it doesn't matter. It's just about like, how do which parts of the computation need to remain trustless and which parts can be moved to different places. And I guess to sum it up, if anyone had any doubts about how ZK is going to be the answer to blockchain scaling. After this conversation, that should be completely over because we have in action doing over a billion dollars a month, the exact same paradigm powering Cowswap. So, man, I'm just so impressed and so excited and so grateful that you guys took the time to have this conversation. So thank you. **Speaker D:** Thank you, Rex. **Speaker A:** Thank you so much for having us. It was a great conversation. **Speaker C:** Of course. Before I let you guys head out, can you please just let the audience know where they can find you, where they can find Cowswap, and if they're interested in getting involved, maybe starting to run a Cowswap solver. Like, what's the best way to get started? **Speaker A:** I think the easiest to reach out to the team is either on Twitter. It's how swap. Very simple. Or on our Discord server. We are also very responsive. We have a master cow moderating it. And then I think Andrea and I, we both also have our own Twitter accounts. But yeah, for the company itself, Twitter and Discord are the easiest. **Speaker D:** Yes, same. Twitter will be the best way. Andreacanido C A N I D I O which is my last name. Yeah, for I don't post very often. But you can reach out. We can have a conversation. And of course, like, we just revamped our docs, so I think for once we can say that they are quite up to date. So you know that. See, for example, if someone is interested in running a solver, they should start by looking at the docs. There are many, like a lot of information and if anything is not clear or this person is looking for even more details, they should definitely reach out and we'll be happy to help them out. **Speaker C:** Awesome. Incredible. And I'll make sure that all of the appropriate contact links and the Twitter links are in the show notes. So, Andrea, Anna, thank you so much for the time you spent with us and just have a great rest of your day. **Speaker D:** Yeah, thank you, Rex. **Speaker A:** Thank you so much. **Speaker D:** Bye Bye. **Speaker A:** Sam.