CoW Protocol A Potential Project with High Income Expectations and MEV Integration

CoW Protocol An Opportunity for a High-Income Project with Integrated MEV Strategy

CoWSwap currently holds only 13% of the market share in the DEX aggregator, but it has been growing at a rate of 70% over the past 12 months.

Written by: rbp

CoW Protocol is a decentralized finance infrastructure provider with a total valuation of $250 million. Currently, it is reevaluating its fee structure, business model, and tokenomics as it could bring in revenues of over $80 million and achieve a market capitalization of $1.2 billion.

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CoW Protocol is well-known for its product CoWSwap, but their other product, MEV Blocker (http://mevblocker.io), is less known. However, this MEV Blocker has the potential to become CoW Protocol’s highest revenue-generating product.

CoWSwap is a fully permissionless decentralized exchange (DEX) aggregator with core innovations that include batch auctions to facilitate fair and uniform clearing prices and transaction protections against different types of MEV, such as sandwich attacks or frontrunning.

MEV Blocker is a free remote procedure call (RPC) terminal that protects users from harmful MEV and prevents transactions from being affected by unfavorable exchange rates, saving funds for users.

So, how do these two products perform?

CoWSwap currently holds only 13% of the market share in the DEX aggregator, but it has been growing at a rate of 70% over the past 12 months. Meanwhile, 1inch, the largest DEX aggregator, has seen its market share decrease from around 68% to 53%.

MEV Blocker was just launched in May 2023, but its trading volume has already surpassed that of existing Flashbots by 72%. As of today, MEV Blocker has acquired 450,000 unique users, with an average monthly increase of 64,000 users, and the trading volume has grown by over 99% year-on-year.

In addition, MEV Blocker has recently been integrated into Rabby, Uniswap, and Brave wallets, but it has not yet fully penetrated these user groups.

But what about the revenue?

If CoW Protocol starts monetizing these two products now, conservative estimates suggest an annual revenue of $8.4 million.

CoW Protocol is likely to adopt a 50% model of extracting positive quote deviations. In the past 12 months, this positive quote deviation could have generated over $3.1 million in revenue.

MEV Blocker is likely to adopt a model where it obtains 10% from validator fees. Over the past 12 months, a 10% extraction rate from validator income would earn $5.2 million. Please note that these fee models are only hypothetical, and the specific mechanism has not yet been determined.

Over the past 18 months, the performance of $COW tokens has been consistently poor compared to $ETH. One of the reasons for this is the inflationary rewards paid to the solver.

Over time, the CoW Protocol should be able to reduce the issuance of $COW tokens by over 40% by using the earned income to pay solvers in ETH or stablecoins once the fee switch is activated.

Please note that reducing the token issuance is one possible solution, and we expect the team to gradually decrease the issuance of COW tokens over time.

We have already highlighted the strong market acceptance, the most reasonable revenue model, and the ability to significantly reduce the token issuance of the CoW Protocol. But how big is the Market Potential (TAM) and how much can the CoW Protocol grow?

There are several factors that favor the market potential of the CoW Protocol:

1) The volume of digital asset trading is projected to continue growing at a compound annual growth rate of about 20%.

2) On-chain exchanges are expected to continue surpassing off-chain exchanges in market share with a compound annual growth rate of around 58%.

3) CoW Protocol may expand cross-chain and support new token types (i.e., ERC-721 and ERC-1155), increasing market potential at a compound annual growth rate of approximately 12%.

Please note that the expansion of cross-chain or support for new token types has not been announced, and it is currently a speculation for future growth. The baseline scenario is that CoW Swap occupies 30% of the market share. For MEV Blocker, the baseline scenario is 3.5 million users conducting 25 million transactions per year, with validator income of approximately $450 million.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!