CIP-61: price-improvement-share, Revenue-share and Fees on CoW Protocol

Authors: Core team
Created: 2025-01-10

This is a truncated version. Please refer to the Forum post for the full version incl. "Results over the testing period"

Simple Summary

This CIP proposes to implement a specific method going forward, with the finalization of the revenue model experimentation. The main objective is to continue with price-improvement-sharing as the primary revenue model, while retaining the option to introduce new (price-improvement-share/fee) strategies for testing. If successfully passed, this proposal will take effect starting 1 February 2025.

Additionally, the CIP introduces options for partners to apply fees on trades attributed to their user flow, alongside a revenue-sharing model for CoW DAO. Assuming this proposal is accepted, at any time, CoW DAO can amend these revenue models (price-improvement-sharing, revenue-sharing, and fee structures) through a new proposal.

Motivation

This proposal aligns with the conclusion of the mandate set by CIP-34 “Testing Fee Models for CoW Protocol”, along with its extension via CIP-49.

CoW DAO aims to ensure financial self-sustainability for CoW Protocol, removing reliance on external funding for growth and development. While fees and price-improvement-sharing generate revenue, profitability occurs only when revenue exceeds expenses (e.g., development costs, ecosystem grants, solver rewards).

In 2024, CoW Protocol generated approximately $6M USD through price-improvement-sharing, revenue-sharing, and fees. Expenses included development costs of ~$4.4M USD, Grants issued via GrantsDAO of ~$0.7M USD and Solver rewards of ~$5.2M USD.

CoW Protocol’s unique batch auctions and intent-based trading mechanisms generate surplus and improve trade execution prices, delivering users more value than expected. Sharing this surplus aligns incentives between CoW DAO and its users, which is unique to CoW Protocol.

Excurse: Naming Convention of “Fees”

To ensure clarity and consistency, the following naming conventions are specified:

User costs

1. Network Costs:
   • These are not categorized as "fees". These are the costs that solvers incur for settling the trade, including (but not limited to) gas costs.

Revenue and Price Improvement Shares

1. Price Improvement Share on limit orders (in prior CIPs called “surplus-fee on out-of-market limit orders”)

   • A percentage of the surplus (difference between the executed price and limit price) generated by the trade
   • This is not a "fee". This is extra value created thanks to the solver competition, which is then split between the user and the protocol.
   • Not really a fee; applies only to additional value created during solver competition.

2. Price Improvement Share on market orders (in prior CIPs called "quote improvement fees"):

   • A percentage of the positive quote improvement (executed price above quoted price).
   • This is not a "fee". This is extra value created thanks to the solver competition (above the users’ slippage tolerance), which is then split between the user and the protocol.

3. Revenue-share

   • CoW DAO’s share of the partner fee.

Fees

4. Fees (in prior CIPs called “volume fee”)

   • The implementation of this fee can differ widely. It typically is a percentage of the trade size. This can be levied on protocol level, independent of the users’ access to CoW Protocol. This fee is visible to the user when placing their trade as a “fee”.

5. Partner Fees

   • A fee applied by integration partners at the app level, deducted on CoW Protocol and remitted back to partners (minus the Revenue-Share, cf. above). Partners have full discretion over the tokens, percentages, and trades subject to fees.

Implementation Proposal (from 1 February 2025)

The following models will be standardized:

1. Price-improvement-share on Limit Orders:

   • 50% on any token, network, and order type (capped at 1% of the total volume of the order)

2. Price-improvement-share on Market Orders:

   • 50% on any token, network, and order type (capped at 1% of the total volume of the order)

3. Fees:

   • 10 basis points on the total volume of the order are applied to trades on Gnosis Chain, Arbitrum, Base, and additional networks CoW DAO may expand to (allowing the protocol to fund further chain roll-outs).
   • Exclude Mainnet trades and some stable-to-stable trades.
   • Core Team Discretion:
     • Markets can be excluded indefinitely to maintain competitiveness.
     • Some markets may be chosen to have a different fee
     • Market exclusions will not be disclosed in a summary table. Note: Users will always see applicable fees transparently.
   • Implementation Flexibility:
     • Currently, CoW Swap suggests the fee, which is deducted at the protocol level.
     • In the future, fee collection may transition to a selective or purely protocol-level mechanism.

4. Partner Fees:

   • Partners have full autonomy to levy a fee on orders routed through their integrations (e.g., CoW Swap Widget or native integrations).
   • Partners may choose not to charge any fee. It’s capped at 100 pbs.
   • Partners decide on fees applied at the App level and deducted at the protocol level and remitted (minus CoW DAO’s Revenue Share)

5. Revenue Share:

   • Default split shall be permissionlessly set to 50%, unless otherwise negotiated with the core team on behalf of CoW DAO.
     • Note: The actual percentage may differ based on tailored agreements negotiated by the core team on behalf and account of CoW DAO; these agreements remain confidential but take into account factors such as (i) Additional user flow brought to the protocol, (ii) Time commitments and development investments, (iii) Future growth expectations and (iv) Unique positions within the ecosystem
     • Agreements are tailored to maximize mutual benefit for both parties and remain confidential for competitive reasons

Revenue Combination:

• price-improvement-share and (partner) fees may be applied simultaneously
• Fees will not stack (i.e., protocol fees will not apply if a partner fee is already charged).

Experimentation Mandate

Additionally to the flexibility outlined in the Implementation Proposal section above, from 1 February 2025, experimentation may continue as follows:

Examples:

• Increasing price-improvement-share up to 75% (and partially re-distributed to partners for incentivisation and increase in meaningful integrations).
• Testing staggered fees, fee tiers, or incentives for holding COW tokens.
• Introducing fees or price-improvement-sharing to new order types that may be added (e.g. stop loss orders)
• Other fee, revenue- or price-improvement sharing mechanisms that may make sense to experiment with, whilst keeping documentation requirements and time limits.

Requirements:

• Documentation Requirements: Experiments must be documented (cf. via below listed reporting channels or a forum post)
• Time Limit: New experiments are capped at 6 months unless approved via a new CIP.

Transparency and Accountability

Results, reporting as well as future experimentation will be documented through one of the following channels:

• Documentation on Fees Section of Docs
• Dune Dashboard on CoW DAO’s revenue
• Dune Dashboard on Integration Partners
• Pre-Trade Interface: Users see any fees before placing their trades.
• Post-Trade Analytics: Fees and users’ surplus is visible via the Explorer.

Flow of Funds

No changes to incur: Revenue is calculated by the Protocol, applied and collected by the winning solver(s) and accumulated via the settlement contract, withdrawn daily to the Solver Payouts Safe, and distributed weekly to Solvers, CoW DAO & Partners

CoW DAO Revenue Safe will continue to operate with its current ownership structure. From there onwards, other mandates apply as to the use of the revenue.

Transaction Data

No on-chain actions are required with the successful passing of this proposal.