A Coincidence of Wants Mechanism for Swap Trade Execution in Decentralized Exchanges

TL;DR

This paper introduces a rigorous, asset matrix-based framework for identifying and executing Coincidence of Wants cycles in decentralized exchanges, ensuring slippage-free and capital-preserving swaps.

Contribution

It presents a novel mathematical approach for verifying and completing CoW cycles in DEXs, improving upon auction-based methods with formal conservation laws and graph traversal techniques.

Findings

Efficient discovery of CoW cycles in real-world data

Supports insertion of synthetic orders for atomic cycle closure

Ensures slippage-free and capital-preserving execution

Abstract

We propose a mathematically rigorous framework for identifying and completing Coincidence of Wants (CoW) cycles in decentralized exchange (DEX) aggregators. Unlike existing auction based systems such as CoWSwap, our approach introduces an asset matrix formulation that not only verifies feasibility using oracle prices and formal conservation laws but also completes partial CoW cycles of swap orders that are discovered using graph traversal and are settled using imbalance correction. We define bridging orders and show that the resulting execution is slippage free and capital preserving for LPs. Applied to real world Arbitrum swap data, our algorithm demonstrates efficient discovery of CoW cycles and supports the insertion of synthetic orders for atomic cycle closure. This work can be thought of as the detailing of a potential delta-neutral strategy by liquidity providing market makers: a structured CoW cycle execution.