🥛 PRO | A potential 20x opportunity that also saves you crypto

GM! Welcome to Milk Road PRO – your weekly crypto report that lights up your inbox just like the light in your fridge lights up your milk carton. 🥛

Did you know that a small amount of money is being stolen from you almost every time you transact on Uniswap or most other DEX’s?

That’s right, you’re being robbed and you don’t even know it.

Find out how much you’ve been robbed of here & share the screenshot with us by replying to this email.

This is such a big problem that on some days more than $600k is being stolen from trades on Ethereum and $3.9 million on Binance Smart Chain. 🤯

And no, we’re not talking about gas fees or protocol fees. Those are typical fees that you are made aware of before you execute a trade.

We’re also not talking about hacks or exploits.

We’re talking about MEV – Maximal Extractable Value – more on what this is in just a second.

Context: In the last 30 days, about $20.5 billion worth of transactions were compromised by MEV on Ethereum alone.

This is a really big deal and also becoming a really big opportunity… to fix it!

If someone can fix this problem, it could become one of the most successful protocols onchain.

At Milk Road PRO, we like to cover big opportunities – so today we’re going to introduce you to the protocol that is currently winning the race to solve the billion dollar problem of MEV.

Not only will this solution save you a lot of $$$ when you transact onchain, it just might offer a nice 20x return, if it all works out according to our calculations that we’ll share below. In today’s PRO report, we are going to cover:

1. WTF is Maximal Extractable Value (MEV)
2. How can we prevent our hard earned money from being robbed
3. What protocol is leading the way in solving the MEV issue (hint hint: CoW Protocol)
4. 2 ways you can capitalize on this opportunity!

Note: MEV is a very technical subject and so is the solution that CoW Protocol provides – today, we aim to oversimplify everything so you wrap your head around this & capitalize on the opportunity.

Also, we believe that MEV is about to become a hot topic in this industry in the near future, so put in the work now and get ahead of the curve.

Let’s get into it. 👇

WTF IS MAXIMAL EXTRACTABLE VALUE? 😵💫

MEV, or Maximum Extractable Value, is basically the value that certain players can capture for their profit at the expense of users.

Because transactions are publicly available onchain, sophisticated users can see the transaction you are performing and manipulate them before they go through.

Your transactions still occur as usual – and seem normal to most – but in fact, these sophisticated users are stealing some value first.

There are several types of MEV:

• Sandwich attacks
• Arbitrage attacks
• Liquidation

Today, we’ll focus mainly on sandwich and arbitrage attacks, as these are the most common ones happening on the blockchain. And yes, you can protect yourself against them.

Let's start with an example of a sandwich attack – this has probably happened to most reading this report.

Source: Medium

It's called a sandwich because your transaction gets "sandwiched" between two transactions from the attacker. Let's break it down with an example:

1. The user places a transaction.
2. This transaction goes to the public mempool (aka large database of submitted transactions).
3. A searcher spots your transaction and decides to frontrun it by buying the same token before you do.
4. The searcher's trade pushes the token's price higher.
5. The user ends up buying at this higher price, getting a worse deal.
6. The user's trade raises the price even more.
7. The searcher then sells the token at this new, higher price, making a profit.

In this game, it's clear who loses: the user.

The user ends up paying more for the token and gets a worse deal, while the searcher profits from the price manipulation. 😡

Okay, and what about arbitrage? You might have a hunch about what arbitrage means, but here’s a quick rundown.

• In one place, people trade a token for $100.
• In another place, they trade it for $105.
• This shows that the value varies between the two locations.
• This price difference is an arbitrage opportunity – some can exploit it very well.

In this type of attack, it's the liquidity providers (LPs) who bear the costs.

But later, we will discuss a solution to protect LPs too.

Now that we've covered the different types of MEV, let's dive into some stats.

Sandwich attacks (green on the chart below) make up the bulk of MEV on the blockchain, accounting for about 80% of that volume.

Every day, these attacks target transactions worth between $500 million and $700 million.

Next up is arbitrage (blue on the chart below), which targets daily volumes around $100 million.

In total, there are around 10,000 transactions each day that are purely MEV attacks.

Source: Eigenphi

Now that we have an idea of what MEV is, the next question is… What's causing the problem?

The issue is that on the blockchain, anyone can see a user's activity and try to exploit it for profit. This is the downside of transparency.

Imagine a bank plans to buy shares in a company. If they announce it publicly, everyone can rush to frontrun it and profit (the bank then acquires less shares as a result).

It's similar on the blockchain but much quicker.

Now, consider if the bank hadn't announced its plan. Instead, it held a secret auction to private sellers.

This method could yield the bank more shares. Similarly, we need to ensure that blockchain users get the best deal.

If users are paying more for transactions onchain due to MEV, then why would anyone switch from the TradFi rails?

We must solve this problem.

What's the solution?

The solution involves using special methods to keep transactions private until they're confirmed.

Most public blockchains don't fully support private transactions. But, you can signal your intent, like a desired trade, without exposing it to MEV threats. We call these signals 'intents.'

Users can create and share their intents.

For example, if someone wants to trade 100 $USDC for as much $ETH as possible, they share their request (intent) with trusted parties.

These parties then compete to fulfill the request.

Since only the intent is shared and not the actual trade, it creates an auction-like process allowing for various solutions.

Users don't need to know the specifics of the protocol or network; they just share their desired outcome.

This abstraction keeps the process safe from MEV and simplifies the user experience.

Consider traditional finance. When you buy stocks through a bank, you likely don't know the exact process.

It's similar here. Intents simplify the complex details, making crypto more user-friendly.

Now, let's dive into CoW Protocol – a leader in using intents to prevent MEV. They’re Ethereum-based and offer three products, each tackling a specific issue:

1. CoW Swap – like 1inch but MEV-free.
2. MEV Blocker – acting as a blockchain VPN.
3. CoW AMM – protecting liquidity providers from arbitrage attacks.

Sandwich attacks are a major concern, so we'll mainly explain how CoW Swap fixes this.

But we'll also quickly introduce MEV Blocker and CoW-AMM too as it’s the combination of these 3 products that create the bull case for the $COW token.

WHAT IS COW SWAP? 🐮

Cow Swap is a DEX (decentralized exchange) aggregator – it combines liquidity from all DEXs to give users the best prices.

CoW Swap combines this pooled liquidity with its unique intent-based design, providing MEV protection.

Since April 2021, Cow Swap has saved its 160,000 users over $232 million. The money would have otherwise been lost to MEV attacks.

Now you might wonder how this is possible, so let's explain.

1. The user sends their intent: “I would like to sell 100 $USDC for 0.01 $ETH.”
2. This intent is pushed into the mempool. The mempool is an off-chain database of user intents.
3. Different solvers access the mempool and see the user's intent.
4. An auction takes place where solvers place their bids to execute the user's intent.
5. Solver 2 wins by submitting the highest bid.
6. Solver 2 executes their solution.
7. The user receives 0.014 $ETH, benefiting from Solver 2’s competitive bid.

Here's an important note:

👉 The user expected to receive 0.01 $ETH but actually received 0.014 $ETH.

The difference, 0.004 $ETH, is called the "surplus."

By using CoW Swap, the competition among solvers ensures you get the best possible price.🔥

What happens if you don't use CoW Swap?

If you hadn't used CoW Swap, an MEV searcher might find the same solution that Solver 2 found for you, and this is how it’d play out:

The MEV searcher buys 0.014 $ETH for $100 and then sells you 0.01 $ETH for $100, pocketing the difference.

Simply Put:

✅ Using CoW Swap: The user is protected against MEV. CoW Swap solvers optimize for the user's surplus, putting 0.004 $ETH in the user's pocket.

❌ Not Using CoW Swap: MEV searchers optimize for their own profit, putting 0.004 $ETH in the MEV searcher's pocket.

By choosing CoW Swap, you ensure that the benefits of the trade go to you, not to opportunistic MEV searchers. 🥳

Now imagine the impact on bigger trades.

For example, a user traded 1,000 $ETH for $BTC and received a surplus of 2.09%. This means they received 1.05 $BTC (or $72k) more than they initially asked for.

Source: CoW Explorer

Pretty good, huh?

There's one more thing we haven't discussed yet. Do you know what CoW stands for?

No, It's not about the animal – CoW stands for "Coincidence of Wishes", which is the design principle applied here.

Imagine you want to sell $ETH while someone else wants to buy $ETH – this creates an opportunity. You can match these intents directly in a peer-to-peer (P2P) way.

CoW Swap enables exactly that. Here is the real example:

• Trader A wanted to buy 1.26m $USDC
• Trader B wanted to sell 1m $USDC

So, CowSwap was able to partly match these orders (1m $USDC vs 1m $USDC) directly against each other.

👉 A total of $2 million was traded purely peer-to-peer (P2P) on their platform.

Ok, now we understand the product. But we still don't know whether the product has users and product market fit. 🤷

To make that assessment let’s look at some KPIs (Key Performance Indicators) such as volume, market share and revenue. ⏬

COW PROTOCOL STATS 📊

CoW Swap averages about $1-2 billion in monthly trading volume.

Source: Dune

When compared to its competitors, we can see that CoW Protocol has managed to eat more and more market share.

CoW Protocol started with about an 8% market share (black line) and has steadily grown since then to the current 12% market share.

This makes CoW Swap 2nd among DEX aggregators, right behind 1inch.

Source: Dune

However, only a few aggregators that appear in the chart above use an intent-based architecture.

We believe that this type of architecture is the future of trading – the main rivals in this market are:

• Fusion from 1inch
• UniswapX from Uniswap

When put head to head, we can see that CoW Swap is on top.

Source: Dune

CoW Protocol is able to outperform its competitors, even though 1inch is traded at 10 times the market cap of CoW, and Uniswap at 100 times the market cap.

Everything looks great, but it doesn't mean anything just yet. Why? Because we still haven’t looked into the business model of CoW Protocol.

Having a high volume and high market share means nothing if you’re not charging fees to create a sustainable revenue stream.

It’s like Netflix was to produce movies and TV shows for free – they would have more users and bigger market share, but their business would die because they’re not making money.

It’s therefore crucial to analyze the revenue. We need to figure out if users find these products attractive enough that they are willing to pay for them.

CoW Swap launched fees on limit orders in January 2024 and added fees on market orders in April.

Since then, daily revenue has fluctuated between 3-8 $ETH per day.

Source: Dune

So CoW Swap is not only a great product in theory, but there are real paying users, which is great to see.

We will get into detailed revenue projection at the end as we analyze if the CoW Protocol token is a good potential investment.

But first, let’s quickly cover their other 2 products. Next up: MEV Blocker.

WHAT IS MEV BLOCKER? 🛑

MEV Blocker is an RPC solution. It protects against MEV and offers rebates. RPC helps wallets and dApps talk to blockchains.

It sends your transactions to a private mempool, not the public Ethereum one. This is crucial because:

1/ MEV Protection: By using a private mempool, it shields your transactions. This prevents MEV searchers from seeing and profiting from them, thus protecting against attacks.

2/ Rebates: If your transaction creates an MEV opportunity, you might earn a rebate. After your transaction, an MEV searcher can only add theirs.

So, you're safe from MEV, and you might even get a bonus.

Here are some quick MEV Blocker stats:

• 1 million users
• $6.6 million in rebates
• 90% market share
• 20+ $ETH in weekly revenue

Another successful product from Cow Protocol. We will share how you can use this at the end.

Finally, the last and the newest product from Cow: CoW-AMM.

WHAT IS COW-AMM? 🤔

CoW-AMM launched in February 2024. It is a pool, which liquidity providers can use to provide liquidity while being protected against MEV.

Before, LPs faced 5-7% losses from these MEV attacks. But now, CoW-AMM prevents LPs from these attacks.

This product has attracted $4.9 million TVL so far and gained LPs $56,000, which would otherwise be sniffed by MEV.

These returns are higher than competitive products from Balancer or Uniswap v2.

There is clearly potential here, but it's still in the early stage. We plan to continually monitor its development.

Hooray, we have finally covered all the products from CoW which are helping protect various blockchain users from MEV .👏

Now let’s discuss how we can capitalize on this.

4 WAYS TO CAPITALIZE ON COW PROTOCOL 💰

It’s clear that Cow Protocol is solving one of the biggest problems in crypto and it appears to be doing it better than anyone else currently.

But the question is… Can we capitalize on their success?

Yes, and we can capitalize on it as a user (1-3) and/or as an investor (4).

1/ Trade on Cow Swap

Forget the investment analysis for a second, the easiest way to benefit from CoW Protocol is by using their products.

If you’re making any trade between tokens on Ethereum mainnet, use CoW Swap. Not only are you protected against MEV attacks, but you'll likely get the best possible price too.

You can use CoW Swap here.

2/ Use MEV Blocker.

We recommend using MEV Blocker to everyone who’s actively trading on the blockchain. You will be protected against MEV, and you might occasionally receive rebates.

It takes just a few seconds to set up. You can add MEV Blocker to your wallet by clicking on this link and then selecting "Add to wallet".

3/ Provide liquidity into CoW-AMM.

CoW-AMM outperforms other AMMs like Balancer or Uniswap.

In traditional pools, LPs are losing money due to arbitrage – here, the pools are designed to benefit if arbitrage exists.

By providing liquidity, you protect against arbitrage and can even profit from it.

4/ Buy $COW

If you like CoW's products then let's look at the investment potential for it’s token: $COW

$COW has various use cases within the CoW protocol ecosystem.

Firstly, it is the governance token for the DAO: CoW DAO. Holders can vote and make decisions using this token.

Moreover, the DAO uses the fees from CoW Swap to buy back $COW tokens on a weekly basis.

With time, the better that CoW Swap does, the more buying pressure will be put on the $COW token.

Secondly, MEV Blocker's revenue remains in $ETH, and is also sent to the DAO on a monthly basis.

This income doesn't directly impact $CoW's price, but it does increase their treasury.

That treasury can be used to grow their team, build new products or even buy back more $CoW if they wanted to.

Here's the quick summary:

• CowSwap's earnings buy back $COW tokens.
• MEV Blocker's income comes in $ETH, boosting the CoW DAO treasury.
• CoW-AMM hasn't generated any revenue yet.

Now, we know how the $COW token value links to CoW Protocol's revenue.

Next, let's estimate each product's future revenue and see how this might impact the $COW token.

For each product we have identified a KPI. Then we use the historical data and our best judgment to forecast how these KPIs will evolve overtime.

We have put everything into 1 table below. We consider three different scenarios: Bear, Base, Bull.

Let's break down our base scenario.

Starting with Cow Swap, the current monthly DEX volume is about $100 billion – representing the total value of trades processed by decentralized exchanges each month.

In 2021, the highest month hit around $290 billion, so a monthly volume of $500 billion this cycle seems easily possible.

CoW Swap's market share is still growing, and we expect it to reach 18%. This could generate around $49.5 million in revenue per year.

MEV Blocker's success depends on user activity (measured by active addresses on Ethereum “EOAs”) and MEV volume (total value affected by MEV).

We predict 2.5 times more monthly active users, leading to 5 times more MEV volume. If MEV Blocker can increase its dominance a little to 92%, it could bring in around $46 million.

CoW-AMM still needs to attract more TVL and turn on a way to generate revenue...

But, CoW protocol could add a 0.1% management fee based on TVL or take a cut from the surplus.

In our estimates, we use the former approach. If CoW-AMM attracts $3 billion in liquidity, it could generate $30 million in revenue.

If we add the revenue together and use a 50 FDV/Revenue ratio (aka the total value of all tokens divided by annualized revenue), then we believe that $COW could be worth about $6 in our base case.

Of course, anything can happen in this space so we have presented a bear and bull case above too.

Regardless, with $COW currently sitting at $0.31, we believe it could be a great opportunity, assuming MEV protection continues to gain in popularity.

Even in the bear case, we could see $COW doing a 3x in the next 12-18 months. But if the bull case came into fruition, you could strike a cool 88x from here. 👀

Ok, that was a lot to wrap our heads around, but hopefully you were able to make it this far. Expect MEV to become a main topic of conversation in this industry soon.

For crypto to thrive, we need to tackle MEV and improve user experience – Cow Protocol does both.

This is why it already has hundreds of thousands of paying users. It's a standout protocol, so we'll definitely monitor its progress.

If you haven't tried any of their products yet, we recommend giving them a shot. At the very least, having protection could save or earn you some money.

For investors, consider a buy and watch their forum. All important discussions happen there.

Good luck out there. ✌️

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Disclaimer: This article is for informational purposes only and not financial advice. Conduct your own research and consult a financial advisor before making investment decisions or taking any action based on the content.