CIP - draft: Should CoW introduce veCoW incentives and a revenue source?

Summary - Should COW DAO introduce veCoW tokenomics and a revenue source?

The purpose of this CIP is to gather feedback and support within the community to introduce tokenomics that will align the interest of CoW holders and the protocol.


Right now the future of $COW (i.e. the governance token) doen’t look very promising. There is a continuous selling pressure from 1) long-term investors that receive linear unlocks, 2) from the DAO that will require to continuously sell tokens to operate and incentivize solvers, and 3) from the liquidity incentivization program. Introducing a revenue stream and $veCOW tokenomics could decrease supply of $COW and also empower long-term believers of the protocol to guide governance decisions.


A rough suggestion for introducing $veCOW tokenomics is presented below; all parts are open for feedback.

Revenue source: My understanding is that COW DAO currently does not have any revenue streams despite having a successful product, except when the net of positive vs negative slippage that occur on cowswap trades is positive. This makes it hard to operate or incentivize token lock-ups without generating inflation and devaluation of $COW. This might become unsustainable during a bear market.

My recommendation is to introduce a 10% fee overcharge for each trade. Half of that money should go straight to COW DAO treasury and the other half can be distributed to $veCOW holders.

A potential issue that could arise from this is that we see decreased usage of the protocol due to the larger fees. My guess is that the effect on a per-trade basis will be small enough (at least for large trades) that a sufficient number of users will stick: The average transaction size of cowswap trades is >$1,000. Assuming an average fee of $10, the effect on a per-trade basis would be 10/1000*0.1 = 0.1% increase in total transaction costs. In times of mainnet congestion, this could rise by one order of magnitude.

veCOW tokenomics: Different lock-up periods will be introduced starting from 2 weeks and going up to 4 years. A general rule for COW to veCOW conversion can be this:
(number of $veCOW) = (number of $COW) * (1 + number of years of lockup)

My suggestion is that veCOW tokens should be NFTs that are tradable in marketplaces, similar to the Solidly model introduced by Andre Cronje. Alternatively they can be a non-transferable ERC-20 similar to $vCOW.

$veCOW holder incentives:

  • Governance: $veCOW and $vCOW holders should be the only ones that are allowed participation to governance. The voting power of 1 $veCOW should be equal to the voting power of 1 $vCOW.
  • Fee discount: there is currently a fee discount offered to $COW holders that could be passed directly to $veCOW holders. $COW holder fee-discount will be discontinued.
  • Share of protocol fees: half of the fees collected by the 10% trading fee overcharge will be distributed evenly between $veCOW holders.
  • $veCOW options: $veCOW holders should be given the option to buy additional $veCOW with 4-year lock-ups directly from treasury at a significant discount. The rate at which these options will be released should be determined by treasury needs.


This is simply a draft. An official CIP with voting requirements will be introduced if we receive positive feedback.


  • Lock-up of $COW tokens should be incentivized.
  • The DAO needs a revenue source.
  • A veCOW lock-up mechanism is introduced.
  • A trading fee overcharge is introduced.
  • A series of incentives for veCOW lock-ups is introduced, including a distribution of revenue share.

fully in support of this proposal

strong performing tokens (in terms of price) serves both as a huge incentive for attracting new users onto the protocol as well as provide higher leverage for the treasury to deploy funds to incentivizing certain actions (ie. LP)

implementing veCOW tokenomics will paint a good narrative for investors to reduce sell intent, reduce mercenary money, and benefit long term believers in the protocol who are willing to commit their tokens to have a bigger voice in governance

at the EOD, we need to paint a narrative(s) that $COW has some form of future value (token price has upside potential). ppl only hold on the expectation that the token is worth more in the future than it is today - and I know often times, DAOs and projects like to think from the mindset of ‘forgetting about the token price, deliver on the roadmap, and price will follow later’ but a poorly performing token will cause severe setbacks on many fronts and conversely, a strong performing token will serve as strong leverage and allow a protocol to perform even better than it already is.

ie. imagine what it would look like if some of the most popular protocols today (like aave, compound, even gnosis) had implemented tokenomics the right way from the get go with the narrative that their tokens actually accrue value and have a direct correlation with the growth of their respective protocols. All of their LPs/farms would have much higher APR and attract even more capital and users than it does today - narratives and upside potential always paints a positive spiral effect in the defi space


Thank you for your proposal @defiparasite.

I agree that a fee on trades may be required to replenish the DAO Treasury. The percentage needs to be worked out to ensure cowswap remains a preferred place to swap.

Fees collected should be distributed to the DAO and $COW token Stakers. This will reduce the supply side circulating and increase token price (provided there is demand for the token).

I do not think yet another token (veCOW) is required to achieve this.


I agree with you that we don’t necessarily need to introduce veCOW. But I also think it’s important that there is some time commitment in staking to avoid gaming the system (e.g. staking around the time of snapshot for reward distribution and then immediately unstaking). This time commitment is also important in reducing selling pressure in volatile times. Similar to Aave or Alpha staking, we can introduce a cool-down period to unstake.

I also agree with you that the percentage of fee charge needs to be worked out, looking at past data would help. We could also introduce some kind of linear or scalar fee increase dependent on trade-size. The goal here would be to pick a function for fee increase that 1) would make it uneconomical to game the system (e.g. by breaking your orders into multiple orders) and 2) aim at keeping the fee a low percentage of the total trade size (e.g. capped at 0.01%) so that we don’t lose users.

One of the main reasons I first began using cow was the discounted swapping rates from more traditional swaps. I think you have to be very cautious about how much you charge in fees as you might robbing one of the great draws to using cow for simple users like me. I’m not saying it should not be considered to fund the dao but it needs to be an amount small enough not to make a substantial difference to trades. Otherwise to be honest I would see the token as less valuable for investing in general. I also think creating another token dilutes general usability.


I’m not going to mention all the reasons why I can’t and will never support this kind of proposal. But I can say this… COW is the real token, everything else is a derivative.

If we remove all voting power from COW why do we need a token at all? Just to make more and more derivatives from the one that has zero voting power? No thanks. We don’t need a COW token just to make derivatives. We can make derivatives from derivatives from derivatives (that’s what people do this days).

Also, Let’s be clear…

  1. This proposal fixes selling pressure from vested investors creating an arbitrage opportunity (selling tokens at market price and buying them back to the Treasury at discount) and creating more vesting for people that missed out. Makes zero sense.
  2. Solvers and COW Team are the base of CowSwap ( Nothing new here and I don’t see any issue to be fixed. Meanwhile, without the Team and Solvers, this DAO wouldn’t exist.
  3. introducing a revenue stream also means more selling pressure from that stream. It works exactly like the 1) issue pointed. People receiving tokens, may want to sell or whatever. It’s how it works.

Suggestion… move on and focus on how the CowSwap can capture MORE users, not less. The discount can help but it only works if people can buy/hold enough tokens to get the discount and considering how things are, people need to buy/hold 100,000 Tokens to get a 20% discount. Even if price drops to $10cents it means people need to invest $10k to get a 20% discount. Is that appealing? Maybe, but investing $100k to get a 20% discount on trading fees doesn’t sound interesting to me. Anyway, one goal of this proposal is to terminate the discount so I’m not even wasting more time discussing a discount revamp while this draft proposal is open.


I fully support this proposal and strongly recommend that the team think hard about the value capture capability of the $COW token. $veCOW is the best token economic model on the market today, and this has been fully proven with $veCRV. $veBAL also uses the same token model, which is very instructive. I think there are two points that can be discussed on top of this proposal:

  1. Cancel the original discount setting (of course, we need to give back to users in another way)

  2. Allocate this money (the cancelled discount) to $veCOW (according to the original discount level). The longer you stake, the more tokens you stake. The more profit the you will get.

Doing so does not add extra costs to the user, but this change is a shift from “saving money” to “making money”. This is very effective in marketing.

The benefits of $veCOW’s setting have been well-proven by the market, allowing the protocol to know who the faithful are and benefiting long-term supporters. More importantly, it can effectively prevent the continuous dumping of tokens.


support!!!very good proposal

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I like and agree with this CiP draft; the dumping of tokens has not been alleviated so far, so we must consider other possibilities that can bring cowswap to sustainable development. The veToken model pioneered by Curve is indeed very good. If we can set the rules (business mathematical model) according to the idea of ​​vcCOW, it should have a greater positive impact on cowswap, and $cow will also go to the moon:)

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I think this targets the most obvious source of revenue, the users which is not bad in itself but as others have mentioned should be done with care since a large user base is essential for CoWs and is what allows for cowswap to outperform competitors. In other words, I don’t want to kill the golden goose.

Another potential source of revenue could be something similar to giving preferential treatment by the solvers to AMMs. Say that Balancer and 0x both have ETH/USD pools and they both provide the exact same price for swaps. Whichever AMM takes a more active interest in cowswap could be given a slight advantage by the solvers resulting in more trades going through their service all things being equal. This would be in the interest of AMMs and could be another avenue to bring in value.

Wayyyyy too early for this type of idea. I’m definitely a supporter of the veToken model for protocols that make sense, but this is wayyyyy too early even for $CoW Swap.

And to add, I’m a firm believer in a lock mechanism for tokens, as they force users to remain committed, however the $CoW protocol itself is wayyy too young to introduce this. Doesn’t make sense really. I thought about this a month or two ago, but I was mostly naive about it, but I’m glad I got away from this idea, as we need more Users first to flood the Swap to even think about redirecting fees elsewhere.

Let’s let this thing breathe a bit.

Problem with this proposal is it comes off as “i put in a lot of money, and now i cant stand to see the price tank, i need a pump” - even if that’s not true at all, it comes off as desperate.

Again, let’s allow CoW to breathe a bit, get on some exchanges, deepen liquidity and allow the DAO to find new partnerships that will most likely lead to a bigger catalyst of growth and token price than some veToken model.

Appreciate the proposal, but this will definitely NOT PASS whatsoever.


$COW will still be the only tradable form of the token and the only way you can produce $veCOW. This approach worked fine for CRV and BAL.

I think you’ve misunderstood that part. There is no discounted $COW tokens sold. Only discounted $veCOW tokens (i.e. locked tokens). The discount is necessary when selling locked tokens and incentivized only the long-term thinking investors to buy. There is no arbitrage opportunity as we’re talking about 4-year lock-ups.

I agree with you. Solvers will be paid 100 $COW per winning settlement, though, to cover their costs and would be greatly benefited if we alleviated some of the $COW selling pressure.

I don’t think we should be giving out $COW rewards to $veCOW holders. A Gnosis safe that is controlled by the COW DAO for instance converts all significant token balances to $ETH. It would be more natural to pay rewards in whatever token we keep (or convert) our balances in.

The discount was a good idea to capture users and alleviate selling pressure that I introduced in this forum first. The problem is that we don’t have any revenue to continuously fund it, and we’ve only allocated 60 $ETH that will only cover us for about 3 months. The tiers could be more generous (i.e. require fewer tokens or provide higher discounts) if we had a constant source of revenue to fund them with.

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So we generally agree. I’m not trying to generate any pressure that this needs to be done now, I’m slowly gathering feedback to figure out where people stand and if they have ideas to improve the token model further.

Why do you think a deeper exchange liquidity is required before we do this?

Considering this, if people can buy veCOW at significant discount, does it mean they will buy veCOW tokens backed by COW (using the treasury) or the rule is just for conversion and there’s not a single COW removed from the treasury? If that’s the case there’s no arbitrage, it’s dilution of the veCOW. But even there is a problem because it’s said the voting power of 1veCOW=1vCOW. Meaning vCOW voting power is reduced every time someone is locking or buying veCOW options. Btw what happens to this funds used to buy more veCOW, they are considered revenue for veCOW stakers or they go to the treasury? Also if people lock their COW to get 2x, 3x or whatever more voting power (via veCOW) we need to address this in a very clear way.

On the other hand, if each veCOW bought via this options is backed by COW from the treasury then it’s arbitrage because people can sell some COW, lock some for veCOW and buy back what they sold via this cheaper options. At the end they will convert their veCOW to COW again = arbitrage.

To be clear: I’m totally against removing voting power from COW or messing around with the current voting power rules unless we have a proposal dedicated to this matter. I’m also totally against increasing trading fees. Anything that will reduce the user base is a very bad idea. Meanwhile, if we 10x the user base we probably can get some revenue from fees collected (instead of giving them back as surplus) without increasing the cost. Not saying we should do this (we didn’t get there yet), just saying more users and trades will make a big difference.

I personally see two topics in this proposal which can be discussed seperately:

  1. Becoming cash flow positive by increasing the fee we charge (with or w/o discount)
  2. Creating a veCoW token to incentivise locking

My comment mainly focusses on 1.

This is not exactly true. CowSwap is generating revenue from collecting trading fees (>$13.5M to date). At the same time the protocol has significant costs for incentivizing solvers which at the moment exceed revenues, leading to a net loss. Data for this can be found in this dune dashboard.

The revenue stream we have established is actually a pretty big strength of the protocol in my opinion. We could indeed quite easily increase the fee we charge users (e.g. what they would pay on a DEX aggregator + x) and likely become cash flow positive quickly.
As people pointed out this would potentially come at the cost of losing users that are very price sensitive (I have also heard voices that say we overestimate that effect, most users are not sensitive, I’d really appreciate some more data here).

However, we believe that in the long run the protocol can be cash flow positive even while charging the exact same fees as today (batching, internal buffer trading and CoWs can make the execution of the batch cheaper than the sum of individual trade executions).

The question is how do we get there? How do we spend our ressources optimally to increase our market share in the DEX and DEX Aggregator space to create these positive network effects? Are the fee subsidies effective, should we use the treasury in another way, or should we try to not use the treasury at all and be cash flow positive already (if so, when and how would we consider investing into growth)?


@fleupold The question is how do we get there? How do we spend our ressources optimally to increase our market share in the DEX and DEX Aggregator space to create these positive network effects? Are the fee subsidies effective, should we use the treasury in another way, or should we try to not use the treasury at all and be cash flow positive already (if so, when and how would we consider investing into growth)?

fully agreed

i’m gonna take a stab at ur question, but one of the reasons why i’ve been advocating strongly for ve tokenomics is precisely because i believe that setting up the protocol for success from an investment pov is how we can maximize positive network effects esp in the crypto space

looking at the nft space, i think one thing defi projects can really take from it is that bullish narratives and cultish-like communities can form very positive network effects. in contrast, fundamentals (ie. cash flow, etc) are just one part of a bigger umbrella of driving narratives and IMO, most of the time, fundamentals hinder growth more so than aid it. fundamentals often limit the perspective and imagination of growth (in all aspects: ROI, P&L, cash flow, etc) because it puts things into reality.

i think the people who’d never put a cent into things that doesnt have ‘fundamentals’ (nfts, memecoins, etc) gets baffled when they see it moon and doesnt understand why certain tokens in the space (ie. cex/dex tokens etc) arent worth more than memecoins like doge when they have so much fundamentals like trading vol or swap revenues

everything (not just crypto) is narrative driven. it’s precisely because cex/dex tokens have a history of fundamentals that lead investors into believing that these tokens won’t have a 100x potential in contrast to nfts or memecoins etc. even in equities, look at tesla - a 1.18 tril valuation company with fractions of fractions of this size in revenues and worse in terms of net profits and cash flows. investors are bullish on tesla because the narrative of tesla being able to capture a much MUCH larger share of the market 10 years down the road is appealing and realistic to these people

so why am i spouting all of this about narratives and investing when we’re talking about creating positive network effects to driving user growth and revenues to cow?

imo, these are all very correlated because 99% of crypto users are investors. if cow creates the right bullish narratives that crypto investors find appealing from an investing pov, ull naturally create a community of strong believers who are not only users of the protocol, but feel so bullish about it that they cant help but share it to all of their friends and circle groups about what cow is, why people should swap on cow, and why people should invest into cow - and these strong believers are likely also early adopters/sophisticated investors who have decent influence within their own respective circles

take one look at my twitter ( and ull see that i, like 99.99% of everyone else in the space, promote endlessly (and organically) on the projects that i believe in and the core of it is because i also find them to be great investment vehicles which i’d want to share with my friends and followers at the eod.

there are protocols that perform well without strong bullish narratives (think simply because they’re super useful tools but look, the number of times i’d introduce and share to a friend or someone i know is probably 1:100 compared to the number of times i’d introduce and share a bullish protocol that i believe and invest in


There is great discussion on this thread and while I don’t fully support one individuals perspective over the other, I agree that the DAO desperately needs an additional revenue source. We are at risk of becoming the next $PARA (Paraswap’s governance token). There are some big brains in this DAO and while I have no doubt great ideas will continue to spring up from conversations here and on the Discord, I am inclined to say this one is a MUST. Fully in support of veCOW.

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Thank you for your response. The idea that the protocol could become cash-flow positive just through network effects is very powerful. This should probably be our number one priority.

I think it’s hard to evaluate the effect of the fee-discount to the overall protocol at this time, because there is a really strong effect from the recent launch of the cow token and the associated buzz. We could look at the users that still this day hold more than 10,000 $COW and compare their trade number and volume before and after the incentive launch. This is a biased sample, though, of people that can afford to spend $5,000 or more and it also won’t tell us if it’s a net positive for the protocol.

I can come up with a specific proposal on how to improve those incentives and evaluate their effectiveness.


veCOW tokenomics : Different lock-up periods will be introduced starting from 2 weeks and going up to 4 years. A general rule for COW to veCOW conversion can be this:
(number of $veCOW) = (number of $COW) * (1 + number of years of lockup)

I’d suggest an alternate rule of COW => veCOW conversion:
(number of $veCOW) = (number of $COW) * (0.25 times number of years of lockup; max. 4 years)

$veCOW holder incentives :

  • Governance: $veCOW and $vCOW holders should be the only ones that are allowed participation to governance. The voting power of 1 $veCOW should be equal to the voting power of 1 $vCOW.

For now, the above suggestion is the singular one of the ‘holders incentives’ above I agree with. The other points, I advise to disregard. Or consider them being introduced at a later point in a different thought-out manner. Specifically the ‘share of protocol fees’; with which I generally agree, but am open to alternate, viable models. :peace_symbol:

I can see some interest in a veCOW Model but mainly for future use (not sure when exactly). I would use this revamped rationale, instead of the original:


  • Lock-up of $COW tokens should be incentivized.

  • A veCOW lock-up mechanism is introduced, “The longer the lock, the higher the rewards and voting power”.

  • A series of incentives for veCOW lock-ups is introduced.

Assuming this, when the protocol reaches profitability, COW DAO can distribute a percentage of the revenue to stakers as incentive instead of using some sort of penalty system to extract value from users. This incentives can/should be distributed in COW Tokens (DAO can use COW tokens in balance and/or the DAO can market buy and distribute this COW to stakers, they probably will sell but the end result is kind of positive or neutral). Any veCOW tokenomics should be dynamic enough to allow more incentives (the one used in this example is the one I don’t have any issue approving). I mean, if we agree in a veCOW model at any point we should be able to vote on adding incentives.

Regarding the voting power distribution. I don’t have issues giving more voting power to stakers as far as we do the same with vCow holders (using the same criteria - 4 years lock) and COW holders keep their current voting power, meaning 1 COW = 1 Vote. After all COW is a Governance Token, not a “farming token”, we shouldn’t say “only people willing to lock can vote”. But we can say “people willing to lock can boost their voting power”. What we need to be careful is how much we want to boost that, if we give too much voting power to stakers then people don’t need to buy as much COW to have a greater voting power. It’s a side effect we can’t ignore.

Assuming 1 veCOW = 1 Vote, something similar to this could work, but adding 1 in the equation.

(number of $veCOW) = (number of $COW) * (1+(0.25 times number of years of lockup; max. 4 years))

Staking 4 years would double the voting power, but 4 years is quite considerable (not many will stake for this long), while staking 1 year will only boost the voting power by 25%. Meanwhile, virtually applying the same rule to vCOW (1x vCOW = 2 Votes) will also double the voting power of all investors. It doesn’t create any unbalance in the voting distribution, obviously it will give more power to larger investors but giving more voting power to veCOW and not giving it to vCOW is kind of a punishment to early investors. I wouldn’t like that.

About buying veCOW on discount I don’t see any good reason to allow such thing and ignoring it would make everything cleaner. People willing to get more veCOW can just market buy COW and convert/stake, it’s how the market works.