Crypto Basics

News

Governance

Guides

Product Info

Your Robinhood account contains a detailed record of every cryptocurrency transaction you've made, but extracting this information for tax purposes requires specific steps. When tax season arrives or when you need to analyze your portfolio performance, having access to your complete transaction history becomes essential.

## Why you need to export your Robinhood crypto history

The IRS treats cryptocurrency as property, which means every trade, sale, or conversion creates a taxable event. You must report capital gains and losses on your tax return, and accurate records form the foundation of proper tax compliance.

Robinhood reports your transactions to the IRS through 1099 forms when you sell crypto or receive rewards exceeding $600 in a tax year. However, these forms often lack complete cost basis information, especially for cryptocurrency you transferred into Robinhood from other platforms. Cost basis refers to the original purchase price of an asset, which determines your capital gain or loss when you sell.

Portfolio tracking also benefits from complete transaction data. You can analyze your trading patterns, calculate performance metrics, and make informed investment decisions based on your historical activity.

## Understanding Robinhood's tax reporting limitations

Robinhood faces inherent challenges in providing complete tax reports. When you transfer cryptocurrency from another exchange or wallet into Robinhood, the platform doesn't receive cost basis information. This creates gaps in their records that you must fill manually.

The platform uses a First-In-First-Out accounting method for determining which coins you sell first. However, if you have transfers with unknown cost basis, Robinhood processes those transactions first before applying FIFO to the remaining holdings.

These limitations mean you cannot rely solely on Robinhood's tax forms for accurate reporting. You need your complete transaction history to calculate proper cost basis and ensure compliance with IRS requirements.

## Methods for exporting your transaction data

Robinhood offers two primary methods for accessing your crypto transaction history: API integration and CSV file downloads. Each method serves different needs and technical comfort levels.

### Using the API method

The API method provides the most comprehensive and up-to-date access to your transaction data. This approach works best with crypto tax software that can automatically sync your information.

To set up API access, log into your Robinhood account and click "Account" in the top-right corner, then select "Crypto." Scroll down to find "API Trading" and select "Add Key."

You'll need to generate a public and private key pair. Robinhood provides documentation at docs.robinhood.com that explains the key generation process. When creating your API key, enable all read actions under API actions, but avoid setting IP restrictions or expiration dates to maintain continuous access.

Name your key something descriptive like "Tax Software Access" so you can identify it later. After filling out the required information, click "Save" and authenticate the activity through whatever method Robinhood requires.

Once created, the platform displays your API key. Keep this information secure, as it provides access to your account data.

### Downloading CSV files

CSV file downloads offer a manual alternative that works with any spreadsheet program or tax software that accepts file uploads. This method requires more hands-on work but gives you direct control over your data.

Access your CSV files by logging into Robinhood and clicking "Account," then selecting "Tax Center." Look for "Robinhood Markets Consolidated Transactions" where you can download your transaction history.

The downloaded files contain all your crypto transactions with timestamps, amounts, prices, and transaction types. You may need to convert files from PDF format to CSV if necessary, depending on how Robinhood delivers the data.

## Preparing your data for tax software

Raw transaction data from Robinhood often requires formatting before you can use it effectively. Professional crypto tax software typically handles this formatting automatically, but manual preparation may be necessary for some applications.

Review your exported data for completeness. Check that all your transactions appear with correct dates, amounts, and transaction types. Look specifically for any transfers into or out of Robinhood, as these often require additional information.

For transfers into Robinhood from other platforms, you'll need to gather cost basis information from your records of the original purchase. This might involve checking transaction histories from other exchanges or wallet records.

Large transaction histories may span multiple files or require several download sessions. Ensure you capture your complete trading history for the relevant tax year by checking the date ranges of your exported data.

## Working with crypto tax software

Specialized crypto tax software simplifies the process of converting your Robinhood data into tax-ready reports. These platforms connect with multiple exchanges and can calculate cost basis across your entire crypto portfolio.

When selecting tax software, look for platforms that specifically support Robinhood integration. Many services offer both API connections and CSV upload capabilities, giving you flexibility in how you share your data.

The software should handle complex scenarios like transfers between platforms, hard forks, airdrops, and different accounting methods. It should also generate the specific tax forms your jurisdiction requires, such as Form 8949 for capital gains and losses in the United States.

Most crypto tax platforms offer free account creation with limited features, allowing you to test their compatibility with your data before committing to paid plans.

## Handling missing cost basis information

Missing cost basis creates one of the biggest challenges in crypto tax preparation. When Robinhood shows zero cost basis for transferred coins, you must reconstruct this information from your other records.

Start by identifying all transactions in your Robinhood history that show zero or missing cost basis. These typically correspond to deposits from external wallets or exchanges. For each transaction, note the date, amount, and type of cryptocurrency involved.

Search your records from other platforms to find the original purchase information. You need the date you bought the cryptocurrency and the purchase price in US dollars. Email confirmations, exchange transaction histories, and bank records can help establish this information.

Document your cost basis reconstruction process. The IRS may question your calculations during an audit, so maintaining clear records of how you determined cost basis strengthens your position.

## Integrating data from multiple sources

Most crypto investors use several platforms, creating the need to combine data from multiple sources. Your complete tax picture includes not just Robinhood transactions, but also activity from other exchanges, DeFi protocols, mining, staking, and wallet transfers.

Create a comprehensive list of all platforms where you've conducted crypto transactions. This might include major exchanges like Coinbase or Binance, DeFi platforms like Uniswap, and any wallets where you've received payments or rewards.

Export transaction data from each platform using their respective methods. Some platforms offer CSV downloads, others provide API access, and blockchain-based activity might require wallet address tracking.

Crypto tax software excels at combining these disparate data sources into unified reports. The platforms can match transfers between exchanges, eliminate double-counting, and calculate accurate cost basis across your entire crypto portfolio.

## Timing considerations for tax reporting

Understanding when transactions occurred helps ensure accurate tax reporting. The IRS uses trade dates, not settlement dates, for determining tax obligations. Robinhood timestamps show when you initiated transactions, which typically aligns with trade date requirements.

Pay attention to year-end cutoffs. Robinhood uses 11:59 PM UTC on December 31 as their year-end cutoff for tax reporting. Transactions occurring after this time count toward the following tax year, even if they settle in the current year.

For portfolio tracking, you might want data spanning multiple years to analyze long-term performance trends. Ensure your export captures the full time period you need for analysis.

## Maintaining ongoing records

Tax compliance and portfolio management require ongoing record-keeping, not just year-end data collection. Establish systems for regularly backing up your transaction data and maintaining records throughout the year.

Consider setting up automatic syncing if you use crypto tax software with API capabilities. This ensures your records stay current without manual intervention. Regular updates also help identify and resolve data issues before they become problems during tax season.

Keep records of any manual adjustments you make to cost basis or transaction classifications. Document the reasoning behind these changes to support your tax reporting decisions.

Export your Robinhood crypto history at least annually, even if you don't immediately need it for taxes. Having historical snapshots protects you against data loss and provides backup records for future reference.

Your exported transaction history serves multiple purposes beyond tax compliance. It enables comprehensive portfolio analysis, supports investment decision-making, and ensures you maintain complete records of your cryptocurrency activities. Taking control of your data puts you in the best position to meet your tax obligations accurately and efficiently.

## FAQs
### How do I export Robinhood history to Excel?
You can download your transaction history as a CSV file by logging into your Robinhood account, clicking "Account," then selecting "Tax Center." Look for "Robinhood Markets Consolidated Transactions" to download your data, which can be opened in Excel.

### Does Robinhood provide tax documents for cryptocurrency?
Yes, Robinhood provides 1099 forms for cryptocurrency transactions when you sell crypto or receive rewards exceeding $600 in a tax year. However, these forms may lack complete cost basis information, especially for transferred cryptocurrencies.

### How to get crypto.csv from Robinhood?
Access your crypto.csv by logging into your Robinhood account, navigating to "Account," selecting "Tax Center," and downloading your transaction history from "Robinhood Markets Consolidated Transactions."

### How to keep track of crypto transactions for taxes?
Maintain regular records by exporting your transaction data, either through API integration or CSV downloads. Document all transfers, trades, and rewards. Consider using crypto tax software to automatically track and organize your transactions.

### Does Robinhood provide historical data?
Yes, Robinhood maintains detailed records of all your cryptocurrency transactions, which you can access through their platform.

### What forms does Robinhood provide for crypto tax reporting?
Robinhood provides 1099 forms for crypto transactions, specifically when you sell cryptocurrency or receive rewards over $600 in a tax year.

### How do I calculate my cost basis for Robinhood crypto trades?
Robinhood uses the First-In-First-Out (FIFO) method for calculating cost basis. For transferred crypto, you'll need to manually track and record the original purchase price from your previous platform.

### Can I use crypto tax software to analyze my Robinhood transaction data?
Yes, many crypto tax software platforms support Robinhood integration through either API connections or CSV file uploads, allowing for automated analysis of your transaction data.

### How do I sync my Robinhood account with a crypto tax calculator?
You can sync your account using Robinhood's API integration. Generate an API key through your account settings, enabling read actions, and connect it to your chosen tax software platform.

### What should I do if my Robinhood tax forms are inaccurate?
Review your complete transaction history, gather records from other platforms for transferred assets, and document any corrections. Consider using crypto tax software to generate accurate reports.

### What are the implications of transferring crypto in and out of Robinhood for taxes?
Transfers between platforms aren't taxable events, but you must maintain accurate cost basis information. Robinhood may not receive cost basis data for incoming transfers, requiring manual tracking.

### How do I handle crypto rewards received through Robinhood for tax reporting?
Crypto rewards exceeding $600 annually must be reported as income and will be included in your 1099 forms from Robinhood.

### What is the year-end cutoff time for crypto trades with Robinhood?
Robinhood uses 11:59 PM UTC on December 31 as their year-end cutoff. Transactions after this time count toward the following tax year.

Discover how to export your Robinhood cryptocurrency transaction history for tax reporting and portfolio analysis. Learn step-by-step methods using API integration or CSV downloads, handle missing cost basis information, and integrate data with crypto tax

How to export Robinhood crypto history for taxes or portfolio tracking

![AMM (1).png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/AMM_1_75dbb6998d.png)
The cryptocurrency space can often feel overwhelming, especially when you're just starting out. Between technical jargon, rapidly evolving technology, and a firehose of new platforms and tools, it's hard to know where to begin. One of the foundational innovations of decentralized finance (DeFi) that's worth understanding early on is the Automated Market Maker, or AMM.

In this guide, we'll break down what AMMs are, how they differ from traditional market makers, and how innovations like  [CoW AMM](https://cow.fi/cow-amm)  are taking this technology even further - making decentralized trading more secure, efficient, and fair.

## What Is an Automated Market Maker?

Let's start with the basics.

In traditional finance, when you want to buy or sell a stock, your trade is matched through an order book - a system that pairs buyers and sellers. This system usually requires market makers - typically large institutions or traders - who provide liquidity by offering to buy and sell assets at certain prices. Their job is to ensure smooth trading and reduce volatility.

In contrast, Automated Market Makers (AMMs) are a decentralized alternative. Instead of relying on human market makers or order books, AMMs use smart contracts (self-executing code on a blockchain) to enable peer-to-peer trading.

### Enter Liquidity Pools

Here's how it works in simple terms:

AMMs rely on liquidity pools - essentially shared pots of tokens. These pools are filled by users called liquidity providers (LPs) who deposit two tokens into the pool in equal value. For example, a common trading pair might be ETH/USDC, where someone deposits an equal dollar amount of Ethereum (ETH) and the stablecoin USDC.

These deposited tokens then become available for others to trade against. Rather than matching with another individual trader, users trade against the pool itself, and a mathematical formula adjusts the price based on the ratio of the two tokens.

### Example: The Constant Product Formula

Most AMMs, like those used in Uniswap, use a formula that looks like this:

x * y = k

Where:

-   x = amount of Token A
    
-   y = amount of Token B
    
-   k = constant (remains unchanged)
    

If someone wants to buy Token A, they must add Token B to the pool. This shifts the balance, increasing the price of Token A slightly, creating the supply-and-demand curve that you'd expect in any market.

This method ensures there's always a price and always liquidity - even if no one else is around to trade.

There are other types of pool that use different formulas to create what are called weighted pools, but in this example we're going to stick with the most common type of AMM.

## Why Are AMMs a Big Deal?

AMMs are at the heart of DeFi because they remove the need for intermediaries. Here's why they're a major innovation:

### 1. They're Always Open

Unlike centralized exchanges, which might have downtime or rely on limited liquidity during off hours, AMMs are available 24/7. As long as there's liquidity in the pool, you can trade.

### 2. Anyone Can Provide Liquidity

In traditional finance, only big players act as market makers. In AMMs, anyone with crypto can contribute to a liquidity pool and earn fees from trades - democratizing access.

### 3. They're Non-Custodial

You never give up control of your assets to a centralized platform. Everything happens on-chain, and your wallet always holds your funds until you actively interact with a smart contract.

## The Downsides of AMMs

AMMs aren't perfect. As with any tool, there are trade-offs:

### Impermanent Loss

If you provide liquidity to a pool and the price of one token changes significantly compared to the other, you might end up with less money than if you'd simply held onto your tokens. This phenomenon is called impermanent loss.

### MEV (Maximal Extractable Value)

Here's where things get a bit tricky: On public blockchains, anyone can see pending transactions. Some sophisticated bots and traders use this visibility to front-run trades - they jump ahead in line and profit from the price movements that your trade causes.

This is part of a broader problem called  [Maximal Extractable Value](https://cow.fi/learn/a-guide-to-mev-on-ethereum-explained-cow-dao?ref=learn_search)(MEV) - where someone extracts value from a block by strategically ordering transactions. And unfortunately, regular users and liquidity providers often lose out in this process.

Find out more about  [MEV and how it works here.](https://cow.fi/learn/a-guide-to-mev-on-ethereum-explained-cow-dao?ref=learn_search)

### Loss Versus Rebalancing (LVR)

[LVR](https://cow.fi/learn/what-is-loss-versus-rebalancing-lvr?ref=learn_search)  is a form of arbitrage that occurs whenever an AMM has an outdated (stale) price in comparison to some other trading venue. Arbitrageurs exploit this difference by trading from the AMM to the more liquid exchange (usually a centralized exchange like Binance), correcting the arbitrage and extracting value from LPs in the process.

Find out more about  [LVR and how it works here](https://cow.fi/learn/what-is-loss-versus-rebalancing-lvr?ref=learn_search).

## Introducing CoW AMM: A New Kind of AMM

This is where  [CoW AMM](https://cow.fi/cow-amm)  comes in - a novel approach developed by  [CoW DAO](https://cow.fi/)  that addresses some of the most pressing issues facing current AMM models.

Let's explore how this system works and why it might represent the next evolution in decentralized trading.

What Makes CoW AMM Different?

### Protection from MEV

[CoW AMM](https://cow.fi/cow-amm)  tackles MEV head-on by using batch auctions and intent-based trading.

Rather than letting every trade hit the chain instantly (and visibly), CoW AMM allows multiple trade "intents" to be submitted off-chain. Then, these intents are matched and executed together in a single batch.

Because all trades are processed simultaneously, there's no opportunity for front-running - bots can't jump ahead and exploit your trade.

This process happens through a solvers network - specialized bots that compete to offer users the best execution. It's a win-win for both users and liquidity providers.

### Capital Efficiency & Enhanced Yield

Traditional AMMs spread liquidity across the entire possible price range. That means your tokens might sit unused if no trades happen near their price.

CoW AMM allows LPs to concentrate their liquidity into targeted price ranges - making better use of capital and increasing the chance that they'll earn trading fees.

It works similarly to how index funds concentrate around certain market segments. That's why a CoW AMM - once new features have been deployed - acts as an "enhanced index fund" for DeFi - your funds are passively managed, but smartly deployed for better returns.

## Real-Life Example: CoW AMM in Action

Let's say you want to swap 1 ETH for USDC using CoW AMM.

1.  You submit an "intent to trade" - a request that says, "I want to swap 1 ETH for the best possible amount of USDC."
    
2.  Your intent goes into a batch with many others.
    
3.  CoW Protocol's solver network analyzes the best path for execution - across multiple pools, DEXs, or even aggregators.
    
4.  The batch is executed, and you receive your USDC - with less slippage, no MEV, and often a better price than on a traditional AMM.
    

As a result, users trade with confidence, and LPs see better yields.

## Why This Matters (Especially for Beginners)

CoW AMM's design brings professional-level optimization to everyday users. You don't need to understand complicated strategies or monitor the markets constantly. Just deposit tokens, or trade when you need to - and the system handles the rest with fairness and efficiency.

For beginners, this means:

-   No need to worry about front-running or being "gamed"
    
-   Easier, smoother trades with better pricing
    
-   A safer and more welcoming introduction to DeFi
    

## Traditional Market Makers vs. AMMs vs. CoW AMMThe cryptocurrency space can often feel overwhelming, especially when you're just starting out. Between technical jargon, rapidly evolving technology, and a firehose of new platforms and tools, it's hard to know where to begin. One of the foundational innovations of decentralized finance (DeFi) that's worth understanding early on is the Automated Market Maker, or AMM.

In this guide, we'll break down what AMMs are, how they differ from traditional market makers, and how innovations like  [CoW AMM](https://cow.fi/cow-amm)  are taking this technology even further - making decentralized trading more secure, efficient, and fair.

## What Is an Automated Market Maker?

Let's start with the basics.

In traditional finance, when you want to buy or sell a stock, your trade is matched through an order book - a system that pairs buyers and sellers. This system usually requires market makers - typically large institutions or traders - who provide liquidity by offering to buy and sell assets at certain prices. Their job is to ensure smooth trading and reduce volatility.

In contrast, Automated Market Makers (AMMs) are a decentralized alternative. Instead of relying on human market makers or order books, AMMs use smart contracts (self-executing code on a blockchain) to enable peer-to-peer trading.

### Enter Liquidity Pools

Here's how it works in simple terms:

AMMs rely on liquidity pools - essentially shared pots of tokens. These pools are filled by users called liquidity providers (LPs) who deposit two tokens into the pool in equal value. For example, a common trading pair might be ETH/USDC, where someone deposits an equal dollar amount of Ethereum (ETH) and the stablecoin USDC.

These deposited tokens then become available for others to trade against. Rather than matching with another individual trader, users trade against the pool itself, and a mathematical formula adjusts the price based on the ratio of the two tokens.

### Example: The Constant Product Formula

Most AMMs, like those used in Uniswap, use a formula that looks like this:

x * y = k

Where:

-   x = amount of Token A
    
-   y = amount of Token B
    
-   k = constant (remains unchanged)
    

If someone wants to buy Token A, they must add Token B to the pool. This shifts the balance, increasing the price of Token A slightly, creating the supply-and-demand curve that you'd expect in any market.

This method ensures there's always a price and always liquidity - even if no one else is around to trade.

There are other types of pool that use different formulas to create what are called weighted pools, but in this example we're going to stick with the most common type of AMM.

## Why Are AMMs a Big Deal?

AMMs are at the heart of DeFi because they remove the need for intermediaries. Here's why they're a major innovation:

### 1. They're Always Open

Unlike centralized exchanges, which might have downtime or rely on limited liquidity during off hours, AMMs are available 24/7. As long as there's liquidity in the pool, you can trade.

### 2. Anyone Can Provide Liquidity

In traditional finance, only big players act as market makers. In AMMs, anyone with crypto can contribute to a liquidity pool and earn fees from trades - democratizing access.

### 3. They're Non-Custodial

You never give up control of your assets to a centralized platform. Everything happens on-chain, and your wallet always holds your funds until you actively interact with a smart contract.

## The Downsides of AMMs

AMMs aren't perfect. As with any tool, there are trade-offs:

### Impermanent Loss

If you provide liquidity to a pool and the price of one token changes significantly compared to the other, you might end up with less money than if you'd simply held onto your tokens. This phenomenon is called impermanent loss.

### MEV (Maximal Extractable Value)

Here's where things get a bit tricky: On public blockchains, anyone can see pending transactions. Some sophisticated bots and traders use this visibility to front-run trades - they jump ahead in line and profit from the price movements that your trade causes.

This is part of a broader problem called  [Maximal Extractable Value](https://cow.fi/learn/a-guide-to-mev-on-ethereum-explained-cow-dao?ref=learn_search)(MEV) - where someone extracts value from a block by strategically ordering transactions. And unfortunately, regular users and liquidity providers often lose out in this process.

Find out more about  [MEV and how it works here.](https://cow.fi/learn/a-guide-to-mev-on-ethereum-explained-cow-dao?ref=learn_search)

### Loss Versus Rebalancing (LVR)

[LVR](https://cow.fi/learn/what-is-loss-versus-rebalancing-lvr?ref=learn_search)  is a form of arbitrage that occurs whenever an AMM has an outdated (stale) price in comparison to some other trading venue. Arbitrageurs exploit this difference by trading from the AMM to the more liquid exchange (usually a centralized exchange like Binance), correcting the arbitrage and extracting value from LPs in the process.

Find out more about  [LVR and how it works here](https://cow.fi/learn/what-is-loss-versus-rebalancing-lvr?ref=learn_search).

## Introducing CoW AMM: A New Kind of AMM

This is where  [CoW AMM](https://cow.fi/cow-amm)  comes in - a novel approach developed by  [CoW DAO](https://cow.fi/)  that addresses some of the most pressing issues facing current AMM models.

Let's explore how this system works and why it might represent the next evolution in decentralized trading.

What Makes CoW AMM Different?

### Protection from MEV

[CoW AMM](https://cow.fi/cow-amm)  tackles MEV head-on by using batch auctions and intent-based trading.

Rather than letting every trade hit the chain instantly (and visibly), CoW AMM allows multiple trade "intents" to be submitted off-chain. Then, these intents are matched and executed together in a single batch.

Because all trades are processed simultaneously, there's no opportunity for front-running - bots can't jump ahead and exploit your trade.

This process happens through a solvers network - specialized bots that compete to offer users the best execution. It's a win-win for both users and liquidity providers.

### Capital Efficiency & Enhanced Yield

Traditional AMMs spread liquidity across the entire possible price range. That means your tokens might sit unused if no trades happen near their price.

CoW AMM allows LPs to concentrate their liquidity into targeted price ranges - making better use of capital and increasing the chance that they'll earn trading fees.

It works similarly to how index funds concentrate around certain market segments. That's why a CoW AMM - once new features have been deployed - acts as an "enhanced index fund" for DeFi - your funds are passively managed, but smartly deployed for better returns.

## Real-Life Example: CoW AMM in Action

Let's say you want to swap 1 ETH for USDC using CoW AMM.

1.  You submit an "intent to trade" - a request that says, "I want to swap 1 ETH for the best possible amount of USDC."
    
2.  Your intent goes into a batch with many others.
    
3.  CoW Protocol's solver network analyzes the best path for execution - across multiple pools, DEXs, or even aggregators.
    
4.  The batch is executed, and you receive your USDC - with less slippage, no MEV, and often a better price than on a traditional AMM.
    

As a result, users trade with confidence, and LPs see better yields.

## Why This Matters (Especially for Beginners)

CoW AMM's design brings professional-level optimization to everyday users. You don't need to understand complicated strategies or monitor the markets constantly. Just deposit tokens, or trade when you need to - and the system handles the rest with fairness and efficiency.

For beginners, this means:

-   No need to worry about front-running or being "gamed"
    
-   Easier, smoother trades with better pricing
    
-   A safer and more welcoming introduction to DeFi
    

## Traditional Market Makers vs. AMMs vs. CoW AMM
![Screenshot 2025-04-15 at 15.48.20.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Screenshot_2025_04_15_at_15_48_20_233ef525c4.png)

## Final Thoughts: The Future of AMMs

Automated Market Makers are one of the pillars of decentralized finance. They've allowed people to trade without centralized exchanges, earn passive income through liquidity provision, and create more open financial systems.

But as with any technology, innovation is key.

[CoW AMM](https://cow.fi/cow-amm)  represents a next-generation evolution of this idea - one that's more secure, more capital efficient, and more user-friendly. By solving key problems like MEV and improving how liquidity is deployed, CoW DAO is helping build a DeFi ecosystem that truly works for everyone.

Whether you're a beginner exploring DeFi for the first time or a seasoned user looking for better tools, AMMs - and especially  [CoW AMM](https://cow.fi/cow-amm)  - are worth your attention.

### 📚 Want to Learn More?

-   [CoW DAO: The First MEV-Capturing AMM](https://cow.fi/learn/cow-dao-launches-the-first-mev-capturing-amm?ref=learn_search)
    
-   [Why CoW AMMs Act as Enhanced Index Funds](https://cow.fi/learn/why-cow-amms-act-as-enhanced-index-fund?ref=learn_search)

large_AMM (1).png

medium_AMM (1).png

small_AMM (1).png

thumbnail_AMM (1).png

AMM (1).png

AMMs power the DeFi world, but how do they work? In this guide we'll explore what makes them tick, as well as different types. 

Understanding Automated Market Makers: A Beginner’s Guide to DeFi Liquidity

Receiving cryptocurrency into your Robinhood Wallet from another wallet gives you control over your digital assets. This process, known as a crypto transfer or deposit, involves moving cryptocurrency from an external wallet you control to your Robinhood account where you can trade, hold, or manage those funds.

Understanding this process matters because it allows you to consolidate crypto holdings from different platforms into one place, move funds between different types of wallets, and access Robinhood's trading features with crypto you already own.

## Understanding crypto addresses and networks

Every cryptocurrency transaction requires a specific address - a unique string of characters that identifies where the crypto should be sent. Think of this like a bank account number, but for digital assets.

Your Robinhood account generates unique addresses for each supported cryptocurrency. These addresses are tied permanently to your account, meaning crypto sent to these addresses will be credited to your Robinhood balance once the transaction is confirmed.

Networks are the underlying blockchain systems that process cryptocurrency transactions. Bitcoin operates on the Bitcoin network, Ethereum operates on the Ethereum network, and so on. Some cryptocurrencies can exist on multiple networks - for example, USD Coin (USDC) can be sent over Ethereum, Polygon, or other compatible networks.

The critical rule is this: you must send crypto over a network that Robinhood supports for that specific cryptocurrency. Sending Bitcoin over the Bitcoin network to your Robinhood Bitcoin address works perfectly. Sending Bitcoin to your Robinhood Ethereum address will likely result in permanent loss of those funds.

## How to receive crypto into Robinhood

The process of receiving crypto into your Robinhood account involves generating a deposit address and providing that address to the sender.

Open your Robinhood app and navigate to the detail page for the specific cryptocurrency you want to receive. Each crypto has its own address - you cannot use your Bitcoin address to receive Ethereum, for example.

Select the "Receive" option. Robinhood will generate a unique address for that cryptocurrency tied to your account. This address appears as both a long string of characters and a QR code.

You can copy this address and paste it into the sending wallet, or have the sender scan the QR code if they are physically present. Double-check that you are sharing the correct address for the specific cryptocurrency being sent.

The sender then initiates the transfer from their wallet using your Robinhood deposit address as the destination. Once they submit the transaction, it enters the blockchain network for processing.

## Transfer confirmation and processing times

Cryptocurrency transactions require network confirmations before Robinhood credits the funds to your account. A confirmation occurs each time a new block is added to the blockchain containing your transaction.

Different cryptocurrencies require different numbers of confirmations based on their security requirements. Bitcoin requires 6 confirmations, which takes approximately one hour. Ethereum requires 30 confirmations, taking about 6 minutes. Solana needs only 1 confirmation, completing in roughly 400 milliseconds.

These confirmation requirements protect against double-spending and other security risks. The waiting period ensures the transaction is permanently recorded on the blockchain before Robinhood makes the funds available in your account.

Processing times can vary based on network congestion. During periods of high activity, transactions may take longer than usual estimates. You can track your transaction's progress using a blockchain explorer - a website that shows real-time transaction status.

## Network fees and costs

Every cryptocurrency transaction incurs a network fee, sometimes called a gas fee or miner fee. This fee compensates the network participants who process and confirm transactions.

The sender pays this network fee, not the recipient. When someone sends crypto to your Robinhood address, they pay the network fee from their wallet. You receive the full amount they intended to send, minus any fees their wallet charges for the service.

Network fees fluctuate based on demand. During busy periods, fees increase as users compete to have their transactions processed quickly. During quiet periods, fees decrease.

Robinhood does not charge fees for receiving cryptocurrency deposits. The only costs involved are the network fees paid by the sender.

## Supported cryptocurrencies and networks

Robinhood supports receiving transfers for dozens of cryptocurrencies across multiple networks. Major cryptocurrencies like Bitcoin, Ethereum, Dogecoin, and Solana are fully supported.

Each cryptocurrency must be sent over its appropriate network. Bitcoin uses the Bitcoin network, Ethereum and most tokens use the Ethereum network, and Solana-based tokens use the Solana network.

Some cryptocurrencies exist on multiple networks. For example, USD Coin operates on Ethereum, Polygon, and other networks. When receiving such cryptocurrencies, verify that the sender is using a network Robinhood supports for that specific token.

Before initiating any transfer, confirm both the cryptocurrency and network are supported. Sending unsupported cryptocurrencies or using unsupported networks may result in permanent loss of funds.

## Address formats and compatibility

Different cryptocurrencies use different address formats, and Robinhood supports specific formats for each cryptocurrency.

Bitcoin addresses may start with "1", "3", or "bc1q" depending on the address type. Robinhood supports all these standard Bitcoin address formats.

Ethereum addresses always start with "0x" and work for Ethereum and all tokens built on the Ethereum network.

Solana addresses use a different format entirely and work only for Solana-based cryptocurrencies.

Using an incompatible address format will prevent the transaction from being submitted successfully. The sending wallet will typically display an error if you try to use an incorrect address format.

## Regulatory compliance requirements

Robinhood must comply with Transfer of Funds Regulation (TFR) for certain cryptocurrency transactions. This regulation improves transaction security and prevents money laundering.

For transfers above specified thresholds, Robinhood may request information about the sender. This typically includes the sender's name, address, and identification details.

If you receive a large deposit, you might need to provide information about where the crypto came from. This could involve verifying that you own the sending wallet or providing details about the person or entity who sent the cryptocurrency.

These requirements help ensure compliance with financial regulations. Providing requested information promptly prevents delays in crediting deposits to your account.

## Security considerations and best practices

Only provide your Robinhood deposit address to trusted sources. Anyone with your deposit address can send cryptocurrency to it, but they cannot access or withdraw funds from your account.

Generate a fresh deposit address for each transaction when possible. While old addresses continue working, using new addresses improves privacy by making it harder for third parties to track your transaction history.

Always double-check addresses before providing them to senders. Cryptocurrency transactions are irreversible, so sending to an incorrect address typically results in permanent loss of funds.

Never send cryptocurrency back to a withdrawal address you received funds from. Robinhood uses different addresses for sending and receiving, and sending to the wrong address may result in lost funds.

Save transaction hashes (transaction IDs) for your records. These unique identifiers allow you to track transaction status and provide proof of transfer if questions arise.

## Common issues and troubleshooting

The most common issue is network-related delays. If your deposit takes longer than expected, check the transaction status using a blockchain explorer. Network congestion can significantly extend processing times.

Address mismatches cause failed transactions. Verify that the cryptocurrency type, network, and address format all match before initiating transfers.

Regulatory compliance requests may delay deposits. Check your Robinhood app for any pending questions or information requests that need responses before deposits can be processed.

Some transactions may require additional verification steps, especially for large amounts or first-time senders. Responding promptly to any verification requests prevents unnecessary delays.

If you believe you sent cryptocurrency to the correct Robinhood address but it has not been credited after the expected confirmation time, contact Robinhood support with the transaction hash and details about the transfer.

Your Robinhood account needs to have crypto transfers enabled before you can receive deposits. This requires identity verification and two-factor authentication setup, which can take up to 5 business days to process initially.

Receiving cryptocurrency into Robinhood gives you access to their trading platform while maintaining the flexibility to transfer funds between different wallets and services. Understanding the process, requirements, and potential issues helps ensure smooth transfers and protects your digital assets.

## FAQs
### Can I transfer crypto from an external wallet to Robinhood?
Yes, you can transfer cryptocurrency from external wallets to Robinhood. You'll need to ensure you're using the correct deposit address for the specific cryptocurrency and sending it over a supported network.

### How do I receive crypto into my Robinhood account?
Navigate to the specific cryptocurrency's detail page in your Robinhood app, select "Receive," and you'll get a unique deposit address. Share this address with the sender or scan the QR code to receive the crypto.

### What cryptocurrencies can I receive in Robinhood?
Robinhood supports receiving major cryptocurrencies like Bitcoin, Ethereum, Dogecoin, and Solana, along with various other tokens. Each cryptocurrency must be sent over its appropriate network.

### How long do crypto transfers take to appear in Robinhood?
Transfer times vary by cryptocurrency. Bitcoin requires 6 confirmations (about 1 hour), Ethereum needs 30 confirmations (about 6 minutes), and Solana requires just 1 confirmation (approximately 400 milliseconds).

### Are there fees for receiving crypto in Robinhood?
Robinhood doesn't charge fees for receiving cryptocurrency. However, the sender will pay network fees (gas fees) for the transaction, which vary based on network congestion.

### What happens if I send unsupported crypto to my Robinhood wallet?
Sending unsupported cryptocurrencies or using unsupported networks may result in permanent loss of funds. Always verify that both the cryptocurrency and network are supported before initiating transfers.

### How do I find my Robinhood crypto wallet address?
Open the Robinhood app, go to the specific cryptocurrency's detail page, and select "Receive." This will generate your unique deposit address for that cryptocurrency.

### Do I need to verify my identity to receive crypto?
Yes, you need to have crypto transfers enabled on your account, which requires identity verification and two-factor authentication setup. This process can take up to 5 business days.

### What should I do if my crypto transfer doesn't arrive?
Check the transaction status using a blockchain explorer, verify the address and network used, and ensure you've responded to any compliance requests. If issues persist, contact Robinhood support with the transaction hash.

### Can I use the same address for different cryptocurrencies?
No, each cryptocurrency has its own unique address. You cannot use your Bitcoin address to receive Ethereum, for example. Always use the specific address generated for each cryptocurrency.

Transfer cryptocurrency from external wallets to your Robinhood account by generating unique deposit addresses for each crypto. Complete guide covering supported networks, confirmation times, fees, security best practices, and troubleshooting common trans

How to receive crypto into Robinhood from another wallet

Messari's homepage provides an immediate snapshot of market conditions through its comprehensive market overview section. The platform displays critical metrics including total market capitalization, daily volume, and dominance percentages for major cryptocurrencies. Currently, Bitcoin maintains 57.43% market dominance, while Ethereum holds 11.06%. These dominance figures serve as important indicators of market sentiment and capital flow patterns.

Market dominance represents each cryptocurrency's share of the total market value. When Bitcoin's dominance increases, it typically indicates that investors are moving capital from alternative cryptocurrencies (often called "altcoins") back into Bitcoin, frequently during periods of uncertainty or market consolidation.

The price and chart section offers multiple timeframes ranging from 12-hour to 5-year views, allowing users to identify both short-term momentum and long-term trends. For example, examining the top 100 assets reveals that HYPE (Hyperliquid) at position 12 with a $15.72 billion market cap represents a significant new entrant that wasn't present in previous market cycles. Similarly, tokens like PENGU (Pudgy Penguins) at position 65 with a $1.95 billion market cap demonstrate how new projects can rapidly achieve substantial valuations in this emerging asset class.

## Mindshare analysis for trend identification

The Mindshare feature represents one of Messari's most valuable tools for identifying emerging trends. This metric tracks social media mentions, news coverage, and community engagement across various cryptocurrencies. Think of mindshare as measuring the "buzz" or attention a cryptocurrency receives across digital platforms. The current data shows Ethereum leading with 20.3% mindshare, experiencing a 122.13% increase over 24 hours. More notably, VIRTUAL (Virtuals Protocol) shows 0.95% mindshare with a remarkable 54.95% daily increase, indicating rapidly growing interest in this particular project.

When analyzing mindshare data, look for tokens with relatively low absolute mindshare percentages but high growth rates. These often represent emerging opportunities before they reach mainstream attention. For instance, if a token shows 0.5% mindshare but demonstrates consistent 20-30% daily growth over several days, this pattern could indicate an emerging trend worth investigating further.

## Sector analysis and market rotation patterns

Messari categorizes cryptocurrencies into distinct sectors, enabling users to identify sector rotation patterns and emerging themes. This sectoral approach mirrors traditional equity markets, where capital often flows between industries based on changing investor sentiment and economic conditions. The AI sector has gained significant prominence, with aixbt ranking 14th in the AI category and 4th in the AI Agents sub-sector. This positioning suggests that artificial intelligence-related tokens are experiencing substantial growth and investor interest.

When examining sector trends, consider both established sectors like DeFi (Decentralized Finance) and emerging categories. DeFi refers to blockchain-based alternatives to traditional financial services like lending and trading. The DePIN (Decentralized Physical Infrastructure Networks) sector has shown increasing research coverage and development activity. DePIN projects use token incentives to build real-world infrastructure networks, from wireless connectivity to data storage. Messari's research section frequently publishes reports on emerging sectors, providing early insights into potentially significant trends.

## Research and fundamental analysis

Messari's research division produces comprehensive reports that often highlight emerging trends months before they become widely recognized. These institutional-grade analyses examine the technological, economic, and regulatory factors driving specific cryptocurrency sectors and projects. Recent publications have covered topics ranging from DePIN infrastructure to gaming blockchain integration. The research section serves as an early warning system for identifying trends before broader market recognition occurs.

Consider the July 2025 report on "DePIN Summit Africa," which explores market fit for decentralized infrastructure in emerging markets. Such reports provide fundamental insights that can guide investment decisions in related tokens before broader market recognition occurs. Similarly, reports on specific protocols like MapleStory N highlight how traditional gaming companies are entering blockchain, creating opportunities in gaming-related tokens.

## News aggregation and event-driven opportunities

The news section aggregates cryptocurrency-related developments from multiple sources, providing real-time information about regulatory changes, partnership announcements, and technological developments. Recent examples include the UK Home Office's potential $7 billion Bitcoin sale and Charles Schwab's announcement of upcoming crypto trading services.

Event-driven opportunities often emerge from regulatory clarity, institutional adoption announcements, or technological breakthroughs. Regulatory clarity refers to clear government guidelines about how cryptocurrencies will be treated legally and for tax purposes. For instance, news about Ethereum staking ETF approvals could signal opportunities in liquid staking tokens like stETH or similar derivatives. Staking involves locking cryptocurrency to support network operations and earn rewards, while liquid staking tokens represent staked assets that can still be traded. Similarly, announcements about major corporations entering specific sectors can create opportunities in related tokens.

## Volume and market capitalization analysis

Analyzing unusual volume patterns can reveal emerging opportunities. Trading volume represents the total dollar value of transactions in a given period, indicating the level of interest and activity in a particular cryptocurrency. The platform displays both spot and futures volume data, helping identify tokens experiencing significant trading activity. Spot trading involves immediate delivery of assets, while futures involve contracts for future delivery. For example, Kyber Network Crystal Legacy (KNC) shows $142 million in 24-hour volume with a 2,384.59% increase, indicating unusual activity that warrants investigation.

When evaluating market capitalization data, focus on the relationship between market cap and fully diluted valuation (FDV). Market cap represents the total value of currently circulating tokens, while FDV represents the theoretical value if all planned tokens were in circulation. Tokens with market cap-to-FDV ratios above 90% indicate limited token supply inflation risk, while lower ratios suggest potential dilution concerns. This analysis helps identify tokens with favorable supply dynamics.

## Performance metrics and technical analysis

Messari provides comprehensive performance data including all-time highs, cycle lows, and various timeframe returns. Market cycles in cryptocurrency typically refer to periods of growth and decline that last several years, often influenced by factors like regulatory developments, institutional adoption, and technological upgrades. This information helps identify tokens that may be oversold or approaching significant technical levels. For instance, aixbt shows an 81.50% decline from its all-time high of $0.941, potentially indicating an oversold condition if fundamental factors remain strong.

Performance analysis should consider both absolute and relative metrics. A token that has declined 50% might appear weak in isolation but could represent strength if the broader market declined 70% during the same period. Relative performance analysis helps identify tokens that are outperforming during market downturns, often indicating stronger fundamental support or unique value propositions.

## Artificial intelligence-powered market insights

The daily recap feature provides AI-generated summaries of significant market developments, helping users quickly identify emerging themes. Recent recaps have highlighted Bitcoin's new all-time highs, institutional interest developments, and regulatory progress. These summaries help users stay informed about macro trends that could impact specific sectors or tokens.

The AI recap functionality extends beyond simple news aggregation, providing context about why certain developments matter for different market segments. This contextual analysis proves particularly valuable for understanding the interconnected nature of cryptocurrency markets and identifying second and third-order effects of major announcements.

## Systematic approach to trend identification

To effectively identify emerging trends using Messari, establish a systematic analytical approach. Begin each analysis session by reviewing the market overview to understand overall conditions and sentiment. Market sentiment refers to the general attitude of investors toward the cryptocurrency market, which can significantly influence price movements and capital allocation patterns.

Next, examine the mindshare data for tokens showing unusual growth patterns. Cross-reference these findings with recent research publications and news developments to understand the fundamental drivers behind the trends. For example, if AI agents show increasing mindshare, examine tokens like VIRTUAL or aixbt for specific opportunities within that trend. Then review research reports about AI agent protocols to understand the technological and market factors driving adoption. Finally, check news sources for regulatory developments or partnership announcements that might accelerate or hinder the trend.

## Risk assessment and due diligence

While Messari provides extensive data for identifying trends, proper risk assessment remains crucial for responsible investing. Examine token distribution patterns, security audit reports, and development activity to validate opportunities. Token distribution refers to how cryptocurrency holdings are spread among different addresses and entities – concentrated ownership can create volatility risks. The platform includes information about security audits and potential vulnerabilities, as demonstrated in the aixbt profile which notes a previous security incident and subsequent remediation measures.

Consider market timing factors when evaluating opportunities. Tokens showing strong mindshare growth during overall market uptrends may face significant corrections during market downturns. Conversely, tokens maintaining mindshare growth during market stress often demonstrate stronger fundamental support and real-world utility.

Messari offers powerful tools for identifying emerging cryptocurrency trends through its comprehensive data aggregation, research capabilities, and analytical features. The platform's strength lies in providing early access to institutional-grade research and real-time market sentiment data, enabling users to identify opportunities before they reach mainstream recognition. Success requires systematic application of these tools combined with fundamental analysis and prudent risk management principles.

Effective trend identification using Messari requires combining multiple data sources including mindshare analysis, research publications, news developments, and fundamental metrics. This comprehensive approach helps distinguish between temporary market fluctuations and genuine emerging opportunities with long-term potential. Regular monitoring and systematic analysis of these diverse data streams position users to better understand and participate in the dynamic cryptocurrency market.
## Frequently asked questions
### How can I identify emerging trends in the cryptocurrency market?

Start by analyzing multiple data points systematically. Monitor social media mentions and mindshare metrics to spot tokens with low absolute percentages but high growth rates - for example, a token with 0.5% mindshare showing consistent 20-30% daily growth could indicate an emerging opportunity. Examine sector rotation patterns by tracking which categories like AI, DeFi, or DePIN are gaining institutional attention. Cross-reference unusual volume patterns with fundamental developments, and look for tokens maintaining growth during market stress as they often have stronger underlying support.

### How can I discover upcoming crypto projects before they gain mainstream attention?

Focus on research publications from institutional sources that often highlight emerging sectors months before widespread recognition. Monitor mindshare data for tokens showing rapid percentage increases even if their absolute mindshare remains low. Track sector analysis reports covering emerging categories like AI agents or decentralized infrastructure networks. Additionally, watch for news about traditional companies entering blockchain or regulatory developments that could create new opportunities in related tokens.

### Which cryptocurrencies have 1000x potential?

Tokens with 1000x potential typically emerge from revolutionary technological breakthroughs, massive market adoption, or entirely new use cases. Look for projects in emerging sectors like AI agents, decentralized physical infrastructure (DePIN), or gaming blockchain integration before they reach mainstream attention. Focus on tokens with favorable supply dynamics (market cap-to-FDV ratios above 90%), strong development activity, and growing institutional interest. However, remember that 1000x returns are extremely rare and come with proportionally high risks.

### What is the cryptocurrency classification system used for market analysis?

Cryptocurrency classification systems organize digital assets into distinct sectors based on their primary use cases and functionality. Common categories include DeFi (Decentralized Finance) for lending and trading protocols, AI for artificial intelligence-related tokens with sub-categories like AI Agents, gaming tokens for blockchain-based games, infrastructure tokens for network operations, and DePIN (Decentralized Physical Infrastructure Networks) for real-world infrastructure projects. This classification helps identify sector rotation patterns and enables targeted analysis of specific market segments.

Discover emerging crypto trends with Messari's comprehensive platform featuring market dominance tracking, mindshare analysis, sector rotation patterns, and AI-powered insights to identify opportunities before mainstream recognition.

How to identify emerging trends and tokens with Messari

Token holder distribution refers to how cryptocurrency tokens are spread among different wallet addresses and entities. This analysis reveals the concentration of ownership, identifies key stakeholders, and provides insights into the token's risk profile. A well-distributed token typically indicates healthier market dynamics, while excessive concentration in few hands can signal potential manipulation risks.

When analyzing token holder distribution, three primary factors matter most: who the major holders are, how ownership concentration affects price stability, and what activities these holders engage in with their tokens.

## Analyzing top holders and entity breakdown

Nansen's Token God Mode provides comprehensive views of top token holders organized by entity. This feature aggregates addresses belonging to the same organization or individual, giving you a clearer picture of actual ownership concentration rather than just address-level distribution.

Consider a hypothetical analysis of Ethereum token distribution. The top holders might include entities like Binance holding 8.2% of total supply, Coinbase with 4.7%, and various smart money addresses with smaller but significant positions. Understanding these entities helps assess both liquidity risks and market sentiment.

The quality of token holders often reflects the project's legitimacy and potential. When analyzing Compound's holder distribution, discovering that entities like Andreessen Horowitz and Polychain Capital are major holders signals institutional confidence. These sophisticated investors typically conduct extensive due diligence before taking large positions.

## Examining ownership concentration patterns

Ownership concentration analysis helps identify potential market manipulation risks and liquidity concerns. Nansen displays this information through various visualization tools, including percentage breakdowns and balance distribution charts.

For example, when examining Uniswap token distribution, you might find that the top 10 holders control 45% of total supply, with the largest single entity holding 12%. This concentration level requires careful consideration, as coordinated selling by major holders could significantly impact price stability.

Balance changes over time provide crucial insights into holder sentiment. If major Chainlink holders have been steadily increasing their positions over the past six months while retail holders remain stable, this suggests institutional confidence in the project's long-term prospects.

## Tracking holder activity and behavior changes

Understanding what token holders do with their holdings provides insights beyond simple ownership statistics. Nansen tracks whether holders are staking tokens, providing liquidity, or keeping them idle in wallets.

In a hypothetical analysis of Aave tokens, you might discover that 65% of tokens held by major entities are actively staked in governance contracts, while 20% are provided as liquidity on decentralized exchanges. This active participation suggests holders are committed to the ecosystem rather than merely speculating on price movements.

Recent balance changes among top holders reveal market sentiment shifts. If three major MakerDAO holders reduced their positions by 15-25% over the past month while two others increased holdings by similar amounts, this suggests portfolio rebalancing rather than systematic selling pressure.

## Monitoring smart money and institutional holdings

Smart Money tracking within token holder analysis helps identify whether sophisticated investors are accumulating or distributing positions. Nansen's Smart Money dashboard shows both the number of smart money addresses holding tokens and their aggregate holdings over time.

When analyzing Polygon token distribution, you might observe that Smart Money holdings increased from 180 million tokens to 220 million tokens over three months, while the number of Smart Money addresses grew from 45 to 62. This trend suggests growing institutional interest and potentially positive price momentum.

The timing of Smart Money accumulation matters significantly. If major smart money addresses began accumulating Solana tokens six months before a major price rally, tracking similar patterns in other tokens might help identify future opportunities.

## Evaluating distribution health and risk factors

Healthy token distribution typically shows gradual ownership spread across many addresses rather than extreme concentration. Nansen's distribution charts help visualize whether tokens are becoming more or less concentrated over time.

A well-distributed token might show the top 100 holders controlling 60% of supply, with no single entity exceeding 8% ownership. Concerning distribution patterns include single entities controlling over 20% of supply or the top 10 holders owning more than 70% of tokens.

Exchange holdings within top holder analysis require special attention. High exchange concentration might indicate selling pressure, while decreasing exchange balances often suggest investors are moving tokens to self-custody for longer-term holding.

## Setting up monitoring and alert systems

Effective token holder distribution analysis requires ongoing monitoring rather than one-time evaluation. Nansen's Smart Alerts enable automated tracking of significant holder changes, allowing you to respond quickly to important developments.

Setting alerts for top holder balance changes above certain thresholds helps catch major movements early. For instance, alerts triggered when any top 20 Ethereum holder's balance changes by more than 5% can provide early warning of potential market impacts.

Entity-specific alerts prove particularly valuable for tracking known smart money addresses or institutional holders. Monitoring when specific entities like Three Arrows Capital or Jump Trading modify their positions provides insights into professional trading strategies.

## Practical analysis workflow

Begin token holder analysis by accessing Nansen's Token God Mode for your target cryptocurrency. Start with the Token Distribution tab to understand overall ownership concentration, then examine individual top holders to assess entity quality and recent activity patterns.

Next, analyze the balance changes section to identify recent holder behavior trends. Look for patterns such as consistent accumulation by smart money addresses or systematic distribution by early investors. Cross-reference these patterns with price movements to understand market dynamics.

Finally, examine what holders are doing with their tokens through the balances breakdown. High staking percentages typically indicate long-term holder confidence, while significant exchange deposits might suggest preparation for selling activity.

## Integration with broader investment analysis

Token holder distribution analysis works best when combined with other fundamental and technical analysis methods. While distribution analysis reveals ownership patterns and holder behavior, it should be considered alongside factors like protocol usage metrics, development activity, and market conditions.

Understanding token holder distribution provides crucial context for price movements and helps assess investment risks. However, market dynamics involve multiple factors, and holder analysis represents just one component of comprehensive cryptocurrency evaluation.

By systematically analyzing token holder distribution using Nansen's comprehensive tools, investors can make more informed decisions about cryptocurrency investments while better understanding the risks and opportunities present in different tokens' ownership structures.

## Frequently asked questions

### How to check top holders of a token?

To check top holders of a token, access comprehensive token analysis tools that provide entity-level aggregation rather than just wallet addresses. Start by examining the token distribution tab to view ownership concentration, then analyze individual top holders to assess their quality and recent activity. Look for major holders like exchanges (Binance, Coinbase), institutional investors, and smart money addresses. Pay attention to what percentage of total supply each entity holds - healthy distribution typically shows no single entity exceeding 8% ownership, while concerning patterns include entities controlling over 20% of supply.

### How to analyze crypto tokenomics?

Crypto tokenomics analysis involves examining token holder distribution patterns, ownership concentration, and holder behavior over time. Focus on three key areas: identifying who the major holders are (exchanges, institutions, retail), understanding how ownership concentration affects price stability, and tracking what activities holders engage in with their tokens. Analyze whether tokens are being staked, used for liquidity provision, or held idle. Healthy tokenomics typically show gradual ownership spread across many addresses, active token utilization in protocol governance or staking, and balanced distribution where top 100 holders control around 60% of supply with reasonable individual limits.

### How to read crypto wallet transactions?

Reading crypto wallet transactions requires understanding transaction types, amounts, timing patterns, and counterparty analysis. Look for patterns in holder behavior such as consistent accumulation or systematic distribution. Track balance changes over time to identify sentiment shifts - if major holders steadily increase positions while retail remains stable, this suggests institutional confidence. Pay attention to transaction destinations: movements to staking contracts indicate long-term commitment, while transfers to exchanges might signal selling pressure. Monitor whether sophisticated investors are accumulating or distributing, and cross-reference transaction timing with market movements to understand professional trading strategies.

### How to do onchain analysis?

Onchain analysis involves systematically examining blockchain data to understand market dynamics and holder behavior. Start by analyzing token distribution to assess ownership concentration and identify key stakeholders. Track smart money addresses and institutional holdings to gauge sophisticated investor sentiment. Monitor balance changes among top holders to detect early warning signs of market movements. Set up automated alerts for significant holder changes above certain thresholds. Examine what holders do with their tokens - high staking percentages indicate confidence, while exchange deposits might suggest selling preparation. Combine holder analysis with protocol usage metrics, development activity, and market conditions for comprehensive evaluation.

Analyze cryptocurrency token holder distribution patterns with comprehensive insights on ownership concentration, smart money tracking, and institutional holdings. Learn to identify market manipulation risks and investment opportunities through systematic

How to analyze token holder distribution with Nansen

![MEV attacks.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/MEV_attacks_25da5820e4.png)
Maximal Extractable Value (MEV) attacks have become a significant concern for crypto traders. Whether you’re a beginner or an experienced trader, understanding MEV attacks is essential to protecting your transactions and ensuring fair trading practices.

In this article, we explain what MEV attacks are, how they work, and the best strategies for safeguarding yourself against them.

## MEV Attacks Go Beyond Standard Transaction Fees

Crypto traders are familiar with structural fees, such as:

-   Exchange fees – Charges applied by centralized or decentralized exchanges.
    
-   Execution fees – Costs associated with executing trades.
    
-   Gas fees – Payments made to blockchain miners or validators for processing transactions.
    

However, MEV attacks differ from these standard fees. Rather than being inherent costs of using the blockchain, MEV attacks exploit vulnerabilities in the transaction processing model to extract additional value at the expense of traders.

## “Inevitable” MEV vs MEV Attacks

### What is MEV?

MEV refers to the value that can be extracted from a blockchain transaction beyond standard fees. This extraction is done by reordering, inserting, or censoring transactions before they are confirmed on-chain.

MEV is a hidden tax on all types of Ethereum transactions. That means any time you want to transact in DeFi: from buying or selling an NFT, lending tokens to a liquidity pool, or swapping one token for another, a group of opportunistic users known as “searchers” have the opportunity to see your trade, and manipulate the criteria surrounding your trade to ensure they make profit, at your expense.

  

There are lots of different ways MEV can take place on Ethereum, which we’ll explore further down in the article. But for now, it’s important to understand the mechanics of MEV, and their presence on many chains like Ethereum.

### The MEV Debate: Good or Bad?

Some argue that MEV is a natural incentive mechanism compensating searchers and validators for optimizing transaction sequencing. Others see it as an unfair exploitation that degrades user experience and creates hidden costs.

Want to read more about this debate? [We have an article that explores the pros and cons in more detail.](https://cow.fi/learn/is-mev-good-or-bad)

MEV makes money for searchers, block builders, and Ethereum validators at the expense of regular users, especially beginners who don’t know how to protect themselves. As of the time of writing, sandwich attacks on AMMs and aggregators alike generate [almost $1 million in profit for searchers each week](https://eigenphi.io/mev/ethereum/sandwich).

  

Over time, persistent MEV erodes market confidence as traders realize they are at a constant disadvantage to more sophisticated actors. Ultimately, MEV may pose an existential threat to blockchain ecosystems like Ethereum, so it’s imperative for solutions to emerge that protect everyday traders from price exploitation.

  

The reality is, there is little appetite to change the design of chains like Ethereum, meaning MEV is here to stay. While it does help prices remain consistent across different liquidity pools, it creates a hierarchy between sophisticated actors looking for arbitrage and regular users unaware that their transactions could be exploited.

## What is an MEV Attack?

An MEV attack is a deliberate manipulation of transaction ordering in a way that unfairly profits a searcher at the expense of traders. MEV attacks actively exploit transaction sequencing vulnerabilities.

## Overview: How Searchers Implement an MEV Attack

MEV attacks exploit the mempool, a public waiting area where transactions reside before being confirmed. Here’s how searchers implement an MEV attack:

1.  Transactions enter the mempool before being included in a block.
    
2.  MEV searchers monitor the mempool for profitable opportunities.
    
3.  Searchers select, reorder, or delay transactions to maximize their gains.
    
4.  They execute transactions that benefit from market movement, often at the expense of regular traders.
    

### Example of an MEV Attack

Imagine a trader places a large buy order for a token. A searcher detects this order in the mempool and inserts their own buy order first. Once the trader’s transaction pushes the price up, the searcher sells the token at a higher price—pocketing the profit at the trader’s expense.

## Common Types of MEV Attacks

### Frontrunning Attacks

  

[Frontrunning](https://cow.fi/learn/what-is-frontrunning) is when a bot sees a profitable transaction in a public mempool, duplicates it, and places their own order in front of the victim transaction, extracting its value for themselves.

  

If you’re interested in understanding frontrunning more fully, check out our [frontrunning blog post](https://cow.fi/learn/what-is-frontrunning).

### Backrunning Attacks

  

These attacks are similar to frontrunning but in reverse. In [backrunning](https://cow.fi/learn/what-is-backrunning-mev-attacks-explained), the attacker places a transaction after the victim transaction to capitalize on any arbitrage left by the victim’s order. Frontrunning and backrunning transactions are not very common by themselves, but a combination of the two, known as a “sandwich attack,” accounts for most MEV.

  

If you’re interested in understanding backrunning more fully, check out our [backrunning blog post.](https://cow.fi/learn/what-is-backrunning-mev-attacks-explained?ref=learn_search)

### Sandwich Attacks

  

[Sandwich attacks](https://cow.fi/learn/what-is-a-sandwich-attack-and-how-can-you-protect-yourself) combine frontrunning and backrunning, placing a buy order before the victim transaction and a sell order directly after. This creates a “sandwich” of the victim transaction.

  

If you’re interested in understanding sandwich attacks more fully, check out our [sandwich attacks blog post.](https://cow.fi/learn/what-is-a-sandwich-attack-and-how-can-you-protect-yourself?ref=learn_search)

### Loss-Versus-Rebalancing (LVR)

LVR is a sophisticated strategy where MEV searchers exploit the difference between a DEX’s price and an external market price.

Targeting liquidity providers, LVR is a form of MEV responsible for more price exploitation than all other forms of MEV combined. Many liquidity providers haven’t even heard of LVR, but it costs them 5–7% of their liquidity, resulting in hundreds of millions lost each year. In fact, when accounting for LVR, many of the largest liquidity pools are not profitable for LPs at all.

If you’re interested in understanding LVR more fully, [check out our LVR blog post.](https://cow.fi/learn/what-is-loss-versus-rebalancing-lvr?ref=learn_search)

## How MEV Attacks Hurt Crypto Traders

Maximal Extractable Value (MEV) attacks pose serious risks to both individual traders and the broader decentralized finance (DeFi) ecosystem. These attacks allow validators, miners, or other privileged actors to manipulate transactions for their own gain, leading to inefficiencies, increased costs, and a loss of trust in DeFi markets.

The negative impacts of MEV can be categorized into four major areas: unexpected losses and slippage, compromised trade execution, distorted market conditions, and a general erosion of confidence in decentralized trading platforms.

We explore each of these in turn below.

### Unexpected Losses and Slippage

One of the most immediate consequences of MEV attacks is that traders often experience worse-than-expected execution prices. This occurs due to front-running and sandwich attacks, two common forms of MEV exploitation.

-   **Front-running:** A validator or miner sees a pending trade and inserts their own transaction ahead of it, profiting from price changes before the original trade is executed. This forces the original trader to buy at a higher price or sell at a lower price than anticipated.
    
-   **Sandwich attacks:** This occurs when an attacker places one trade before and another trade after a target transaction. By manipulating prices through these additional transactions, the attacker forces the victim to complete their trade at a disadvantageous rate, profiting from the resulting price changes.
    

Both types of attacks create additional transaction costs, leading to unnecessary losses for unsuspecting traders. Even small-scale traders who frequently engage in swaps and liquidity provision can suffer from repeated losses over time, making DeFi trading less attractive.

### Compromised Trade Execution and Price Distortion

MEV attacks undermine the integrity of decentralized markets by interfering with the natural process of price discovery. Price discovery refers to the process by which market prices are determined based on supply and demand dynamics. However, when MEV bots and validators manipulate transactions, the resulting prices are no longer purely organic.

For example, large MEV attacks can lead to artificial price swings that do not reflect actual market sentiment. Traders making decisions based on manipulated prices may enter trades under false assumptions, increasing their risk of losses. Additionally, compromised trade execution makes it harder for traders to place orders with confidence, as they cannot be certain their transactions will be processed fairly.

### Skewed Markets and Artificial Inefficiencies

MEV-driven market manipulation can introduce significant inefficiencies that distort normal trading activity. Instead of functioning as a free and competitive environment, DeFi markets become skewed in favor of those who have privileged access to transaction data.

As a result, the markets may experience:

-   Reduced liquidity, as traders hesitate to provide liquidity, knowing they may be exploited.
    
-   Increased volatility, due to sudden and unpredictable price swings caused by MEV bots.
    
-   Barriers to entry for new traders who cannot compete with sophisticated MEV strategies.
    

These inefficiencies hinder DeFi’s ability to serve as a viable alternative to traditional finance.

### Erosion of Trust in DeFi

Finally, MEV attacks contribute to growing distrust in decentralized finance. When traders repeatedly experience unexplained losses, poor execution, and unfair market conditions, they begin to question whether DeFi is truly decentralized and transparent.

If MEV exploitation continues unchecked, DeFi platforms risk losing users, stalling adoption, and facing increased regulatory scrutiny. Therefore, addressing MEV challenges is crucial to ensuring a fair and sustainable DeFi ecosystem.

## Protect Yourself Against MEV Attacks

### MEV Blockers

MEV blockers reduce vulnerability to attacks by protecting transactions from manipulation. They work by preventing transactions from being publicly visible in the mempool, making it harder for searchers to exploit them. Read more about MEV blockers here.

### How CoW Swap Mitigates MEV Attacks

CoW Swap gives traders the tools they need to protect themselves from MEV, so when you’re trading through [https://swap.cow.fi/](https://swap.cow.fi/) you’re protected from the majority of opportunistic searchers, regardless of the size or type of trade.

  

CoW Swap relies on 3 main features to keep you safe from MEV:

1.  Delegated Trade Execution
    
2.  Coincidence of Wants
    
3.  Uniform Clearing Prices
    

  

Let’s dive in!

### Delegated Trade Execution

  

On CoW Swap, all transactions are routed through a decentralized network of “solvers” — independent algorithms that are responsible for finding the best execution price for your trades.

  

When you submit a trade on CoW Swap, rather than initiating a blockchain transaction like you would on a platform like Uniswap, you instead submit a signed “intent to trade” message. This means that CoW Swap can perform optimizations on your trade that would not be possible if you submitted the transaction directly to the blockchain.

  

These optimizations include finding Coincidences of Wants, adjusting the slippage tolerance dynamically, and completing your trade at an optimal price during the time of execution.

  

Since it is the solvers who execute your trade on your behalf, you are never directly exposed to the public mempool, meaning that you are protected from MEV at all times.

  

Whatever price solvers quote you at the time you place your order is actually the worst price that your order will be executed at (it may complete at a better price if solvers find a better execution path). All risk of MEV is taken on by the solver itself.

### Coincidence of Wants

  

CoW Swap’s delegated trade execution mechanism has another major advantage — it can match your orders off-chain.

  

Any time you submit a trade on CoW Swap, solvers start looking for the best way to execute it. Before checking on-chain liquidity, solvers check other incoming orders on CoW Swap’s current batch auction to see if your trades can be matched peer-to-peer.

  

Here’s how it works:

  

Let’s say you’re looking to trade ETH for USDC. You submit your order and solvers see that someone else in that batch is actually looking to trade USDC for ETH — the opposite of your trade — at the same time. These two trades will be matched with each other in a “Coincidence of Wants” (CoW) which allows traders to swap their assets with each other directly (one to one or many to many), thereby saving on gas fees, liquidity provider fees, price impact, and also bypassing MEV risks.

  

CoW Swap’s founders were inspired by the potential for Coincidence of Wants to provide lower prices for everyday Ethereum users (it’s in the name!). This mechanism is one of the cheapest and most secure ways to make a DeFi trade, and since you’re not using on-chain liquidity pools, your Coincidence of Wants trade cannot be subject to MEV attacks.

### Uniform Clearing Prices

As a third line of defense against MEV, CoW Swap ensures all orders complete under a “Uniform Clearing Price” (UCP).

  

Upon submitting your trade, your order gets included in a batch auction alongside other pending orders in the queue. All of the orders within a batch trade for the same price on the blockchain, a phenomenon referred to as “Uniform Clearing Price” (UCP).

  

To understand how UCP works on CoW Swap, we first have to consider how DeFi trading works on traditional DEXs. On a normal decentralized exchange, if 8 people want to trade ETH for USDC, each of their trades clears at a slightly different price since DEXs process trades in a sequential manner even though they might be happening concurrently (within the same Ethereum block).

  

This leaves room for MEV because the order in which transactions are processed heavily impacts the prices that users get. Searchers are constantly monitoring DEX trades, looking for opportunities like these where they can reorder transactions to their advantage.

  

On CoW Swap, if the same 8 people are making that trade, as long as they are in the same batch auction, each order will be settled for the same clearing price when it goes on-chain. This leaves no room for MEV attacks since all prices are the same, meaning that transaction ordering becomes irrelevant.

[Learn how CoW Swap solves the MEV problem.](https://cow.fi/learn/dex-aggregator-how-to-choose)

## Final Thoughts

MEV attacks exploit transaction sequencing for profit, often at the expense of everyday traders. While some MEV activities may be considered an unavoidable part of DeFi, MEV attacks actively harm market fairness.

Understanding these attacks and using tools like MEV blockers and fair trading platforms can help protect your transactions and ensure a more equitable DeFi ecosystem.

Interested in learning about MEV and what measures you can deploy to help keep yourself protected? Check out the below.

-   [Understanding MEV Protection](http://cow.fi/learn/understanding-mev-protection)
    
-   [How to avoid MEV bots](http://cow.fi/learn/how-to-avoid-mev-bots)
    
-   [MEV Bots: switch from searcher to solver](http://cow.fi/learn/mev-bots-switch-from-searcher-to-solver)

large_MEV attacks.png

medium_MEV attacks.png

small_MEV attacks.png

thumbnail_MEV attacks.png

MEV attacks.png

An introduction to MEV attacks, including specific strategies: frontrunning, backrunning, loss-versus-rebalancing, and sandwich attacks. 

Understanding MEV attacks

Cryptocurrency markets exhibit predictable patterns before major trends emerge. Professional traders and institutional investors—often called "smart money"—leave digital footprints when they identify promising opportunities. Understanding how to track and interpret these signals provides substantial advantages for identifying trends before they reach mainstream attention.

Nansen, a blockchain analytics platform, aggregates millions of labeled wallet addresses across multiple networks, categorizing trading behaviors and providing real-time insights. This labeling system reveals which addresses consistently identify profitable opportunities and which tokens attract institutional interest.

# Smart money movement analysis

The platform's Smart Money Dashboard categorizes wallets based on historical performance and trading patterns. When multiple high-performing wallets simultaneously accumulate a previously unknown token, this creates a meaningful signal worth investigation.

Consider a scenario where five wallets labeled as "DeFi Smart Money" purchase shares of a new governance token within 24 hours. This coordinated activity rarely occurs by coincidence. The Smart Money Performance charts allow filtering by market capitalization, enabling users to focus specifically on micro-cap opportunities before they gain widespread recognition.

These movements become particularly significant when combined with timing analysis. Smart money often accumulates positions weeks before price appreciation occurs, providing early-entry opportunities for attentive observers.

# Large holder surveillance

Cryptocurrency whales—addresses holding substantial token quantities—significantly influence market dynamics through their trading decisions. Nansen's Token God Mode analyzes top buyers and sellers across different timeframes, revealing accumulation or distribution patterns among large holders.

The platform displays holder distribution, transaction histories, and behavioral patterns tied to specific tokens. Sustained whale accumulation over several days or weeks frequently precedes significant price movements, while distribution patterns often signal potential corrections.

Smart Alerts can notify users instantly when influential wallets execute significant transactions. Monitoring wallets that previously identified successful projects creates an early warning system. For instance, if a whale wallet that successfully identified three separate high-performing tokens begins purchasing a new AI-focused cryptocurrency, this warrants immediate investigation.

# Real-time exchange activity monitoring

Decentralized exchange activity provides immediate insights into market momentum shifts. The platform's DEX Trades feed displays real-time transactions, making it possible to identify momentum changes in newly listed tokens.

Users can filter activity by smart money classifications, token age, and volume increases. Sudden increases in smart money purchases of tokens less than 30 days old, combined with rising volume, often indicate emerging trends.

Volume analysis proves particularly valuable when combined with buyer classification. A 400% volume increase over 24 hours becomes more significant when 60% of purchases originate from wallets with proven track records in specific sectors.

# Community development indicators

While focusing primarily on transaction data, Nansen provides metrics that correlate with community strength. Holder count trends, token distribution patterns, and liquidity pool movements all indicate community growth and engagement levels.

Rapid holder growth combined with healthy token distribution suggests organic development rather than artificial manipulation. The platform tracks these metrics in real-time, providing early signals of genuine community-driven adoption.

Healthy community development typically exhibits specific patterns: steady holder count increases, relatively even token distribution among addresses, and growing liquidity without excessive concentration among few wallets.

# AI-enhanced pattern recognition

The platform's AI-driven Signals Feed adapts to individual user behavior and interests. As users interact with specific token categories or sectors, the system becomes increasingly tailored to surface relevant opportunities automatically.

This AI system analyzes patterns across multiple data points simultaneously—wallet behaviors, transaction volumes, and social metrics. When these patterns align with historically successful projects, the system generates personalized alerts.

The machine learning component becomes more valuable over time as it learns from both successful and unsuccessful trend identifications, refining its signal accuracy.

# Systematic application methods

Effective trend identification requires methodical approaches rather than random observation. Begin with Smart Money dashboard filtering for micro-cap investments to identify early-stage opportunities. Use Token God Mode to analyze holder distribution and identify top accumulating addresses.

Configure alerts on both promising tokens showing early signals and whale wallets with strong historical performance. Monitor exchange activity for volume increases combined with smart money involvement. Track holder growth and distribution patterns to assess community development.

Successful analysis combines multiple confirmation signals. Smart money accumulation alone provides insufficient evidence; combining it with holder growth, healthy distribution, and consistent buying pressure creates more reliable trend identification.

# Risk assessment framework

Early trend identification involves substantial risks. Emerging projects often lack fundamental strength or sustainable community support. While Nansen's data helps identify promising signals, it cannot guarantee project success.

Always supplement on-chain signals with fundamental analysis. Strong smart money interest cannot compensate for poor tokenomics, weak development teams, or unsustainable business models. Position sizing should reflect the high-risk nature of early-stage investments.

Market conditions also affect signal reliability. Bull markets tend to create more false positive signals as speculation increases, while bear markets often provide clearer signals as only genuinely promising projects attract smart money attention.

# Advanced filtering strategies

The platform's filtering capabilities enable precise trend identification through multiple parameter combinations. Users can filter tokens by age, market capitalization, blockchain network, and wallet categories to create targeted searches for specific opportunity types.

Different strategies require different filter combinations. Memecoin identification might focus on tokens less than seven days old with market caps under $10 million and purchases by specialized memecoin traders. DeFi opportunities might emphasize governance tokens with smart money accumulation and growing liquidity pools.

Sector-specific filtering becomes particularly valuable during market cycles when certain categories outperform others. Adapting filter strategies to current market conditions improves signal relevance and accuracy.

Identifying emerging cryptocurrency trends successfully requires combining multiple data sources into coherent, actionable signals. Nansen provides comprehensive infrastructure for tracking smart money movements, whale activity, and community development in real-time.

Success depends on systematic application rather than speculation. Configure appropriate alerts, monitor consistently, and maintain disciplined risk management practices. The platform's analytics create significant advantages for users committed to data-driven approaches, but only when applied systematically and combined with fundamental analysis.

The cryptocurrency market rewards early identification of genuine trends while punishing premature or incorrect assessments. By tracking relevant metrics and maintaining methodical approaches, investors can position themselves advantageously in increasingly competitive markets.

## Frequently asked questions

### How to identify potential crypto coins?

Look for convergence of multiple on-chain signals to identify potential crypto coins. Start by monitoring Smart Money wallets - these are addresses with historically strong performance that often identify opportunities early. When multiple Smart Money wallets simultaneously purchase a token, especially within a 24-48 hour period, this represents a meaningful signal. Additionally, analyze whale activity through holder distribution patterns and transaction history. Healthy token distribution combined with steady accumulation by large holders often precedes significant price movements. Configure alerts on wallets that have previously identified successful projects, and always verify on-chain signals with fundamental analysis of the project's tokenomics and development team.

### How to check trend in crypto?

Monitor real-time DEX activity to identify trending cryptocurrencies. Look for sudden volume increases combined with Smart Money involvement - for example, a 400% volume increase over 24 hours with 60% of purchases from expert-labeled wallets indicates strong momentum. Track holder count growth and distribution patterns, as rapid holder increases (like growing from 5,000 to 50,000 holders in two weeks) while maintaining even distribution suggests organic adoption. Use filtering techniques to focus on specific criteria: tokens under 30 days old with rising volume and Smart Money purchases often indicate emerging trends. AI-powered signal detection can also help by analyzing patterns across wallet behaviors, transaction volumes, and social metrics.

### How to find emerging crypto?

Use a systematic approach combining multiple data sources to find emerging crypto projects. Filter for micro-cap investments (typically under $10 million market cap) and tokens less than 7-30 days old to catch early-stage opportunities. Monitor when Smart Money wallets begin accumulating previously unknown tokens, especially in specific categories like "DeFi Smart Money" or "Memecoin Experts." Track community development through holder growth metrics and liquidity pool movements, which indicate genuine community adoption rather than artificial manipulation. Set up alerts for both promising tokens and whale wallets with strong track records. For specific sectors, adjust filters accordingly - for DeFi opportunities, focus on governance tokens with growing liquidity pools, while for memecoins, look for tokens under seven days old with expert wallet purchases.

Discover how to identify emerging cryptocurrency trends before they go mainstream using smart money tracking, whale activity monitoring, and AI-powered analytics to spot profitable opportunities early.

How to identify emerging trends and tokens with Nansen

Stablecoins represent one of cryptocurrency's most practical innovations, serving as digital dollars that maintain price stability while enabling blockchain-based transactions. These assets fall into three primary categories, each with distinct characteristics that sophisticated investors must understand to navigate digital asset markets effectively.

Centralized fiat-collateralized tokens like USDC and USDT maintain their dollar peg through traditional banking relationships, where each token theoretically represents one dollar held in reserve. Decentralized crypto-collateralized assets like DAI achieve stability through smart contract systems that manage cryptocurrency reserves algorithmically. Algorithmic stablecoins, exemplified by the collapsed UST token, attempted to maintain stability through market-based mechanisms rather than collateral reserves.

Understanding these fundamental differences proves essential because each category exhibits unique supply dynamics and behavioral patterns that require specialized monitoring approaches. Supply metrics track the total circulation of each stablecoin, while flow analysis examines transfers between addresses, exchanges, and protocols. These measurements reveal institutional activity, user behavior, and broader market trends that significantly impact cryptocurrency valuations.

## Establishing comprehensive monitoring systems

Effective stablecoin analysis begins with accessing reliable data sources. Dune Analytics provides standardized datasets containing comprehensive stablecoin information across major blockchains, including token transfers, minting and burning events, and exchange flows. These pre-built tables normalize data across different implementations, enabling consistent analysis regardless of underlying technical differences.

Creating meaningful monitoring dashboards requires selecting appropriate visualization methods for different metric types. Time series charts effectively display supply tracking over extended periods, while flow diagrams and bar charts clearly represent transfer volumes and directional movements. Combining multiple visualization approaches provides comprehensive market overviews that reveal both immediate conditions and longer-term trends.

Consider monitoring USDC supply changes as a practical example. Effective dashboards track daily minting and redemption events from Circle's treasury addresses, displaying net supply changes that highlight periods of significant expansion or contraction. These patterns consistently correlate with broader market conditions, providing early indicators of capital flows into or out of cryptocurrency markets.

## Analyzing supply mechanics

Supply monitoring involves examining minting and burning patterns across different stablecoin issuers, each following distinct operational procedures. Centralized stablecoins like USDC demonstrate clear minting events when new tokens are created against fiat deposits, and burning events when tokens are redeemed for underlying collateral. These transactions typically occur through identifiable treasury addresses, making tracking relatively straightforward.

Decentralized stablecoins exhibit significantly more complex supply mechanics. DAI supply changes through collateralized debt position creation and liquidation events within the MakerDAO protocol. Monitoring these mechanisms requires tracking collateral ratios, stability fees, and liquidation events across multiple smart contracts and user interactions.

Recent market events illustrate these dynamics clearly. When USDT supply increased by approximately two billion tokens during a one-month period in early 2024, this expansion coincided with increased institutional interest in cryptocurrency markets. Such supply growth typically indicates heightened demand for dollar-denominated assets within crypto ecosystems, often preceding significant market movements or institutional adoption phases.

## Understanding flow patterns

Flow analysis examines stablecoin movements between different address types and protocols, providing insights into market behavior and sentiment. Key flow categories include exchange deposits and withdrawals, decentralized finance protocol interactions, and large holder movements. Each category offers different perspectives on market preparation and investor intentions.

Exchange flows particularly indicate trading activity and market positioning. Large stablecoin inflows to exchanges frequently precede buying activity, as investors prepare to purchase other cryptocurrencies. Conversely, outflows suggest reduced trading intentions or preference for self-custody storage. Monitoring these patterns across major exchanges provides early indicators of potential market direction changes.

For instance, when Binance receives 500 million USDC in deposits over 24 hours while Coinbase shows similar inflows, this pattern typically suggests traders are preparing for significant market activity. The coordination across multiple platforms often indicates institutional or whale activity rather than retail investor behavior. Alternatively, large outflows from exchanges toward DeFi protocols indicate users seeking yield opportunities rather than maintaining trading positions.

## Cross-chain activity monitoring

Modern stablecoin ecosystems operate across multiple blockchains, requiring sophisticated cross-chain monitoring capabilities. Bridge transactions move stablecoins between networks like Ethereum, Polygon, and Arbitrum, reflecting user preferences for different blockchain environments and responses to varying transaction costs.

Bridge monitoring involves tracking deposit and withdrawal events on official bridge contracts. Supply distribution across different chains indicates where economic activity concentrates and how users adapt to network conditions such as gas fees and transaction processing speeds.

During periods of high Ethereum gas fees, users typically bridge USDC to Polygon or Arbitrum for DeFi activities, temporarily reducing Ethereum-based supply while increasing Layer 2 holdings. This pattern predictably reverses when Ethereum network conditions improve or when major protocols launch new features on the mainnet, demonstrating how technical considerations drive capital allocation decisions.

## Market sentiment indicators

Stablecoin metrics function as reliable sentiment indicators for broader cryptocurrency markets. The percentage of stablecoins held in smart contracts versus externally owned accounts indicates risk appetite and DeFi participation levels. High smart contract holdings suggest active yield-seeking behavior, while lower percentages indicate risk aversion and preference for passive holding strategies.

Stablecoin velocity, measuring how frequently tokens change ownership, provides another critical indicator. High velocity periods often correlate with market volatility and active trading, while low velocity suggests holding behavior during periods of market uncertainty. These patterns help investors gauge overall market participation and confidence levels.

During market stress events, stablecoin supply typically expands as investors seek safe haven assets within the cryptocurrency ecosystem. Simultaneously, flows shift from DeFi protocols toward centralized exchanges or cold storage solutions, indicating systematic flight-to-safety behaviors that often precede broader market corrections.

## Automated monitoring implementation

Dune's API capabilities enable sophisticated automated monitoring systems that provide real-time alerts and regular analytical reports. These systems can track supply changes, identify unusual flow patterns, and flag significant market movements for immediate attention, enabling rapid response to changing market conditions.

Effective automated systems incorporate threshold-based alerts for supply changes exceeding historical norms, large individual transactions, and unusual exchange flow patterns. Historical analysis helps establish appropriate baseline parameters for alert calibration, reducing false positives while ensuring significant events receive proper attention.

A comprehensive monitoring system might alert when DAI supply drops by more than ten percent in a single day, potentially indicating market stress or protocol-specific issues requiring immediate investigation. Similarly, alerts for USDC inflows exceeding one billion dollars to exchanges signal potential market volatility preparations that warrant strategic positioning adjustments.

## Data interpretation for investment decisions

Interpreting stablecoin data effectively requires understanding broader market context and protocol-specific operational mechanics. Supply expansions during bull markets typically indicate new capital entering the cryptocurrency ecosystem, while contractions during bear markets suggest capital flight toward traditional financial systems.

Flow patterns provide valuable timing insights for market movements. Stablecoin accumulation on exchanges often precedes significant buying activity, while increased DeFi protocol deposits indicate yield-seeking behavior during periods of market stability. These patterns help identify institutional positioning and sentiment shifts before they become apparent in price movements.

When institutional investors significantly increase USDC holdings while retail-focused stablecoins remain stable, this divergence suggests institutional market preparation that may not yet reflect in broader sentiment indicators. Such patterns often precede major market movements as institutional activity influences overall market dynamics.

## Advanced analytics and strategic reporting

Sophisticated stablecoin analysis incorporates correlation studies between different tokens, geographic flow analysis through exchange identification, and protocol health monitoring through collateralization ratios and stability mechanisms. These advanced techniques provide deeper insights into market structure and systemic risks.

Comprehensive reporting should include supply trend analysis, flow pattern summaries, and market impact assessments that provide stakeholders with actionable insights for risk management and strategic planning. Historical pattern analysis reveals seasonal trends, protocol upgrade impacts, and regulatory response patterns that inform future market expectations.

Understanding stablecoin dynamics through systematic monitoring creates significant advantages in cryptocurrency market navigation. These assets serve as the financial plumbing of digital asset ecosystems, and their behavior patterns often predict broader market movements before they become apparent in individual token prices. Sophisticated investors who master stablecoin analysis gain valuable insights into market mechanics that enhance decision-making across all cryptocurrency investments.

## Frequently asked questions

### How do I set up a stablecoin monitoring dashboard on Dune?

Dune provides pre-built tables with comprehensive stablecoin data across major blockchains, including token transfers, minting and burning events, and exchange flows. To create effective dashboards, use time series charts for supply tracking, flow diagrams for transfer volumes, and bar charts for directional movements. Access standardized schemas that normalize data across different stablecoin implementations for consistent monitoring.

### What are the main types of stablecoins I should monitor?

There are three primary categories: centralized fiat-collateralized tokens like USDC and USDT, decentralized crypto-collateralized assets like DAI, and algorithmic stablecoins. Each category has different supply dynamics and flow patterns that require distinct monitoring approaches. Centralized stablecoins show clear minting and burning events, while decentralized ones have more complex mechanics involving collateral ratios and liquidation events.

### How do I track stablecoin supply changes effectively?

Monitor minting and burning patterns by tracking events from issuer treasury addresses. For centralized stablecoins like USDC, watch for net supply changes that correlate with market conditions. For decentralized stablecoins like DAI, track collateralized debt position creation, liquidation events, collateral ratios, and stability fees across the protocol to understand supply mechanics.

### What do stablecoin flow patterns tell me about market conditions?

Flow analysis reveals market behavior through exchange deposits/withdrawals, DeFi protocol interactions, and large holder movements. Large inflows to exchanges often precede buying activity, while outflows suggest reduced trading intentions. When multiple major exchanges receive significant stablecoin deposits simultaneously, it typically indicates traders preparing for substantial market activity.

### How do I monitor stablecoins across different blockchains?

Track bridge transactions that move stablecoins between networks like Ethereum, Polygon, and Arbitrum. Monitor deposit and withdrawal events on official bridge contracts to understand supply distribution across chains. During high gas periods, users typically bridge stablecoins to Layer 2 solutions for DeFi activities, creating predictable flow patterns based on network conditions.

### What stablecoin metrics indicate market sentiment?

Key sentiment indicators include the percentage of stablecoins held in smart contracts versus externally owned accounts, and stablecoin velocity (transaction frequency). High smart contract holdings suggest active yield seeking, while high velocity correlates with market volatility. During market stress, stablecoin supply typically expands as investors seek safe haven assets.

### How can I automate stablecoin monitoring for real-time alerts?

Use Dune's API capabilities to build automated systems with threshold-based alerts for unusual supply changes, large transactions, and abnormal exchange flows. Set alerts for events like DAI supply drops exceeding 10% daily or USDC exchange inflows over 1 billion, which signal potential market stress or volatility preparations.

### How do I interpret stablecoin data for investment decisions?

Consider broader market context when analyzing data. Supply expansions during bull markets indicate new capital entering, while contractions during bear markets suggest capital flight. Flow patterns provide timing insights - exchange accumulation often precedes buying activity, while DeFi deposits indicate yield-seeking behavior. Monitor divergences between institutional and retail-focused stablecoin movements for early market signals.

### What advanced analytics should I include in stablecoin reporting?

Incorporate correlation studies between different stablecoins, geographic flow analysis through exchange identification, and protocol health monitoring via collateralization ratios. Include supply trend analysis, flow pattern summaries, market impact assessments, and historical pattern analysis to identify seasonal trends and regulatory response patterns for comprehensive market intelligence.

Learn how to monitor stablecoin supply and flows with comprehensive analytics using Dune dashboards. Master tracking centralized and decentralized stablecoins like USDC, USDT, and DAI across multiple blockchains for better crypto investment decisions.

How to monitor stablecoin supply and flows with Dune

Cross-chain asset flows represent the transfer of value between different blockchain networks, occurring through bridge protocols, wrapped token systems, and native cross-chain protocols. When USDC moves from Ethereum to Polygon through the Polygon PoS Bridge, or when Bitcoin is wrapped as WBTC on Ethereum, these transactions create trackable data patterns that reveal market trends and user behavior.

Monitoring these flows extends beyond simple transaction tracking. Institutional investors analyze liquidity patterns across chains, DeFi protocols require insights into multi-chain user behavior, and researchers study network adoption through cross-chain activity. With XRP Ledger now available on Dune, analysts can track how assets move between XRPL and other major networks, particularly focusing on institutional use cases and real-world asset tokenization.

## Building cross-chain monitoring systems

Effective cross-chain monitoring begins with identifying specific asset flows to track. Consider monitoring USDC flows between Ethereum, Polygon, and Arbitrum. Start by creating separate queries for each chain's bridge contracts, then aggregate the data to show net flows and directional trends.

This process involves querying bridge contract events, token mint and burn events for wrapped assets, and cross-chain messaging protocols. For XRPL integration, track how tokenized real estate assets move between XRPL and Ethereum, or monitor RLUSD stablecoin flows across networks. Each query should capture timestamp data, transaction volumes, sender and receiver addresses, and asset types.

Structure dashboards to show both high-level trends and granular details. A main overview displays total daily cross-chain volume across monitored assets, while detailed sections break down flows by specific asset types, destination chains, and time periods. This hierarchical approach allows users to identify anomalies or trends before examining specific transactions.

## Asset-specific monitoring approaches

Different asset categories require specialized monitoring strategies. For stablecoins like USDC or USDT, focus on bridge volumes, peg stability across chains, and arbitrage opportunities. During market volatility, increased bridge activity often indicates users moving assets to chains with better yields or lower transaction costs.

DeFi tokens present unique challenges as they exist in multiple forms across chains. When tracking Uniswap's UNI token across Ethereum mainnet, Polygon, and Arbitrum, capture bridge transfers, liquidity provision activities, governance participation across chains, and yield farming patterns. This comprehensive view reveals how token utility varies across different network environments.

With XRPL's integration, Real-World Assets represent a new monitoring category. Consider a tokenized commercial real estate fund that issues tokens on XRPL for bridging to Ethereum DeFi integration. Monitor the original tokenization events on XRPL, bridge transfers to Ethereum, subsequent DeFi protocol interactions like lending or liquidity provision, and eventual returns to XRPL. This end-to-end tracking provides insights into RWA adoption and cross-chain utility.

## Understanding bridge protocol dynamics

Bridge protocols serve as primary infrastructure for cross-chain asset movement, making their monitoring crucial for understanding ecosystem health. Each bridge operates differently, requiring customized data extraction approaches. Polygon's PoS Bridge uses a checkpoint system where Ethereum deposits are verified through periodic checkpoints, creating distinct data patterns compared to optimistic bridges like Arbitrum's.

During high volatility periods, bridge volumes often spike as users move assets to chains with different risk profiles or yield opportunities. Track locked values, processing times, and success rates across bridges to identify which protocols perform best under various market conditions.

Bridge security incidents create distinctive data signatures. Monitor unusual withdrawal patterns from bridge locked funds, abnormal gas fee spikes in bridge transactions, or sudden changes in processing times. These indicators serve as early warning systems for potential security issues or network congestion.

## Identifying market opportunities

Cross-chain asset flows reveal arbitrage opportunities and yield differentials across networks. Monitor price discrepancies for identical assets across chains to identify profitable arbitrage windows. When USDC trades at a premium on Avalanche compared to Ethereum, increased bridge flows toward Avalanche indicate arbitrageurs capitalizing on this differential.

Yield farming opportunities create predictable flow patterns as users pursue higher returns across chains. Track how Total Value Locked changes in similar protocols across networks correlate with bridge activity. When Aave on Polygon offers significantly higher yields than Ethereum, monitor increased USDC and ETH bridge flows toward Polygon, followed by deposits into Aave's Polygon deployment.

Cross-chain MEV activities represent sophisticated arbitrage strategies spanning multiple networks. These involve flash loans on one chain, bridge transfers, arbitrage execution on the destination chain, and return transfers. Tracking these complex transaction sequences provides insights into cross-chain MEV behavior and reveals emerging arbitrage strategies.

## Institutional activity patterns

Institutional cross-chain activities display different patterns compared to retail users. Large institutions typically move substantial amounts during specific time windows, often coordinated with traditional market hours. Monitor these patterns to identify institutional adoption trends and potential market movements.

With XRPL's institutional focus, tracking enterprise cross-chain functionality provides unique insights. Consider a multinational corporation that tokenizes supply chain assets on XRPL but integrates with Ethereum-based DeFi protocols for treasury management. Monitor initial tokenization, bridge transfers to Ethereum, interactions with lending protocols or automated market makers, and return flows to XRPL for settlement.

Regulatory compliance requirements drive specific institutional flow patterns. Institutions often prefer bridges offering better compliance features, such as transaction reporting or clawback capabilities. Track these preferences to identify which cross-chain infrastructure gains institutional adoption.

## Automated monitoring and alerts

Effective cross-chain monitoring requires automated alert systems for significant changes or anomalies. Set alerts for unusual volume spikes, bridge security events, or significant flow direction changes. If USDC bridge flows to a specific chain increase by more than 200% compared to the seven-day average, trigger investigation into underlying causes.

Configure price-based alerts when asset prices diverge significantly across chains, bridge processing times exceed normal ranges, or specific bridge protocols experience unusual activity. These alerts enable rapid response to market opportunities or potential security issues.

Monitor ecosystem health indicators including bridge utilization rates, average transaction sizes, and geographic distribution of cross-chain activity. Sudden changes in these metrics often precede significant market movements or indicate emerging cross-chain adoption trends.

Cross-chain monitoring through Dune provides comprehensive insights into the evolving multi-chain ecosystem. With tools to track everything from stablecoin arbitrage to institutional RWA adoption on newly integrated chains like XRPL, analysts can build sophisticated systems that reveal market trends, security risks, and emerging opportunities. Understanding each asset category's unique characteristics, establishing appropriate data collection and visualization systems, and maintaining automated alerts for significant changes becomes increasingly essential as blockchain ecosystems continue expanding across multiple networks.

## Frequently asked questions

### How to monitor cross-chain asset flows with Dune crypto?

To monitor cross-chain asset flows with Dune, start by identifying the specific assets and chains you want to track. Create separate queries for each chain's bridge contracts, capturing bridge contract events, token mint and burn events for wrapped assets, and cross-chain messaging protocols. Structure your dashboard with a hierarchical approach - use a main overview displaying total daily cross-chain volume across all monitored assets, then create detailed sections breaking down flows by asset types, destination chains, and time periods. Include timestamp data, transaction volumes, sender and receiver addresses, and asset types in your queries. Set up automated alerts for unusual volume spikes or significant changes in flow directions to enable rapid response to market opportunities or potential issues.

### How to track cross-chain USDC flows?

Track cross-chain USDC flows by creating separate queries for each chain's bridge contracts where USDC moves, such as between Ethereum, Polygon, and Arbitrum. Query bridge contract events specifically for USDC transfers, monitoring bridge volumes, peg stability across chains, and arbitrage opportunities. Focus on capturing net flows and directional trends by aggregating data from different bridge protocols. Monitor for patterns during market volatility, as increased USDC bridge activity often indicates users moving assets to chains with better yields or lower transaction costs. Set up price-based alerts to identify when USDC trades at premiums on different chains, which can signal arbitrage opportunities and predict bridge flow directions.

### How to analyze cross-chain activity via blockchain bridges?

Analyze bridge protocol activity by customizing your approach for each bridge's unique operation. For example, track Polygon's PoS Bridge checkpoint system differently than optimistic bridges like Arbitrum's. Monitor key metrics including locked values, processing times, success rates, and transaction volumes across different bridges under various market conditions. Track bridge security by monitoring unusual withdrawal patterns, abnormal gas fee spikes, or sudden changes in processing times. Create visualizations showing bridge utilization rates, average transaction sizes, and comparative performance metrics. During high volatility periods, analyze how bridge volumes spike as users move assets to chains with different risk profiles or yield opportunities.

### How to calculate the total bridged amount of assets across chains?

Calculate total bridged amounts by aggregating data from all major bridge contracts and protocols. Sum the locked values across different bridges for each asset, accounting for wrapped token systems where assets are minted and burned. Query bridge deposit and withdrawal events, then calculate net flows by subtracting outflows from inflows for each chain pair. Include data from native cross-chain protocols alongside traditional bridges. For accurate totals, account for different bridge mechanisms - some use lock-and-mint while others use burn-and-mint. Create time-series calculations to show how total bridged amounts change over time, and segment by asset type to understand which categories dominate cross-chain activity.

### How to explore cross-chain asset movements between different blockchains?

Explore cross-chain movements by tracking various mechanisms including bridge protocols, wrapped token systems, and native cross-chain protocols. Monitor specific examples like USDC moving from Ethereum to Polygon through the Polygon PoS Bridge, or Bitcoin wrapped as WBTC on Ethereum. Create comprehensive tracking systems that capture the entire journey of assets - from original tokenization through bridge transfers to final destinations. Use transaction flow analysis to identify patterns in user behavior, institutional adoption, and arbitrage activities. Track different asset categories separately, as stablecoins, DeFi tokens, and real-world assets each require specialized monitoring approaches due to their unique characteristics and use cases.

### How to track token flows and cross-chain liquidity using Dune Analytics?

Track token flows by monitoring both direct bridge transfers and subsequent DeFi protocol interactions across chains. For liquidity tracking, monitor Total Value Locked changes in similar protocols across different networks and correlate with bridge activity patterns. Create queries that capture how liquidity providers move assets to chains with better yield opportunities, tracking the complete cycle from bridge transfer to protocol deposit. Monitor yield farming patterns by tracking how users chase higher returns across chains - for example, when Aave on Polygon offers higher yields than Ethereum, track increased bridge flows followed by deposits into Aave's Polygon deployment. Set up comprehensive monitoring for complex strategies like cross-chain MEV activities that involve flash loans, bridge transfers, arbitrage execution, and return transfers.

Learn how to monitor cross-chain asset flows using Dune Analytics to track stablecoin movements, bridge activities, and institutional adoption patterns across multiple blockchain networks including XRPL integration.

How to monitor cross-chain asset flows with Dune

Exchange outflows occur when cryptocurrency holders transfer their digital assets from centralized exchange wallets to external addresses they control. These transactions appear on the blockchain as withdrawals from known exchange addresses to user-controlled wallets or other destinations. Unlike traditional financial systems where such movements remain private, blockchain transparency enables real-time tracking of these asset transfers.

The significance of exchange outflows extends beyond simple transaction monitoring. Large outflows often correlate with shifts in market sentiment, regulatory concerns, or major news events. For instance, when a major exchange faces regulatory scrutiny, users typically withdraw their assets as a precautionary measure, creating observable spikes in outflow activity that analysts can detect and interpret.

## Establishing your monitoring framework

Dune's comprehensive data catalog contains pre-processed exchange information that streamlines the monitoring process. The platform maintains labeled exchange addresses across multiple blockchains, eliminating the need to manually identify and track individual exchange wallets. This standardized approach ensures consistency across different monitoring projects and provides reliable data foundations.

To begin monitoring exchange outflows effectively, familiarize yourself with the relevant data structures. Exchange balance tables track current holdings at major exchanges, while transaction tables capture individual asset movements. Combining these datasets provides both historical context and real-time insights into exchange activity patterns.

Consider monitoring Bitcoin outflows from major exchanges using Dune's bitcoin.balances table. You can query daily balance changes for exchanges like Coinbase, Binance, and Kraken. A negative balance change indicates net outflow for that specific exchange on a given day, providing clear signals about user withdrawal behavior.

## Identifying exchange addresses and transaction types

Dune maintains an extensive database of labeled exchange addresses across supported blockchains. These labels result from community contributions, official exchange disclosures, and analytical identification methods. The labels.all table contains this information, enabling you to filter transactions based on exchange involvement with high confidence.

Exchange transactions typically fall into several distinct categories. User withdrawals represent the most common type of outflow, where individual users transfer assets to personal wallets for self-custody. Inter-exchange transfers occur when one exchange moves assets to another exchange for operational purposes. Internal reorganization involves exchanges moving assets between their own addresses for security or operational efficiency.

For Ethereum-based monitoring, examine the ethereum.transactions table and join it with exchange address labels. A transaction from a labeled exchange address to an unlabeled address likely represents a user withdrawal. Transactions between two labeled exchange addresses indicate inter-exchange movements that don't represent true market outflows.

## Constructing effective queries for outflow tracking

Successful outflow monitoring requires queries that aggregate transaction data over meaningful time periods. Daily aggregation provides sufficient granularity for most analytical purposes while reducing data complexity. Weekly and monthly aggregations help identify longer-term trends that daily volatility might obscure, providing broader market context.

A practical implementation involves tracking USDC outflows from all major exchanges on Ethereum. Structure your query to sum all USDC transfers from labeled exchange addresses to non-exchange addresses, grouped by date. This approach captures total daily outflow volume while excluding inter-exchange transfers that don't represent genuine market outflows.

Time-based filtering becomes crucial when monitoring specific events or market conditions. To analyze outflows following a particular announcement or market event, adjust your date range to focus on relevant periods. This targeted analysis reveals how external factors influence user behavior regarding exchange custody decisions.

## Building comprehensive monitoring dashboards

Effective exchange outflow monitoring requires multiple visualization components working cohesively. Time series charts display outflow trends over selected periods, making pattern identification and anomaly detection straightforward. Bar charts enable comparison of outflows across different exchanges, revealing which platforms experience the most significant withdrawal activity.

A well-designed dashboard might include separate panels for Bitcoin, Ethereum, and stablecoin outflows. Each panel should display both absolute values and percentage changes from previous periods. This multi-asset approach provides a complete picture of market-wide withdrawal patterns and helps identify asset-specific trends.

Consider incorporating exchange-specific breakdowns to understand which platforms drive overall outflow trends. During the FTX collapse in November 2022, such dashboards clearly showed massive outflows from FTX while other exchanges experienced moderate withdrawal increases due to general market uncertainty and contagion fears.

## Interpreting outflow data patterns

Exchange outflow patterns reveal significant market insights when properly interpreted. Sustained outflows over several days or weeks often indicate growing preference for self-custody or preparation for long-term holding strategies. Sharp spikes in outflows typically correlate with specific news events, regulatory announcements, or exchange-related incidents requiring immediate user response.

The relationship between price movements and exchange outflows provides additional analytical value. Outflows during price declines might indicate preparation for panic selling, while outflows during price increases could suggest profit-taking activities or long-term accumulation strategies by sophisticated investors.

Seasonal patterns also emerge in outflow data analysis. Year-end periods often show increased outflows as users reorganize holdings for tax optimization purposes. Major conference periods or scheduled network upgrades can similarly influence withdrawal patterns as users prepare for anticipated market movements or technical changes.

## Implementing automated alert systems

Dune's alert system enables proactive monitoring of exchange outflow conditions without constant manual oversight. Configure alerts to trigger when daily outflows exceed specific thresholds, when outflows increase by certain percentages compared to historical averages, or when particular exchanges experience unusual activity patterns.

An effective alert strategy should include multiple threshold levels to balance sensitivity with practicality. A moderate alert might trigger when daily outflows exceed the 30-day moving average by 50%, while a critical alert activates when outflows exceed the average by 200%. This tiered approach prevents alert fatigue while ensuring significant events receive immediate attention.

Exchange-specific alerts prove valuable for monitoring individual platform health and stability. If Binance experiences outflows exceeding three standard deviations from normal patterns, this could indicate emerging issues requiring immediate investigation. Such early warning systems proved invaluable during various exchange crises throughout cryptocurrency market history.

## Advanced monitoring techniques

Sophisticated outflow monitoring incorporates additional data dimensions beyond simple transaction volumes. Monitor the size distribution of withdrawals to determine whether outflows consist primarily of large institutional movements or numerous smaller retail transactions. This distinction provides important context for interpreting overall outflow significance and market implications.

Geographic analysis, where feasible, adds valuable insight layers. If exchange outflows concentrate in specific regions, this might indicate localized regulatory concerns or regional market conditions. While blockchain data doesn't directly reveal geographic information, exchange-specific patterns can provide indirect geographic insights through platform usage patterns.

Cross-chain analysis becomes increasingly important as assets exist across multiple blockchain networks. Monitoring USDC outflows requires tracking both Ethereum-based USDC and versions on other chains like Polygon or Arbitrum. Comprehensive monitoring accounts for all significant blockchain implementations of tracked assets to avoid incomplete analysis.

Exchange outflow monitoring through Dune Analytics provides powerful insights into cryptocurrency market dynamics and user behavior patterns. The platform's comprehensive data coverage, flexible query capabilities, and sophisticated visualization tools enable monitoring systems that would be challenging to implement independently while maintaining professional analytical standards.

Successful monitoring requires understanding both technical aspects of blockchain data analysis and market context driving exchange outflow patterns. By combining historical analysis, real-time monitoring capabilities, and automated alerting systems, you can create comprehensive systems that provide early warning of market shifts and inform strategic decision-making processes.

The inherent transparency of blockchain networks ensures exchange outflow data remains publicly accessible and independently verifiable. Dune Analytics transforms raw blockchain data into actionable intelligence, making advanced market analysis accessible to individual traders, institutional investors, and researchers seeking to understand cryptocurrency market dynamics through quantitative analysis.

## Frequently asked questions

### How can I track liquidity flows in cryptocurrency markets?

You can track crypto liquidity flows by monitoring exchange outflows and inflows using blockchain analytics platforms like Dune Analytics. These platforms provide access to labeled exchange addresses across multiple blockchains, allowing you to query transaction data and track when assets move between centralized exchanges and external wallets. Key data sources include exchange balance tables that show current holdings and transaction tables that capture individual movements. You can create queries to aggregate this data over daily, weekly, or monthly periods to identify liquidity patterns.

### Where are the best sources for real-time liquidity flow data?

The most reliable sources for liquidity flow data are blockchain analytics platforms that maintain comprehensive databases of labeled exchange addresses. Dune Analytics offers pre-processed exchange data across multiple blockchains with standardized labeling of major exchanges like Coinbase, Binance, and Kraken. These platforms provide both historical context and real-time insights by processing on-chain transaction data. The transparency of blockchain networks ensures this data is publicly accessible and verifiable, unlike traditional financial systems.

### What do large exchange outflows typically indicate?

Large exchange outflows often signal significant market sentiment shifts and can indicate several scenarios: users moving to self-custody for long-term holding, preparation for major market moves, responses to regulatory concerns, or reactions to exchange-related incidents. Sustained outflows over days or weeks typically suggest growing preference for self-custody, while sharp spikes usually correlate with specific news events, regulatory announcements, or platform-specific issues. The context matters - outflows during price declines might indicate panic selling preparation, while outflows during price increases could suggest profit-taking or accumulation strategies.

### How do I set up alerts for unusual liquidity movements?

You can configure automated alerts using tiered threshold systems that trigger when daily outflows exceed specific levels compared to historical averages. An effective strategy includes multiple alert levels - for example, a moderate alert when daily outflows exceed the 30-day moving average by 50%, and a critical alert when they exceed it by 200%. Exchange-specific alerts are valuable for monitoring platform health, such as when a major exchange experiences outflows exceeding three standard deviations from normal patterns. This approach prevents alert fatigue while ensuring you catch significant events.

### What's the difference between exchange outflows and inter-exchange transfers?

Exchange outflows represent cryptocurrency moving from centralized exchanges to external addresses, typically user-controlled wallets, indicating assets leaving the exchange ecosystem entirely. Inter-exchange transfers occur when assets move between different exchanges, which doesn't represent true outflow from the broader exchange ecosystem. Internal reorganization involves exchanges moving assets between their own addresses for operational purposes. When tracking liquidity flows, it's important to filter out inter-exchange transfers and focus on movements from exchange addresses to non-exchange addresses to get accurate outflow metrics.

### How can I monitor DeFi liquidity flows specifically?

To monitor DeFi liquidity flows, you need to track movements between centralized exchanges and DeFi protocols by monitoring transactions to known DeFi contract addresses. This involves identifying major DeFi protocol addresses for platforms like Uniswap, Compound, Aave, and other liquidity pools. You can track when assets flow from centralized exchanges to these DeFi protocols, indicating users moving capital into decentralized finance applications. Cross-chain analysis is crucial since DeFi operates across multiple blockchains, requiring monitoring of assets like USDC across Ethereum, Polygon, Arbitrum, and other networks where DeFi protocols operate.

Learn how to monitor cryptocurrency exchange outflows using Dune Analytics. Track real-time asset movements, identify market sentiment shifts, and build comprehensive dashboards to analyze liquidity flows from major exchanges to external wallets.

How to monitor exchange outflows with Dune

Stablecoins function as a critical bridge between traditional finance and cryptocurrency markets. When market participants expect volatility or decline in crypto asset values, they typically rotate into stablecoins as a safe haven while maintaining the ability to quickly redeploy capital. This behavior creates observable patterns in stablecoin flows that often precede significant market movements.

The relationship between stablecoin supply and market conditions follows a logical pattern: increasing stablecoin supply relative to total crypto market capitalization often signals available "dry powder" that can flow back into crypto assets, potentially indicating a market bottom. Conversely, sudden spikes in stablecoin trading volume during market stress can indicate panic selling and rotation to safety.

# Nansen's comprehensive monitoring platform

Nansen's Stablecoin Master dashboard serves as the central hub for monitoring all stablecoin-related metrics. This comprehensive tool tracks daily on-chain volume, market capitalization changes, and flow patterns across major stablecoins including USDT, USDC, BUSD, and DAI.

The dashboard displays essential metrics such as total stablecoin market cap, daily transaction volumes, and velocity measurements. When you observe stablecoin daily on-chain volume trending upward before a major market event, this often indicates increased trading activity and potential market stress. During the May 2022 market drawdown, stablecoin volume spiked significantly on the day of major liquidations, providing early warning signals to attentive observers.

The market cap tracking feature allows users to monitor the growth or contraction of individual stablecoin supplies. When USDC market cap increases rapidly while USDT remains stable, this might indicate institutional preference shifts or regulatory concerns affecting specific stablecoin issuers.

# Following institutional money movements

One of Nansen's most valuable features is its ability to track labeled wallet addresses, including those belonging to institutional investors, funds, and other sophisticated market participants. By monitoring how these experienced actors manage their stablecoin positions, individual investors can gain insights into market timing and sentiment.

When prominent DeFi funds or trading firms begin accumulating large stablecoin positions, this often precedes significant market entry points. Conversely, when sophisticated wallets rapidly deploy stablecoins into other assets, this can signal confidence in an upcoming market rally.

The Smart Money dashboard shows aggregated stablecoin holdings across labeled institutional wallets, providing visibility into whether sophisticated investors are building cash positions or deploying capital. If institutional wallets collectively hold 15% more stablecoins than their historical average, this excess liquidity often flows into crypto assets during the next market upturn.

# Exchange flow analysis

Nansen's exchange flow tracking capabilities provide crucial insights into stablecoin movements between decentralized wallets and centralized exchanges. Large stablecoin inflows to exchanges often indicate preparation for significant trading activity, while outflows suggest movement toward self-custody or DeFi protocols.

The net exchange flow metric measures whether more stablecoins are entering or leaving exchange wallets. During market uncertainty, increased stablecoin inflows to exchanges typically coincide with crypto asset sales, as traders convert volatile assets to stable alternatives. When Binance experiences net stablecoin inflows of $500 million over 24 hours while simultaneously seeing Bitcoin outflows, this pattern suggests active selling pressure.

Exchange-specific stablecoin balances also reveal important information about market structure. When major exchanges like Coinbase show declining stablecoin reserves while smaller exchanges accumulate stablecoins, this might indicate institutional capital deployment versus retail accumulation patterns.

# Transaction activity and market velocity

Stablecoin transaction velocity provides insights into market activity levels and economic utility. High velocity indicates active usage in trading, payments, or DeFi protocols, while declining velocity might suggest market stagnation or holders maintaining positions.

Daily transaction volume analysis helps identify market stress periods and recovery phases. USDT daily volume averaging $30 billion during normal market conditions might spike to $80 billion during significant market events. These volume spikes often occur 12-24 hours before major price movements in the broader crypto market.

Nansen's volume tracking distinguishes between different transaction types, including DEX trading, inter-wallet transfers, and exchange deposits and withdrawals. This granular data helps users understand whether increased stablecoin activity represents genuine economic activity or merely wallet management and arbitrage.

# DeFi protocol integration

Stablecoin flows into DeFi protocols provide additional market intelligence through Nansen's protocol tracking features. When stablecoin deposits into lending protocols like Aave or Compound increase significantly, this often indicates yield-seeking behavior and confidence in protocol security.

Conversely, rapid stablecoin withdrawals from DeFi protocols can signal risk concerns or preparation for market entry. If Curve's stablecoin pools experience net outflows of $200 million over three days, this might indicate either technical concerns about the protocol or users preparing to deploy capital elsewhere.

The protocol flow data also reveals yield farming trends and liquidity migration patterns. When Uniswap stablecoin liquidity increases while SushiSwap decreases, this shift indicates changing preferences in decentralized exchange usage and potential arbitrage opportunities.

# Cross-chain network analysis

Nansen's multi-chain tracking capabilities allow monitoring stablecoin flows across different blockchain networks. Ethereum remains the dominant network for stablecoin activity, but significant volumes also occur on Binance Smart Chain, Polygon, and other layer-one networks.

Cross-chain stablecoin movements often precede broader market changes. When USDC on Polygon increases rapidly while Ethereum USDC remains stable, this might indicate yield opportunities or network preference shifts that could affect related token prices.

Network congestion metrics combined with stablecoin flow data provide operational insights. During periods of high Ethereum gas fees, stablecoin activity might migrate to alternative networks, creating temporary arbitrage opportunities and affecting network token demand.

# Automated alert systems

Nansen's Smart Alerts functionality enables automated monitoring of specific stablecoin flow patterns. Users can configure alerts for various scenarios, such as unusual large transactions, exchange flow thresholds, or institutional activity patterns.

Setting an alert for stablecoin inflows exceeding $100 million to major exchanges within six hours can provide early warning of potential market volatility. Similarly, alerts for institutional wallets accumulating stablecoins above historical norms can signal potential buying opportunities.

Custom alert configurations might include monitoring specific wallet addresses, tracking protocol-specific flows, or identifying unusual transaction patterns that deviate from normal market behavior. These automated systems ensure important signals are not missed during periods of high market activity.

# Real-world application scenarios

Consider a scenario where stablecoin supply increases by 8% over two weeks while Bitcoin price declines 15%. This combination often indicates building buying pressure, as increased stablecoin supply represents available capital for crypto purchases. Monitoring institutional wallets during this period might reveal accumulation patterns before public sentiment shifts.

Another practical application involves monitoring stablecoin flows during protocol launches or major DeFi events. When a new yield farming opportunity emerges, tracking stablecoin movements toward related protocols can provide insights into early adoption rates and potential token price impacts.

During regulatory announcements affecting specific stablecoins, Nansen's flow tracking helps assess market impact in real-time. If regulatory concerns about USDT emerge, monitoring flows from USDT to other stablecoins provides immediate feedback on market confidence and potential price stability issues.

# Advanced data correlation

Sophisticated users can combine stablecoin flow data with other Nansen metrics to create comprehensive market analysis frameworks. Correlating stablecoin accumulation patterns with funding rates, open interest, and institutional movements provides multi-dimensional market insights.

When stablecoin inflows to exchanges increase while funding rates remain positive and institutional investors maintain crypto positions, this might indicate temporary market stress rather than fundamental bearish sentiment. These nuanced insights help distinguish between short-term volatility and longer-term trend changes.

Nansen's data can be integrated with external analysis tools to create custom dashboards combining stablecoin flows with traditional market metrics, forming comprehensive decision-making frameworks.

Monitoring stablecoin supply and flows through Nansen provides crucial insights into crypto market dynamics, institutional behavior, and upcoming price movements. The platform's comprehensive tracking capabilities, institutional insights, and automated alert systems enable users to stay ahead of market developments and make data-driven decisions.

By understanding stablecoin flow patterns, tracking institutional movements, and monitoring exchange activities, traders and institutions can better position themselves for market opportunities while managing risk. Nansen's sophisticated analytics transform complex on-chain data into actionable intelligence, providing the transparency and insights necessary to navigate volatile cryptocurrency markets effectively.

The combination of real-time monitoring, historical analysis, and predictive insights makes Nansen an indispensable tool for serious cryptocurrency market participants who understand that following capital flows often provides better signals than following market sentiment alone.

## Frequently asked questions

### What are stablecoins and why are they important in crypto markets?

Stablecoins are cryptocurrencies designed to maintain stable value relative to a reference asset, typically the US dollar. They serve as a critical bridge between traditional finance and cryptocurrency markets, allowing traders to move into a stable asset during market volatility while maintaining the ability to quickly redeploy capital back into crypto assets. Major stablecoins include USDT, USDC, BUSD, and DAI.

### How do stablecoin flows predict market movements?

Stablecoin flows create observable patterns that often precede significant market movements. When stablecoin supply increases relative to total crypto market capitalization, it signals available "dry powder" that can flow back into crypto assets, potentially indicating a market bottom. Conversely, sudden spikes in stablecoin trading volume during market stress typically indicate panic selling and rotation to safety.

### What does it mean when smart money accumulates stablecoins?

When institutional investors, funds, and other sophisticated "smart money" participants begin accumulating large stablecoin positions, this often precedes significant market entry points. These positions represent prepared capital waiting for deployment. If smart money wallets collectively hold significantly more stablecoins than their historical average, this excess liquidity often flows into crypto assets during the next market upturn.

### How do exchange flows indicate market sentiment?

Large stablecoin inflows to exchanges often indicate preparation for significant trading activity, while outflows suggest movement toward self-custody or DeFi protocols. During market uncertainty, increased stablecoin inflows to exchanges typically coincide with crypto asset sales, as traders convert volatile assets to stable alternatives, indicating selling pressure.

### What does stablecoin velocity tell us about market conditions?

Stablecoin transaction velocity provides insights into market activity levels and economic utility. High velocity indicates active usage in trading, payments, or DeFi protocols, while declining velocity might suggest market stagnation. Volume spikes often occur 12-24 hours before major price movements in the broader crypto market.

### How do DeFi protocol flows affect stablecoin analysis?

Stablecoin flows into DeFi protocols provide market intelligence about investor confidence and yield-seeking behavior. Increased deposits into lending protocols like Aave or Compound often indicate confidence in protocol security, while rapid withdrawals can signal risk concerns or preparation for market entry elsewhere.

### What are cross-chain stablecoin movements?

Cross-chain movements involve stablecoins moving between different blockchain networks like Ethereum, Binance Smart Chain, and Polygon. These movements often precede broader market changes and can indicate yield opportunities, network preference shifts, or responses to network congestion and gas fees.

### How can automated alerts help monitor stablecoin flows?

Automated monitoring alerts can track specific patterns like unusual large transactions, exchange flow thresholds, or smart money activity. For example, alerts for stablecoin inflows exceeding certain amounts to major exchanges can provide early warning of potential market volatility, while smart money accumulation alerts can signal buying opportunities.

### What is the significance of stablecoin market cap changes?

Changes in individual stablecoin market caps reveal important market dynamics. When one stablecoin's market cap increases rapidly while others remain stable, this might indicate institutional preference shifts, regulatory concerns, or confidence changes affecting specific stablecoin issuers.

### How do you combine stablecoin data with other market metrics?

Advanced analysis involves correlating stablecoin flow data with funding rates, open interest, and smart money movements to create comprehensive market insights. When stablecoin inflows increase while funding rates remain positive and smart money maintains positions, this might indicate temporary stress rather than fundamental bearish sentiment, helping distinguish between short-term volatility and longer-term trends.

Learn how to use Nansen's comprehensive platform to monitor stablecoin flows and predict crypto market movements. Track institutional money, exchange flows, DeFi integration, and cross-chain activity to make data-driven trading decisions.

How to monitor stablecoin supply and flows with Nansen

Calldata is the data payload included with Ethereum transactions that contains the information needed to execute smart contract functions. When you interact with a decentralized application (dApp), send tokens, or execute any contract function, the parameters and function identifiers are encoded as calldata and included in your transaction.

Currently, Ethereum charges different gas costs for calldata bytes based on their value:
- Zero bytes: 4 gas per byte
- Non-zero bytes: 16 gas per byte

This pricing structure was established when Ethereum had different performance characteristics and usage patterns. Today's network faces substantially higher transaction volumes and more complex contract interactions, making the original pricing insufficient to cover the true costs of processing and storing this data.

EIP-7703 proposes to increase these costs to better reflect the actual computational and bandwidth requirements. The proposal adjusts the pricing to account for the real costs of transmitting, validating, and storing calldata across the network. This ensures that users pay fees proportional to the resources they consume, creating a more sustainable and efficient fee market.

## How calldata cost adjustment works in practice

To understand the practical impact of EIP-7703, consider three common transaction types and how the cost changes would affect them:

### Example 1: Simple token transfer

Without EIP-7703, a typical ERC-20 token transfer containing approximately 68 bytes of calldata would cost about 1,088 gas for the data portion (assuming a mix of zero and non-zero bytes).

With EIP-7703's proposed increases, the same transaction might cost 1,500-2,000 gas for calldata, depending on the specific rate increase implemented. This represents a meaningful but not prohibitive increase for basic operations.

### Example 2: Complex DeFi operation

A sophisticated DeFi transaction, such as a multi-hop swap with multiple parameters, might include 300 bytes of calldata. Under current pricing, this would cost approximately 4,800 gas.

With EIP-7703, the same transaction could cost 7,000-9,000 gas for calldata alone. While this increases the total transaction cost, it more accurately reflects the network resources consumed by processing this larger data payload.

### Example 3: Contract deployment

Contract deployments often include substantial amounts of calldata for constructor parameters and initialization data. A contract with 1,000 bytes of calldata currently costs around 16,000 gas.

Under EIP-7703, this might increase to 22,000-28,000 gas, ensuring that complex contract deployments pay proportionally for the network resources they require.

The key insight is that these increases don't fundamentally change what's possible on Ethereum—they ensure that transaction fees accurately reflect resource consumption.

## Benefits of accurate calldata pricing

### Network security enhancement

Proper resource pricing prevents attacks that exploit underpriced operations. When calldata is too cheap, malicious actors can create transactions that consume disproportionate network resources relative to the fees paid. This ensures that every transaction pays its fair share of network costs, maintaining Ethereum's security model.

For example, if an attacker wanted to spam the network with data-heavy transactions, accurate pricing makes such attacks prohibitively expensive while having minimal impact on legitimate users.

### Improved resource allocation

Market-based pricing for calldata creates incentives for efficient data usage. Developers will optimize their contract interfaces and data structures to minimize unnecessary calldata, leading to more efficient applications overall.

This could encourage innovations like data compression techniques, more efficient encoding schemes, and smarter contract architectures that reduce calldata requirements.

### Fee market stability

When gas prices accurately reflect resource costs, the fee market operates more predictably. Users can better estimate transaction costs, and the network can handle varying demand more smoothly.

Network analysis suggests that more accurate calldata pricing could reduce the volatility of gas price spikes during high-demand periods by ensuring that resource consumption is properly accounted for.

### Long-term scalability

Proper pricing creates a sustainable foundation for network growth. As Ethereum continues to scale and handle more complex applications, accurate resource pricing ensures that the network can maintain performance and security standards.

## Technical implementation

EIP-7703 proposes modifying the gas schedule in Ethereum's virtual machine to increase the cost of calldata processing. The implementation involves updating the gas cost constants for both zero and non-zero bytes of calldata.

The proposed changes would be implemented at the protocol level, requiring coordination across all Ethereum clients (such as Geth, Nethermind, and Besu). Each client would need to update its gas calculation logic to use the new pricing parameters.

The implementation includes specific validation requirements to ensure that the new gas costs are applied correctly. When processing transactions, the Ethereum Virtual Machine (EVM) would calculate calldata costs using the updated rates and include these in the total gas consumption for the transaction.

Gas cost calculations would be performed during transaction validation, ensuring that transactions with insufficient gas to cover the higher calldata costs are rejected before execution. This prevents any unexpected behavior during the transition period.

## Implementation considerations

### Backward compatibility

The change would be implemented as a hard fork, meaning all nodes must upgrade to continue participating in the network. However, existing contracts and applications would continue to function—they would simply pay higher gas costs for calldata-heavy operations.

For most applications, this represents a gradual cost increase rather than a breaking change. Developers may need to adjust gas limit estimates for their applications, but the fundamental functionality remains unchanged.

### Transaction cost impact

Based on analysis of historical transaction patterns, the average transaction would see a modest increase in gas costs. Simple operations like token transfers would experience minimal impact, while data-intensive operations would see more significant increases.

The changes are designed to be proportional to actual resource usage, meaning that users who consume more network resources through calldata will pay proportionally more.

### Network effects

The implementation would affect different types of applications differently. Applications that rely heavily on calldata (such as certain DeFi protocols or data-heavy smart contracts) would see larger cost increases than simpler applications.

This creates natural incentives for developers to optimize their calldata usage, potentially leading to more efficient overall network utilization.

## Future implications

### Foundation for gas limit increases

More accurate pricing for calldata creates the foundation for potential gas limit increases in the future. When resources are properly priced, the network can safely handle higher transaction volumes without compromising security or decentralization.

If calldata costs accurately reflect their true resource requirements, validators can process blocks with higher gas limits without creating unsustainable computational or bandwidth burdens.

### Interaction with Layer 2 solutions

The pricing changes complement Ethereum's Layer 2 scaling strategy. As calldata becomes more expensive on the main chain, Layer 2 solutions become relatively more attractive for applications that can benefit from their lower costs and higher throughput.

This creates a natural market-driven migration of appropriate applications to Layer 2, while ensuring that mainnet usage is sustainable and properly priced.

### Enabling future protocol improvements

Accurate resource pricing provides a stable foundation for future protocol improvements. As Ethereum continues to evolve with features like statelessness, verkle trees, and other optimizations, proper pricing ensures that these improvements can be implemented without creating new economic vulnerabilities.

### Development of efficient applications

Higher calldata costs will drive innovation in efficient contract design and data encoding. This could lead to new standards for compact data representation, more efficient function interfaces, and novel approaches to minimizing on-chain data requirements.

## Conclusion

EIP-7703 represents a necessary adjustment to Ethereum's gas pricing model, ensuring that calldata costs accurately reflect the network resources required to process transaction data. By increasing the gas cost of calldata, the proposal creates a more sustainable and secure fee market that properly incentivizes efficient resource usage.

The implementation would result in modest cost increases for most transactions while significantly improving network security and resource allocation. For simple operations, the impact would be minimal, while data-intensive applications would see proportionally higher costs that accurately reflect their network resource consumption.

This proposal demonstrates Ethereum's commitment to maintaining a secure and efficient network as it continues to scale. By ensuring that all network resources are properly priced, EIP-7703 helps create a sustainable foundation for Ethereum's continued growth and development in the years ahead.

## Frequently asked questions

**What is an EIP in Ethereum?**
EIP stands for Ethereum Improvement Proposal. EIPs are standards that describe potential new features or processes for Ethereum. They contain technical specifications for proposed changes and serve as the primary mechanism for proposing new features, collecting community input on issues, and documenting design decisions. EIP-7703 is an example of a Core EIP that proposes changes to Ethereum's gas pricing mechanism.

**Why is calldata pricing important?**
Calldata pricing is crucial because it ensures that users pay fees proportional to the network resources they consume. When calldata is underpriced, it can lead to network congestion, security vulnerabilities, and unfair resource allocation. Proper pricing creates incentives for efficient data usage and helps maintain network stability.

**How will this affect transaction costs?**
The impact on transaction costs will vary based on the amount of calldata in each transaction. Simple operations like basic token transfers will see minimal increases, while complex operations with large amounts of calldata will see more significant cost increases. The changes are designed to be proportional to actual resource usage.

**When will EIP-7703 be implemented?**
EIP-7703 is currently in the draft stage and would need to go through Ethereum's standard improvement process, including community review, testing, and consensus before implementation. The timeline for implementation depends on community feedback and the results of further analysis.

**Will this break existing applications?**
No, EIP-7703 will not break existing applications. It simply changes the gas cost of calldata, meaning applications will continue to function but may need to adjust their gas limit estimates. The change is designed to be backward compatible while improving network efficiency and security.

### What does EIP-7703 aim to do?

EIP-7703 aims to increase the gas costs for calldata to better reflect the actual computational and bandwidth requirements of processing transaction data on the Ethereum network. The proposal seeks to adjust pricing from the current rates of 4 gas per zero byte and 16 gas per non-zero byte to higher rates that account for the real costs of transmitting, validating, and storing calldata across the network. This ensures users pay fees proportional to the resources they consume, creating a more sustainable and efficient fee market.

### If it "allows a higher block gas limit" at the same time calldata price goes up and fills that gap - so what is expected to change?

The key change expected is improved network resource allocation and security. While higher calldata costs may offset some capacity gains from increased block gas limits, the fundamental improvement lies in accurate resource pricing. This creates natural incentives for developers to optimize their calldata usage, potentially leading to more efficient overall network utilization. The combination allows for safer scaling by ensuring that increased capacity doesn't come at the expense of network security or sustainability.

### What is the impact of increasing calldata costs on Ethereum?

Increasing calldata costs will have several impacts: enhanced network security by preventing attacks that exploit underpriced operations, improved resource allocation through market-based pricing incentives, and greater fee market stability. Simple token transfers will see minimal cost increases (from about 1,088 gas to 1,500-2,000 gas), while complex DeFi operations may see increases from 4,800 gas to 7,000-9,000 gas for calldata. The changes create incentives for efficient data usage and help maintain Ethereum's security model.

### How will EIP-7703 reduce the maximum possible block size?

By increasing the gas cost of calldata, EIP-7703 makes it more expensive to include large amounts of data in transactions. Since blocks have gas limits, transactions with extensive calldata will consume their gas allowance more quickly, effectively reducing the maximum amount of data that can fit in a block. This is a natural consequence of making calldata more expensive relative to other operations, which helps prevent network congestion and ensures that data-heavy transactions pay proportionally for the resources they consume.

### Why is reducing the maximum possible block size necessary?

Reducing the maximum possible block size through higher calldata costs is necessary to maintain network security and performance. When calldata is underpriced, it creates vulnerabilities where malicious actors can create transactions that consume disproportionate network resources relative to the fees paid. Proper pricing ensures that every transaction pays its fair share of network costs, preventing spam attacks and maintaining the network's ability to process transactions efficiently across all nodes in the distributed system.

### What security concerns did EIP-7703 address compared to EIP-7623?

While the article doesn't specifically mention EIP-7623, EIP-7703 addresses security concerns related to underpriced calldata operations. The proposal prevents attacks where malicious actors could exploit cheap calldata to spam the network with data-heavy transactions that consume excessive network resources. By ensuring accurate pricing, EIP-7703 makes such attacks prohibitively expensive while having minimal impact on legitimate users, thereby strengthening the overall security model of the Ethereum network.

### What does EIP-7703 mean for Ethereum network performance?

EIP-7703 should improve Ethereum network performance by creating more accurate resource pricing that prevents network abuse and encourages efficient usage patterns. The proposal helps reduce volatility in gas price spikes during high-demand periods and creates a foundation for potential future gas limit increases. By ensuring that calldata costs accurately reflect their true resource requirements, validators can process transactions more sustainably without creating computational or bandwidth burdens that could compromise network performance.

### How will the increased calldata cost affect users and developers?

Users will experience modest cost increases for most transactions, with simple operations seeing minimal impact while data-intensive operations face proportionally higher costs. Developers will be incentivized to optimize their contract interfaces and data structures to minimize unnecessary calldata, potentially leading to innovations in data compression techniques and more efficient encoding schemes. The changes encourage smarter contract architectures that reduce calldata requirements, ultimately driving the development of more efficient applications across the Ethereum ecosystem.

EIP-7703 proposes to increase these costs to better reflect the actual computational and bandwidth requirements. 

About EIP-7703


![Dex-aggregator.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Dex_aggregator_599a3c5b01.png)
There are more than [130 decentralized exchanges](https://www.alchemy.com/dapps/best/decentralized-exchanges-dexs) (DEXes) currently in operation. That’s a lot of choices when it comes to picking where to trade in DeFi. To cope with the explosion of DEXes, a new industry emerged: DEX aggregators. These unique projects search lots of decentralized exchanges on your behalf to find the best prices for your trades.

  

This has been a game changer for people looking to find the best prices for their trades. But with the proliferation of DEX aggregators comes a conundrum: how to choose the right one for you?

  

There are lots of different factors to consider before choosing to trade with a specific aggregator. That’s why in this article we’re going to walk you through the key features of DEX aggregators, and how to decide which one is right for you.

### The DEX aggregator advantage over traditional DEXs

  

A DEX aggregator is a platform that searches multiple decentralized exchanges to find the best prices for your trades. In the world of crypto, the price of an asset will vary depending on where, when and what medium you use to make a trade.

  

But finding the best price manually can be time-consuming. This is where a DEX aggregator comes in. They provide a single platform where multiple options for buying and selling can be seen on one page. They search platforms such as Balancer, Uniswap, and others for the best price for your trade, and you can complete a trade without having to visit those sites yourself. Typical examples include, 1inch, Matcha, or ParaSwap.

  

DEX aggregators offer a number of advantages over just using DEXs:

-   **Liquidity access:** Because  aggregators pull liquidity from multiple DEXs, they are better able to find the deepest liquidity for your trade. That means less slippage, and a higher trade success rate.
    
-   **Cost efficiency:** Aggregators pick the best route for your trade, which means you can find the best price for your trade with the lowest fees.
    
-   **Convenience:** A DEX aggregator does the hard work for you of searching multiple exchanges to find the best  route for your trade, all within one interface.
    
-   **Advanced features**: DEX aggregators often layer unique features on top of the DEXs they aggregate. Things like MEV protection, batch auctions, and gas optimizations are all options you can utilise.
    

## Evaluating a DEX aggregator

Before picking the DEX aggregator for you, there’s a few things you need to consider:

  

Defining your trading needs: are you a whale or a minnow? Do you only trade popular tokens or are you looking to up your meme coin game? Are you looking for the next big project or looking to make marginal gains on more established ones? These questions can help you work out the best DEX for you. That’s because each DEX, and each DEX aggregator has strengths, but also weaknesses, depending on what you’re looking to trade.

  

How simple are they to use? If you’re a pro and used to navigating the intricacies of DeFi, you’ll be happy to get into the weeds of creating advanced order types and parameters. But if you’re a newbie who just wants to do simple swaps, some platforms may not be suitable.

  

Where do they source their trades from? Each DEX aggregator will have a preference for where and how it finds the best route for your trade. While some will only source from the larger DEXes, others will focus on less well known channels, while some will be able to look into private liquidity pools for the best ways to execute your trade. We’ll explain more about that one later.

## What to consider when choosing a DEX aggregator

Below we’ll explore what you need to consider before choosing the DEX aggregator that works for you.

### Your specific goals and needs

What tokens do you trade across what blockchains? Some DEX aggregators specialise in certain trading pairs or networks, so make sure to check to see if that particular aggregator suits your specific need. Another point to consider: are you looking for specific tools or customisation features for your trades? Some DEX aggregators are more technical than others.

### Transaction fees and cost efficiency

Analyze the aggregator’s fee structure. Each DEX and DEX aggregator will have their own way of charging for their services. Some will charge gas fees, while others may charge platform fees, or a percentage of the trade.

  

Then there are other features such as gasless trading, where users can pay fees in the tokens they are trading instead of having to hold ETH to pay for gas.

  

Then there are other costs such as MEV. Looking for a DEX aggregator with MEV protection can help you avoid losing a percentage of your profits to MEV bots.

### Advanced features and tools

Do you need advanced trading features to help you manage your portfolio? DEX aggregators have different feature sets to suit different types of traders. For example, at CoW Swap there are lots of different order types, including [Market orders](https://docs.cow.fi/cow-protocol/concepts/order-types/market-orders), [Limit orders](https://docs.cow.fi/cow-protocol/tutorials/cow-swap/limit), [TWAP orders](https://cow.fi/learn/getting-to-grips-with-time-weighted-average-price-twap-orders), [Programmatic orders](https://docs.cow.fi/cow-protocol/concepts/order-types/programmatic-orders#:~:text=CoW%20Protocol's%20Programmatic%20Order%20Framework,elapsed%2C%20and%20much%20more), [Milkman orders](https://cow.fi/learn/what-is-milkman-cow-swaps-solution-for-delayed-execution-trading), and [CoW Hooks](https://docs.cow.fi/cow-protocol/concepts/order-types/cow-hooks), giving users the freedom to trade their way.

### Security and support

  

While the world of DeFi is non-custodial, there are still security issues to consider. Doing your research on whether a DEX aggregator regularly has its smart contracts audited is vital. DEX aggregators [can and do get hacked](https://www.bleepingcomputer.com/news/security/okx-suspends-dex-aggregator-after-lazarus-hackers-try-to-launder-funds/) so checking what security assurances they offer is an important step when considering who to trade with.

  

Other protections to consider are whether the DEX aggregator protects you from MEV exploits like front-running and sandwich attacks. These exploits take hundreds of millions from traders every year, but there are DEX aggregators that do offer protection, like CoW Swap. While some DEX aggregators don’t.

### Research and reviews

Any crypto citizen knows the importance of DYOR. Taking your time to read user testimonials and reviews can help you decide which DEX aggregators are better than the rest. But there are a number of other areas you should look out for too. The first is customer support. Whether its places like GitHub or Discord, checking out how well projects handle complaints or bugs can help increase your trust in a project.

  

Then there are things like roadmap activity, security updates and features. If a project is consistently upgrading, refining and releasing features, it’s a sign of a healthy ecosystem. If things have gone quiet? Tread with caution.

## Popular DEX aggregators to consider

While there are lots of DEX aggregators out there, below are four of the biggest when it comes to trading volume.

  

**[1inch](https://1inch.io/)**
    

-   Multiple chain support
    
-   Advanced features for sophisticated traders
    
-   Gasless swaps
    

**[Paraswap](https://www.paraswap.xyz/)**
    

-   Support for both ERC-20 and BEP-20 token standards.
    
-   Integration with popular wallets including MetaMask and Ledger.
    
-   Built in private market maker liquidity pools
    

**Kyberswap**
    

-   Split trade feature to allow multiple sources to complete one order for optimal prices.
    
-   Real time access to multiple trading paths.
    
-   Tiered liquidity pools allow LPs to concentrate liquidity in certain trading pairs.
    

**[CoW Swap](https://cow.fi/cow-swap)**
    

-   Best-in-class MEV protection.
    
-   Profit optimization via batch auctions and fee savings.
    
-   Transparent and secure token handling.
    
-   Intent-based trading ensures best prices (more on that below)
    

## The vulnerabilities of DEXes and DEX aggregators

While DEX aggregators have helped people navigate the dizzying world of DeFi, there are some areas where they still struggle to deliver the best prices possible. Below are a few areas where DEX aggregators are vulnerable to poor performance

-   **MEV:** Maximum Extractable Value is where [malicious actors manipulate transactions](https://cow.fi/learn/what-is-mev) to extract profits. MEV costs traders hundreds of millions of dollars every year. This increases the cost of trading.
    
-   **Liquidity fragmentation:** With more than 130 DEXes currently trading, liquidity has become increasingly fragmented meaning traders increasingly suffer from failed transactions and higher slippage costs.
    
-   **Security:** DeFi, like many parts of the crypto space has its challenges when it comes to security. From coding errors, to unaudited smart contracts, DEX aggregators have been exploited in the past for gaps in their security.
    
-   **Centralization:** While you might think DeFi doesn’t suffer from centralization, there are certain areas where it does. One of those is oracles. These are price feeds that help exchanges determine what price they should charge for certain assets. These oracles can be prone to vulnerabilities and attack. Most famously in 2023 when a price feed used by QuickSwap, a DEX was hacked and used to manipulate the price of tokens leading to losses of $188,000.
    

## Intent-based DEX aggregators minimize the risk

Intent-based aggregators operate differently from other DEX aggregators. That’s because instead of placing orders by signing a raw transaction that executes directly on-chain (i.e. as happens on Uniswap or SushiSwap), CoW Swap users place orders by signing an "intent to trade" message that specifies parameters like the assets and amounts they would like to trade. The intent is a signed message which allows the solvers to execute a trade on behalf of the user using their specified assets and amounts.

Let’s take an example. When you use Uniswap and you want to make a trade, once you’ve chosen the tokens you want to trade with and hit ‘swap’ that order is submitted to the ‘mempool’ a public list of transactions awaiting validation. This is [where MEV creeps in](https://cow.fi/learn/a-guide-to-mev-on-ethereum-explained-cow-dao?ref=learn_search). Because the mempool is public, anyone can see your trade waiting and manipulate conditions around it to their benefit.

With an intent-based DEX however, your intent to trade is not made public, but remains private inside a pool of selected individuals who attempt to find the best trade on your behalf. That lowers the risk of your trade being manipulated.

  

There are other security benefits, too:

-   **Less smart contract risk:** Because solvers take on the risk of interacting with smart contracts and AMMs, you as a trader don’t have to worry.
    
-   **Increased gas efficiency:** All trades are credited directly to user accounts without withdrawals or deposits into an exchange contract. That means less is spent on executing your trade.
    
-   **Better security:** Funds can only be transferred if a trader has approved the contract and signed an order to sell the given token for another.
    
-   **Order expiry dates:** Signed orders have an expiry date and they can be cancelled on-chain, preventing exploits where orders can be re-executed by relying on old approvals.
    

### Intent-based DEX vs traditional aggregators

Intent-based DEXes have a number of important distinctions over traditional aggregators. Below we explain some of the key differences.

  

-   Execution model:
    

**Traditional:** Trades are often routed through predefined on-chain paths, meaning you might not be getting the best price for your trade.
    
**Intent-Based:** Solvers organically go and search for the most efficient execution strategy for your trade.
    

-   Liquidity access:
    

**Traditional:** Relies solely on on-chain DEX liquidity. Many DEX aggregators solely rely on liquidity they can find on-chain.
    
**Intent-Based:** Intent-based aggregators can and do search both on-chain liquidity and off-chain sources. They can also explore peer-to-peer matching, too. More on that below.
    

-   MEV protection:
    

**Traditional:** Your intent to trade goes into the mempool, meaning searchers are able to identify ways of making a profit from your trade through a number of different [MEV attacks.](https://cow.fi/learn/a-guide-to-mev-on-ethereum-explained-cow-dao?ref=learn_search)
    
**Intent-Based:** Your intent to trade is hidden, and is only committed to the blockchain once the order has been filled. This means no one can prey on your trades to make an easy profit.
    

## Beyond liquidity aggregation: the CoW Swap approach

  

CoW Swap is not built like other aggregators. That’s because it relies on third parties known as "[solvers](https://docs.cow.fi/cow-protocol/concepts/introduction/solvers)" to find the best execution paths for trade intents — signed messages that specify conditions for executing transactions on Ethereum and EVM-compatible chains. Let’s explain this a bit more.

  

When a trader signals their intent to trade, the CoW Protocol, the execution layer beneath CoW Swap, groups that intent to trade along with other intents into what’s called a [batch](https://docs.cow.fi/cow-protocol/concepts/introduction/batch-auctions). That batch is then turned into an auction where solvers compete to find the best price for the trades in the batch.

  

One method they do is by trying to find what’s called a [Coincidence of Wants (CoW)](https://docs.cow.fi/cow-protocol/concepts/how-it-works/coincidence-of-wants). This is when two traders want to make the same trade but from opposite sides. So a user with USDC wants to swap to ETH and another user with ETH that wants to swap it to USDC can be paired together in a Coincidence of Wants, or CoWs. CoWs allow users to bypass liquidity provider (LP) fees and also reduce gas fees since orders only interact with CoW Protocol's smart contracts.

  

If those solvers can’t find a CoW in the batch, they search all available on-chain and off-chain liquidity to find the best price for a set of trade intents within a batch.

Liquidity sources include:

-   AMMs (e.g. Uniswap, Sushiswap, Balancer, Curve, etc.)
    
-   DEX Aggregators (e.g. 1inch, Paraswap, Matcha, etc.)
    
-   Private Market Makers - yes, our solvers can access private liquidity to help execute your trade.
    

  

Because your intent to trade is not published into the mempool, trading on CoW Swap also ensures you’re [protected from MEV](https://cow.fi/learn/a-guide-to-mev-on-ethereum-explained-cow-dao?ref=learn_search): a hidden tax on all types of Ethereum transactions. That means any time you want to transact in DeFi: from buying or selling an NFT, lending tokens to a liquidity pool, or swapping one token for another, a group of opportunistic users known as “searchers” have the opportunity to see your trade, and manipulate the criteria surrounding your trade to ensure they make profit, at your expense. Not with CoW Swap.

  

Another feature found in a meta DEX like CoW Swap is different order types. Most DEXes have some order type functionality, CoW Swap goes further. Below is a list of the different types of orders you can do with CoW Swap.

-   [Market orders](https://docs.cow.fi/cow-protocol/concepts/order-types/market-orders) - buy or sell tokens as soon as possible at the current market rate.
    
-   [Limit orders](https://docs.cow.fi/cow-protocol/tutorials/cow-swap/limit) - set your own parameters for how much you are willing to buy and sell.
    
-   [TWAP orders](https://cow.fi/learn/getting-to-grips-with-time-weighted-average-price-twap-orders) - allows traders to spread their trade over a specified period of time.
    
-   [Programmatic orders](https://docs.cow.fi/cow-protocol/concepts/order-types/programmatic-orders#:~:text=CoW%20Protocol's%20Programmatic%20Order%20Framework,elapsed%2C%20and%20much%20more).) - create conditional orders that execute when certain on-chain conditions are met (such as asset prices, wallet balances, time elapsed, and much more)
    
-   [Milkman orders](https://cow.fi/learn/what-is-milkman-cow-swaps-solution-for-delayed-execution-trading)- delayed execution trading: set and forget your trades for optimum conditions.
    
-   [CoW Hooks](https://docs.cow.fi/cow-protocol/concepts/order-types/cow-hooks)- allow users to pair any Ethereum action (or set of actions) with an order on CoW Protocol, leveraging the [solvers](https://docs.cow.fi/cow-protocol/concepts/introduction/solvers) to execute the actions together in the sequence.
    

  

In summary, CoW Swap brings you class-leading MEV protection, liquidity access and custom order types to let you do more with less worry.

### Next steps

As you can see, CoW Swap takes a very different approach to helping find the best route for your trade.

  

Another element that sets it apart from all the rest is its use of a [Coincidence of Wants](https://docs.cow.fi/cow-protocol/concepts/how-it-works/coincidence-of-wants) as one way to execute a trade.

  

This term, which comes from economics, involves two parties - each holding the asset that the other needs - exchanging assets directly in an equivalent barter. Let’s break this down a bit further.

  

Any time you submit a trade on CoW Swap, solvers start looking for the best way to execute it. Before checking on-chain liquidity, solvers check other incoming orders on CoW Swap’s current batch auction to see if your trades can be matched peer-to-peer.

  

If someone wants to do a trade in the opposite direction to what you want, you are paired together, and the whole thing is executed gas free!

  

Want to know more? Check out our explainer on [Coincidence of Wants.](https://cow.fi/learn/what-are-cows-on-cow-swap)

large_Dex-aggregator.png

medium_Dex-aggregator.png

small_Dex-aggregator.png

thumbnail_Dex-aggregator.png

Dex-aggregator.png

Discover how to choose the best DEX aggregator – minimize vulnerabilities, maximize profitability, and avoid MEV exploitation

How to choose a DEX aggregator

![MEV-arbitrage.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/MEV_arbitrage_b49adb9ce0.png)
Arbitrage at its simplest, is a strategy where an investor or entity buys and sells an asset in different markets, taking advantage of the difference in price between those two markets.

  

Popular in the world of TradFi, it’s a big part of the crypto ecosystem, too. But this isn’t the only form of exploitation of market inefficiencies.

  

MEV, or maximal extractable value, is a hidden tax on all types of Ethereum transactions.

  

That means any time you want to transact in DeFi: from buying or selling an NFT, lending tokens to a liquidity pool, or swapping one token for another, a group of opportunistic users known as “searchers” have the opportunity to see your trade, and manipulate the criteria surrounding your trade to ensure they make profit, at your expense.

  

In DeFi, MEV and arbitrage go hand in hand: they take advantage of price differences. In this post, we’ll explain the relationship between arbitrage and MEV, how traders are made vulnerable to them, and how you can keep yourself protected.

## Arbitrage basics for the crypto market

Diving a bit deeper into the definition of arbitrage: the price of an asset varies depending on which exchange you are buying or selling it from. With more than 250 crypto exchanges, that means there’s a lot of opportunity for traders to make a profit from finding assets with different prices.

  

Why are prices higher or lower on different exchanges? The simple reason is demand. If one exchange has many buyers and not many sellers, the price will go up. While on another exchange, if there are lots of sellers but not many buyers, prices will fall.

  

But there are other reasons for price discrepancies.

  

Liquidity: Exchanges with higher trading volumes tend to have more stable prices, while lower-volume exchanges can experience more pronounced price swings.

  

Geography: Demand for specific cryptocurrencies can vary across regions, leading to price differences. So a typical example: USDC on an exchange based in Asia will have a fractionally different price on a European exchange.

  

Fiat Currency Differences: The use of different fiat currencies on different exchanges can also contribute to price discrepancies. Explaining this further, exchange rates for fiat currencies as well as where the buyer is in the world, create added variation in the price of an asset.

  

Market Fragmentation: As we touched on earlier, there are a lot of crypto exchanges, meaning there are more opportunities for arbitrage.

  

Let’s take a look at how arbitrage can take place using Ethereum as an asset.

### Ethereum arbitrage

Ethereum is one of, if not, the most available crypto assets to buy. That means there are lots of opportunities to find price differences.

  
Below you can [see a screenshot of the price of Ethereum across different exchanges.](https://coinranking.com/coin/razxDUgYGNAdQ+ethereum-eth/exchanges)
![Screenshot 2025-03-14 at 15.11.59.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Screenshot_2025_03_14_at_15_11_59_bb42303236.png)


Using the above example, a buyer looking to buy cheap and sell high would buy from Coinbase, where the price of Ethereum is $1,920.16, and then sell on DigiFinex, where the price is $1,934.41.

  

If the buyer bought 1 whole ETH, they would have made around $14 just by exploiting this difference in price - minus fees of course.

  

But this is just one type of arbitrage. In the next section we’ll look at other ways of exploiting price differences.

## Common types of arbitrage in crypto

There are lots of different ways of exploiting arbitrage across crypto markets. Here are the most common:

  

-   **Triangular arbitrage:** price differences between three currencies on an exchange. This sounds complicated but in reality, it’s targeting three currencies that allow you to make a profit based on price differences between them. So for example, you hold USDC, and you use it to buy Bitcoin. You notice that a Bitcoin/Ethereum trading pair gives you more Ethereum than simply trading USDC/ETH, so you swap your Bitcoin for ETH. Lastly you convert the ETH back to USDC at a higher rate pocketing the difference.
    
-   **Cross exchange:** buying on one exchange and selling on another at a higher price. So this is the example we explained above.
    
-   **Spatial:** exploiting price differences across different locations. So as we mentioned earlier, different locations globally will have different prices based on supply and demand.
    
-   **MEV:** A slightly different type of arbitrage, MEV creates an artificial arbitrage opportunity by increasing or decreasing a token price around a single trade. We’ll explain this in more detail in the next section.
    

  

There are lots of other types of arbitrage that can take place in crypto, but for now we’re going to turn our attention to MEV.

## How MEV exploits arbitrage opportunities

MEV or “maximal extractable value” is, as we explained earlier, a unique feature to the world of crypto. Whenever you make a trade, buy or sell an NFT, or lend tokens to a liquidity pool, people can see what you’re trading and take advantage.

  

To date, billions of dollars worth of value has been lost on Ethereum, making it problematic, particularly for new users. There are several key ways MEV can take place on Ethereum:

  

-   [Frontrunning](https://cow.fi/learn/what-is-frontrunning) - Frontrunning occurs when an MEV bot monitors the mempool for a trader’s pending transaction. Spotting a potential trade, the bot quickly duplicates the users transaction so that they can be the one to get the tokens or the opportunity that the user detected.
    
-   [Backrunning](https://cow.fi/learn/what-is-backrunning-mev-attacks-explained) - When a trader places a large trade that artificially inflates the price of an asset on an AMM, an MEV bot can backrun the trade and profit from the arbitrage.
    
-   [Sandwich attacks](https://cow.fi/learn/what-is-a-sandwich-attack-and-how-can-you-protect-yourself) - Sandwich attacks occur when a user’s transaction gets trapped, or “sandwiched,” between two hostile transactions — one before and one after. As a result, the original transaction executes at a much higher price than necessary, leading to an inflated price for the original trader and a profit for the malicious trader placing the two extra trades.
    

  

For all of these types of MEV, speed is vitally important. That’s because the length of time a pending transaction remains in the mempool can be seconds.

  

That means searchers often rely on bots to execute MEV attacks.

## Most DEXs are vulnerable to MEV arbitrage

MEV is possible because validators are free to order blockchain transactions as they see fit in order to maximize their profits. Proof-of-stake (PoS) blockchains such as Ethereum use parties known as “validators” in order to ensure that the consensus rules of the blockchain are followed by all participants.

  

Validators get randomly selected to add the next block to the blockchain. In this process, they determine what transactions are included in the block, and in what order.

  

When you submit a transaction on Ethereum, it does not immediately get added to the next block. Instead, it first goes into the “mempool” which is the collection of all pending transactions. Validators then pull transactions from the mempool and add them to the next block when it’s time for it to be built.

  

Here is where the opportunity to extract value through MEV comes in.

  

Validators are not required to add transactions to the block in the same order that they were submitted by users, so searchers can pay validators a fee to order transactions in a specific way. For example, they can pay to have their transactions come first if they want to frontrun someone else, or they can pay to have their transactions come right after a specific transaction if they want to perform a backrun — both are types of MEV.

  

But while MEV is common place, it’s not impossible to avoid.

Traders can protect themselves with [MEV blockers and defensive measures,](https://cow.fi/learn/understanding-mev-protection) but MEV is still a threat on most DEXs.

  

Let’s take a look at how it works.

### Frontrunning

  

Here’s a simplified look at how frontrunning works.

  

1. **Monitoring Pending Transactions:** A bot monitors the mempool looking for a pending transaction it can create an arbitrage opportunity. It finds one: User A intends to swap 2 ETH for $BOB tokens

  

2. **Selecting Profitable Transactions:** The bot identifies this amount of ETH would create a significant impact on token price. This means there’s an opportunity for arbitrage: exploiting the difference between the pre-trade and post-trade states of the token being traded.

  

3. **Placing A New Transaction:** The bot submits its own transaction paying higher gas fees to be positioned before user A’s transaction in the block. As a result, user A received fewer tokens than they were hoping for. Meanwhile the bot has sold the tokens at an elevated price, earning itself a healthy margin in the process.

  

If you’re interested in understanding frontrunning more fully, check out our [frontrunning blog post](https://cow.fi/learn/what-is-frontrunning).

## The bottom-line: consequences of MEV arbitrage

MEV is a controversial subject in the crypto space. While some argue it helps keep markets running more smoothly, CoW DAO takes the position that [MEV is a bad thing.](https://cow.fi/learn/is-mev-good-or-bad)

  

Sophisticated actors familiar with the mechanics of blockchains like Ethereum have developed numerous ways to exploit users with less knowledge.

  

MEV makes money for searchers, block builders, and Ethereum validators at the expense of regular users, especially beginners who don’t know how to protect themselves. As of the time of writing, sandwich attacks on AMMs and aggregators alike generate [almost $1 million in profit for searchers each week](https://eigenphi.io/mev/ethereum/sandwich).

  

Over time, persistent MEV erodes market confidence as traders realize they are at a constant disadvantage to more sophisticated actors.

  

While in many parts of DeFi, arbitrage opportunities can feel inevitable, there are a few spots where MEV arbitrage can’t hurt your trades.

## Meta-DEX aggregator solution to MEV exploitation

You’ll no doubt be familiar with a decentralized exchange, or DEX. These are the backbone of the DeFi world, acting as a bedrock underpinning all trades.

  

DEX aggregators meanwhile, bundle all the DEXes up into one platform to allow a user to search all the DEXes looking for the best price for their trade.

  

A Meta DEX Aggregator is different again. As the “meta” name implies, they aggregate DEX aggregators. This leads to better liquidity coverage across more venues, while still providing users with a single interface for their trades.

  

Why would you want to aggregate an aggregator? There are many reasons. The first is that DEX and DEX aggregators have strong points and weak points. Some are better for large trades, others for small trades, and some are better across certain trading pairs. There’s a good bit of research on the strengths and weaknesses of DEX aggregators [here](https://jumper.exchange/learn/dex-aggregator).

  

A meta DEX negates those weak points, by routing your trade to the DEX that is strong for the type of trade you’re trying to do. In essence, a Meta DEX takes the guesswork out of finding the right DEX for your trade.

  

Another key reason for a Meta DEX Aggregator is that it can integrate features not found on the DEXes themselves. Such as MEV protection: one of the baked in goodies found in CoW Swap.

  

We dive into that, and the other features of what makes CoW Swap so special.

### The CoW Swap approach

CoW Swap was built from the ground up with MEV protection in mind.

  

CoW Swap relies on 3 main features to keep you safe from MEV:

-   **Delegated Trade Execution** - On CoW Swap, all transactions are routed through a decentralized network of “solvers” — independent algorithms that are responsible for finding the best execution price for your trades. That means those MEV bots we spoke about earlier can’t see your trades, and therefore, can’t arbitrage your profits away.
    
-   **Coincidence of Wants** - Any time you submit a trade on CoW Swap, solvers start looking for the best way to execute it. Before checking on-chain liquidity, solvers check other incoming orders on CoW Swap’s current batch auction to see if your trades can be matched peer-to-peer. If someone wants to do a trade in the opposite direction to what you want, you are paired together, and the whole thing is executed gas free!
    
-   **Uniform Clearing Prices** - On other DEXes, whenever a lot of people want to trade the same token, each of those trades are treated individually, meaning each trade is executed at a slightly different price. This allows MEV to creep in, as trades can be slotted in between that queue of swaps to make the most money. On CoW Swap, if the same people are making the same trade, as long as they are in the same batch auction, each order will be settled for the same clearing price when it goes on-chain. This leaves no room for MEV attacks since all prices are the same, meaning that transaction ordering becomes irrelevant.
    

  

Want to understand CoW Swap’s unique feature set more fully? Check out this blogs:

-   [What is a Meta DEX - and why should you use it for your trades? - CoW DAO](https://cow.fi/learn/what-is-a-meta-dex-and-why-should-you-use-it-for-your-trades)
    
-   [MEV Bots: Switch From Searcher to Solver - CoW DAO](https://cow.fi/learn/mev-bots-switch-from-searcher-to-solver)

large_MEV-arbitrage.png

medium_MEV-arbitrage.png

small_MEV-arbitrage.png

thumbnail_MEV-arbitrage.png

MEV-arbitrage.png

Discover how MEV and arbitrage affect crypto trading, learn the risks of exploitation on DEXs, and find out how Meta-DEX aggregators can protect your trades.

MEV and arbitrage: predatory but avoidable

Nansen evaluates wallet performance through several key indicators that provide a comprehensive picture of trading success. Return on investment (ROI) serves as the primary metric, measuring the percentage gain or loss across all positions. For example, a wallet that invested $100,000 and currently holds positions worth $350,000 would demonstrate a 250% ROI.

Absolute profit represents the dollar value of gains, which helps identify wallets generating substantial returns regardless of initial capital. A wallet showing $2.5 million in absolute profit indicates significant successful trading activity, even if the percentage return appears modest due to large initial investments.

Time-weighted returns account for the duration of positions, distinguishing between quick gains and long-term accumulation strategies. A wallet achieving 500% returns over six months demonstrates different skill sets compared to one generating similar returns over two years.

Nansen tracks the percentage of profitable trades for each wallet, providing insight into consistency and risk management capabilities. The platform categorizes trades as wins or losses based on entry and exit prices, factoring in transaction costs and slippage—the difference between expected and actual execution prices.

Consider a wallet that executed 150 trades over six months. If 95 trades resulted in profits while 55 resulted in losses, this wallet demonstrates a 63% success rate. However, the platform also weighs trade sizes, so ten large profitable trades might outweigh twenty small losing positions in terms of overall performance impact.

The system also evaluates average win-to-loss ratios. A wallet with an average winning trade of $50,000 and average losing trade of $15,000 shows strong risk management, even with a lower win rate. This 3.33:1 win-loss ratio indicates the wallet cuts losses quickly while allowing profitable positions to develop.

Performance evaluation extends beyond simple profit calculations to examine token selection accuracy and market timing. Nansen analyzes how early wallets enter positions relative to significant price movements, measuring the gap between initial purchases and major upward trends.

For instance, a wallet that accumulated tokens three weeks before a protocol's major announcement and subsequent 400% price increase demonstrates superior market insight. The platform tracks these patterns across multiple positions to identify wallets with consistent early-entry capabilities.

Exit timing receives equal scrutiny. Wallets that consistently sell near local peaks or before major corrections earn higher performance scores. Understanding when to exit positions proves as crucial as identifying entry opportunities, particularly in cryptocurrency markets known for their volatility.

Nansen evaluates portfolio diversification by analyzing token concentration and sector allocation. Wallets maintaining balanced exposure across decentralized finance (DeFi), gaming, infrastructure, and other sectors while avoiding over-concentration in single positions demonstrate sophisticated risk management.

The platform measures position sizing relative to total portfolio value. A wallet allocating no more than 5% to any single speculative token while maintaining larger positions in established assets like Ethereum shows disciplined risk management. Conversely, wallets concentrating 50% of holdings in single alternative cryptocurrencies receive lower risk-adjusted performance scores.

Correlation analysis identifies wallets that successfully avoid clustering investments in highly correlated assets. During market downturns, portfolios spread across uncorrelated sectors typically outperform concentrated positions, as diversification provides natural hedging against sector-specific risks.

Long-term performance tracking reveals whether success results from skill or temporary market conditions. Nansen analyzes performance across different market cycles, identifying wallets that maintain profitability during both bull and bear markets.

A wallet demonstrating consistent monthly returns between 8-15% over eighteen months, regardless of overall market direction, indicates sustainable trading strategies. The platform flags wallets showing extreme performance variations, such as 200% gains followed by 80% losses, as potentially benefiting from luck rather than demonstrable skill.

Seasonal performance analysis helps identify specialization patterns. Some wallets excel during specific market phases, such as periods of intense DeFi activity or NFT market expansion, while others maintain steady performance across all conditions.

Nansen compares individual wallet performance against relevant benchmarks, including overall market returns, sector-specific indices, and peer groups. A wallet generating 150% annual returns appears impressive until compared to a market that gained 300% during the same period.

The platform segments wallets by capital size for fair comparison. A wallet starting with $10,000 faces different constraints and opportunities compared to one beginning with $10 million. Performance evaluation accounts for these differences through size-adjusted metrics that recognize the unique challenges of different capital levels.

Geographic and temporal factors also influence benchmarking. Wallets active primarily during Asian trading hours may face different market conditions than those operating during U.S. market hours, requiring adjusted performance expectations based on regional trading patterns and liquidity conditions.

Beyond simple buy-and-sell tracking, Nansen examines transaction patterns to understand trading behavior. Frequency analysis identifies whether wallets engage in high-frequency trading, swing trading over days or weeks, or long-term accumulation strategies spanning months or years.

The platform tracks transaction costs as a percentage of position sizes, identifying wallets that minimize fee impact through strategic timing and exchange selection. Wallets consistently paying less than 0.5% in transaction costs per trade demonstrate operational efficiency that meaningfully impacts long-term returns.

Nansen also analyzes withdrawal and deposit patterns to understand cash management strategies. Wallets that strategically move funds between exchanges to capitalize on price differences or optimize lending yields receive recognition for comprehensive portfolio management extending beyond simple trading decisions.

Performance evaluation incorporates broader market intelligence, including correlation with institutional flows, regulatory events, and technical indicators. Wallets that consistently position ahead of major market catalysts demonstrate superior information processing capabilities and market awareness.

The platform tracks wallet reactions to significant events, measuring response speed and directional accuracy. Wallets that quickly repositioned before major market disruptions or increased exposure ahead of positive developments demonstrate valuable market instincts that contribute to sustained performance.

This comprehensive performance evaluation framework enables users to identify genuinely skilled market participants, distinguish between luck and skill, and develop more sophisticated analysis strategies based on quantified wallet capabilities rather than simple profit metrics alone.

## <h2>Frequently asked questions</h2>
### <h3>How to track successful crypto wallets?</h3>

To track successful crypto wallets, focus on multiple performance indicators rather than just profits. Look for wallets with consistent return on investment (ROI) across different market cycles, strong win-to-loss ratios (ideally 3:1 or better), and high trade success rates above 60%. Pay attention to wallets that demonstrate superior market timing by entering positions weeks before major price movements and exiting near local peaks. Successful wallets also show disciplined risk management through diversified portfolios across DeFi, gaming, and infrastructure sectors while avoiding over-concentration in single positions. Track transaction patterns to identify whether wallets use high-frequency trading, swing trading, or long-term accumulation strategies, and monitor their ability to maintain performance during both bull and bear markets.

### <h3>How to check cryptocurrency performance?</h3>

Check cryptocurrency performance by analyzing multiple metrics beyond simple price changes. Calculate ROI by comparing current portfolio value to initial investment, and examine time-weighted returns to understand gains relative to holding periods. Evaluate absolute profit in dollar terms to identify substantial returns regardless of initial capital size. Monitor trade success rates by tracking profitable versus losing positions, factoring in transaction costs and slippage. Assess token selection accuracy by measuring how early positions were entered relative to major price movements. Compare performance against relevant benchmarks including overall market returns, sector-specific indices, and peer groups. Also analyze performance consistency across different market cycles to distinguish between skill-based gains and temporary market luck.

### <h3>How to check the value of a crypto wallet?</h3>

Check crypto wallet value by calculating the total USD worth of all held positions at current market prices. Beyond simple valuation, assess the wallet's performance through ROI calculations - for example, a wallet that invested $100,000 and now holds positions worth $350,000 shows 250% ROI. Analyze portfolio composition including diversification across different sectors and position sizing relative to total portfolio value. Examine transaction history to understand trading patterns, average position sizes, and fee efficiency. Consider both realized and unrealized gains, and factor in transaction costs that may impact net value. For comprehensive evaluation, compare the wallet's performance against market benchmarks and similar-sized wallets operating in the same timeframe.

### <h3>How to check AML score of crypto wallet?</h3>

AML (Anti-Money Laundering) scores for crypto wallets are typically assessed through blockchain analytics platforms that analyze transaction patterns and fund sources. These tools examine wallet interactions with known high-risk addresses, mixing services, darknet markets, and sanctioned entities. The scoring considers transaction frequency, amounts, geographic patterns, and connections to exchanges with strong KYC procedures versus those with weak compliance. Wallets with clean transaction histories, regular interactions with compliant exchanges, and no connections to illicit activities receive higher AML scores. Professional compliance tools like Chainalysis, Elliptic, and TRM Labs provide detailed risk assessments, while some exchanges and DeFi platforms integrate AML screening that may affect wallet interactions and transaction approvals based on risk scores.

Discover how Nansen evaluates crypto wallet performance through comprehensive metrics including ROI, profit ratios, market timing, diversification, and risk management to identify skilled traders versus lucky investors.

How to evaluate wallet performance with Nansen

![gasless-swaps.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/gasless_swaps_d95cdec808.png)
Gas fees are an integral part of the blockchain ecosystem. At their simplest, they are the fees a user pays to validate transaction on a blockchain. That fee goes to either a miner or validator to help process transactions in a block.

  

The price of gas on networks can vary widely. In 2020, gas fees on Ethereum reached record highs due to network congestion. While prices have come down since, the volatility of prices can have a major impact on your trading.

  

That’s why in this article we’re going to explain that thanks to CoW Swap, you can perform gasless swaps on Ethereum in a few simple steps.

## The burden of gas fees in crypto trading

On Ethereum, gas is required for you to perform most actions. From the buying and selling of cryptocurrencies, to trading NFTs, to staking, most actions will typically require you to pay a gas fee.

  

However, because of the fluctuating nature of gas fees, for many traders, maintaining enough ethereum to pay gas fees on trades can sometimes mean you miss out on making trades at the optimal moment.

  

This is because if you do not have enough Ethereum to pay your gas fee, the transaction will not complete. Or, if your trading requires you to execute your trade quickly, during busy times you may have to pay considerably more to ensure your trade can complete in time. The below chart demonstrates the [fluctuating nature of gas fees](https://ycharts.com/indicators/ethereum_average_gas_price) over the last five years.
![Screenshot 2025-03-07 at 10.48.58.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Screenshot_2025_03_07_at_10_48_58_60623bcbf0.png)


The amount of gas you pay, especially during busy times, can add up. There are countless examples of the high gas fees users have paid to transact on Ethereum. Last year, one [user paid $700,000 for a single Ethereum transaction.](https://cointab.com/user-paid-700k-ethereum-transaction/) Other famous examples included a [$23.5 million fee to move just 100,000 in Tether](https://cryptonews.com/news/the-most-expensive-transaction-on-ethereum-cost-usd-23-million/), and another user paid [$108,000 paid for a single transaction](https://u.today/shockingly-big-fee-paid-for-single-ethereum-transaction-details) in late 2024. It’s not Ethereum traders feeling the gas fee pinch.

  

Over on Bitcoin, one user [paid $3.1 million in transaction fees](https://www.coindesk.com/business/2023/11/23/bitcoin-sender-struck-with-31m-transaction-fee-largest-in-history), demonstrating that trading during busy times can be prohibitively expensive. But there are ways you can avoid getting caught out by gas fees, as we’ll explore below.

## What are gasless approvals?

Gasless approvals, or meta transactions as they are sometimes referred to, means that a third-party, called a relayer, or on CoW Swap, a solver, can send another user’s transaction on their behalf, covering the cost of gas in the process.

  

In a normal transaction, when you want to trade, you sign a transaction that is then added to the upcoming block in what is called the mempool. To find out more about mempools, and some of the risks that come with it, check our [guide to MEV on Ethereum](https://cow.fi/learn/a-guide-to-mev-on-ethereum-explained-cow-dao).

  

Digging a bit deeper, a user ‘signs’ a message that contains an intent to trade, along with the details of the type of trade and what token they want to transact in.

  

The solver is then responsible for paying the gas fee. How does this all work? Gasless approvals rely on [ERC-2612: Permit Extension for EIP-20 Signed Approvals](https://eips.ethereum.org/EIPS/eip-2612). This upgrade to how Ethereum works creates a signature that can call approvals directly on behalf of the owner.

  

This allows a third party, such as a solver, to spend funds on behalf of the user.

Each Ethereum transaction has a minimum fixed transaction cost associated with it. When executing transactions individually, this cost is usually higher per action than if users bundle multiple transactions together. So, in addition to creating a better user experience for traders, gasless approvals also lower the overall cost of trading on CoW Swap.

  

With gasless approvals, CoW Swap now allows users to sign a message (gas free!) that gives [solvers](https://docs.cow.fi/solvers/solvers) permission to execute the approval transaction on their behalf. Solvers then bundle the approval transaction with the first swap, and users pay fees in the sell token.

  

The result? Users can now do an entire swap, even for a new token, without spending a gwei in ETH, or even holding any ETH in their wallet at all. That’s a smoooooother (and cheaper) user experience. Moo-gnificent!

  

All of this means that for end users, there are lower fees, a more streamlined process and better security. We go into more detail on the benefits in the next section.

## Why gasless swaps are a game changer for Ethereum

Gasless swaps on Ethereum means that traders can execute their trades without having to worry and factor in volatile gas prices. There are a range of other benefits, too.

  

-   Fully ETH-less swaps: New users and fresh wallets can complete swaps end-to-end without needing ETH — that’s especially nice for airdrop farmers and privacy seekers.
    
-   Faster trades: CoW Swap users don’t have to wait for an approval transaction to execute before the swap — traders can now swap right away, even with tokens they haven’t traded before.
    
-   Bundling efficiency: Approval transactions execute alongside orders, in the same block — shielded from fluctuating gas prices, for a more cost-efficient experience overall.
    
-   Enhanced security: Only an approved spender can execute transactions on behalf of a trader — users can trust that [CoW Swap](https://cow.fi/cow-swap) is as secure as ever.
    

  

Ready to execute your first gasless swap? We will tell you how in the next section.

## How to execute gasless swaps on Ethereum using CoW Swap
    

### Step 1: Connect your wallet

Navigate to the [swap.cow.fi](http://swap.cow.fi/). Once you’re there, you’ll need to connect your wallet to the swap interface.

  

In the top right hand corner of your screen, you’ll find a “connect wallet” button. Click that and an interface will pop up.
![Screenshot 2025-03-07 at 12.46.48.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Screenshot_2025_03_07_at_12_46_48_cdc4fed40c.png)
Select the wallet of your choice and follow the instructions from your wallet provider.
![Screenshot 2025-03-07 at 12.46.04.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Screenshot_2025_03_07_at_12_46_04_72946aa346.png)
### Step 2: Select your trading pair

Once you're all connected and ready to go, select the trading pair you would like to share. You can pick from the drop down menus on the right hand side, as you can see below.
![Screenshot 2025-03-07 at 12.44.45.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Screenshot_2025_03_07_at_12_44_45_6e3f714fbd.png)
Once you’ve picked the one you want, enter the amount you want to swap. Once selected CoW Swap does its magic, working out the best price available to you. 
![Screenshot 2025-03-07 at 12.54.15.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Screenshot_2025_03_07_at_12_54_15_296726bd6a.png)
### Initiate the Swap with gasless approval

CoW Swap has gasless trading on more than 150 token pairs. To find out if your token pair can be gasless, CoW Swap will highlight if it is, as it appears below.
![Capture d’écran 2025-03-07 à 14.52.20.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Capture_d_ecran_2025_03_07_a_14_52_20_4339a5b910.png)
### Step 4: Confirm and monitor your transaction

Ready to confirm? Hit the trade button and let CoW Swap’s solver network do the rest, via CoW Swap’s Order Flow Auctions. This is a process where solvers compete to fulfil trades. The aim is to ensure users capture as much value from each swap or trade, while also being protected from [Maximal Extractable Value (MEV).](https://cow.fi/learn/what-is-mev)

  

The key point to take away from OFA is that it’s a competitive bidding system where solvers compete over who can make the best offer, which is then selected by the protocol. This system not only simplifies the trading process but also ensures traders access the best available price without the need to manually search through multiple platforms.

  

So not only are you able to trade gaslessly, CoW Protocol’s solver network competes to give you the best deal possible.

## Next Steps

Curious about gasless swaps on Ethereum? We have plenty of resources you can use to understand the concept more fully. Here are a few more resources to get started:

-   [Announcing Gasless Approvals on CoW Swap](https://cow.fi/learn/announcing-gasless-approvals-on-cow-swap)
    
-   [EIP-1271 explained](https://cow.fi/learn/eip-1271-explained)
    
-   [CoW Swap launches TWAP Orders - a guide to how special order types on CoW Swap use gasless swaps on Ethereum.](https://cow.fi/learn/cow-swap-launches-twap-orders)
    

  

Ready to trade without paying gas? Head to [CoW Swap](https://cow.fi/cow-swap) to start trading.

large_gasless-swaps.png

medium_gasless-swaps.png

small_gasless-swaps.png

thumbnail_gasless-swaps.png

gasless-swaps.png

In this article we’re going to explain that thanks to CoW Swap, you can perform gasless swaps on Ethereum in a few simple steps. 


How to: Gasless swaps on Ethereum

Blob Parameter Only (BPO) Hardforks are specialized protocol upgrades that modify blob-related parameters through simple configuration changes—no client code modifications required. Unlike traditional hard forks that bundle multiple protocol changes and require extensive coordination, BPO forks focus exclusively on three critical blob parameters:

- **Blob Target**: The expected number of blobs per block under normal conditions
- **Blob Limit (Max)**: The maximum number of blobs allowed in a single block
- **Blob Base Fee Update Fraction**: Controls how aggressively blob pricing adjusts based on demand

### Why BPO forks matter

Traditional hard forks require thousands of lines of boilerplate code, extensive testing cycles, and coordinated deployment across all client implementations. BPO forks eliminate this overhead by treating blob parameters as configuration data rather than hardcoded values.

**Key advantages:**
- **Configuration-based activation**: Parameters are specified in node configuration files with predetermined activation timestamps
- **Automatic parameter switching**: Nodes automatically adopt new blob parameters at the specified block height
- **Streamlined coordination**: No code changes required across client implementations
- **Rapid deployment**: Weeks instead of months for parameter adjustments

Think of BPO forks as a "cheat sheet" for blob scaling—they provide a predetermined roadmap for capacity increases that can be executed quickly when network conditions demand it.

## How BPO hardforks work in practice

To understand BPO forks in practice, consider how Ethereum might scale blob capacity over the next two years as L2 adoption accelerates.

### Current situation (without BPO forks)
Ethereum currently supports 3 target blobs and 6 maximum blobs per block. When L2 demand consistently fills all 6 blob slots, creating expensive congestion, the only solution is a full hard fork that might take 6-12 months to coordinate, test, and deploy.

### With BPO forks
Network operators can pre-plan a series of graduated capacity increases:

1. **BPO Fork 1** (3 months later): Increases target to 6 blobs, maximum to 9 blobs
2. **BPO Fork 2** (6 months later): Increases target to 12 blobs, maximum to 16 blobs  
3. **BPO Fork 3** (9 months later): Increases target to 16 blobs, maximum to 24 blobs

Each fork activates automatically at its predetermined timestamp. When network monitoring shows that blob utilization consistently exceeds 80% for several weeks, the next BPO fork provides immediate relief without requiring emergency coordination.

### Step-by-step BPO fork process

1. **Configuration update**: Node operators update their configuration files with new blob parameters and activation timestamp
2. **Automatic activation**: At the specified timestamp, all nodes simultaneously adopt the new parameters
3. **Immediate effect**: Block builders can now include more blobs, reducing congestion and fees
4. **Network verification**: The P2P network automatically updates its fork digest to reflect the new parameters

This process transforms blob scaling from a major coordination challenge into a predictable, automated response to network demand.

## Benefits of BPO hardforks

### Rapid scaling response
Traditional hard forks require extensive coordination between core developers, client teams, node operators, and the broader ecosystem. This process typically takes 6-12 months from proposal to activation. BPO forks reduce this timeline to weeks, enabling Ethereum to respond quickly to L2 growth.

**Example**: If Arbitrum, Optimism, and Polygon zkEVM simultaneously launch major consumer applications that double blob demand overnight, a BPO fork could provide relief within 2-3 weeks rather than waiting months for the next planned hard fork.

### Reduced operational overhead
According to the EIP authors, implementing a typical hard fork in Lighthouse requires "thousands of lines of boilerplate" before any protocol changes occur. BPO forks eliminate this overhead entirely by treating blob parameters as configuration data.

This means client development teams can focus on building new features rather than managing repetitive hard fork infrastructure. The result is faster innovation cycles and more predictable development timelines.

### Enhanced stability with new technologies
Major scaling upgrades like EIP-7594 (Peer Data Availability Sampling) introduce uncertainty about optimal blob limits. Rather than forcing developers to guess the right parameters before deployment, BPO forks allow for conservative initial limits followed by rapid increases based on observed performance.

This approach reduces the risk of destabilizing the network while maximizing capacity utilization. For instance, when EIP-7594 launches, developers might initially set conservative blob limits, then use BPO forks to gradually increase capacity as the network demonstrates stability.

### Predictable upgrades for builders
L2 solutions require confidence that Ethereum will scale to meet their data availability needs. BPO forks provide this predictability by establishing a clear roadmap for capacity increases.

According to the EIP motivation, this predictability allows "rollups to commit to Ethereum over alternative DA solutions." Instead of hedging their bets with multiple DA providers, L2 teams can confidently build on Ethereum knowing that capacity will scale with demand.

## Technical implementation

The BPO fork mechanism operates through coordinated configuration changes across Ethereum's execution and consensus layers, with specific data structures designed to handle the transition seamlessly.

### Execution layer configuration
The execution layer uses an extended version of the `blobSchedule` object from EIP-7840, linking each fork to an activation timestamp. BPO forks follow the naming convention `bpo<index>` where index starts at 1:

```json
"blobSchedule": {
  "prague": {
    "target": 6,
    "max": 9,
    "baseFeeUpdateFraction": 5007716
  },
  "bpo1": {
    "target": 12,
    "max": 16,
    "baseFeeUpdateFraction": 5007716
  }
},
"pragueTime": 1747387400,
"bpo1Time": 1757387400
```

### Consensus layer configuration
The consensus layer introduces a `BLOB_SCHEDULE` field containing entries for each fork that modifies blob parameters. This schedule specifies the epoch number and new `MAX_BLOBS_PER_BLOCK` value for each transition.

### Network coordination
BPO forks require modifications to Ethereum's peer-to-peer networking to ensure nodes can properly coordinate during transitions. The `compute_fork_digest` function is updated to incorporate blob parameters into the network's fork identification, ensuring that nodes with different blob configurations can't accidentally connect.

Additionally, consensus layer nodes include a new `nfd` (next fork digest) field in their Ethereum Node Records (ENRs), allowing peers to communicate their upcoming fork transitions during network discovery.

## Implementation considerations

### Network impact and block size
Including blob scheduling information increases block size, but analysis shows this impact is manageable. The additional configuration data adds approximately 100-200 bytes per block, negligible compared to the 1-2 MB size of blocks containing maximum blobs.

The real consideration is ensuring that increased blob capacity doesn't overwhelm network bandwidth. BPO forks enable gradual capacity increases that can be monitored and adjusted based on network performance, rather than large jumps that might cause congestion.

### Validation requirements
For BPO forks to maintain network security, all nodes must transition simultaneously at the specified timestamp. This requires:
- **Synchronized clocks**: All nodes must agree on the activation timestamp
- **Configuration consistency**: Execution and consensus layers must specify identical parameters
- **Backward compatibility**: Older nodes must be able to validate blocks up to the fork transition

### Testing and deployment
While BPO forks eliminate most implementation complexity, they still require testing to ensure parameter changes don't create unexpected behavior. The EIP specifies that testing teams can "investigate different parameters with minimal involvement from client implementers," streamlining the validation process.

## Future implications

### Enabling higher throughput
The efficiency gains from responsive blob scaling could enable Ethereum to support significantly higher L2 throughput. As blob capacity increases predictably, L2 solutions can commit to serving more users without worrying about DA cost spikes.

For example, if current blob capacity supports 100,000 L2 transactions per second across all rollups, a series of BPO forks could potentially scale this to 500,000+ transactions per second over 12-18 months.

### Foundation for on-chain governance
While BPO forks initially rely on off-chain coordination, they establish the technical foundation for future on-chain blob parameter governance. Once blob capacity stabilizes and the community gains experience with parameter adjustments, this mechanism could evolve into a more decentralized governance system.

### Integration with future scaling solutions
BPO forks complement other scaling initiatives like stateless clients and verkle trees. By ensuring that blob capacity can scale rapidly, BPO forks remove a potential bottleneck that might otherwise limit the effectiveness of these future improvements.

The EIP authors note that BPO forks "provide a simpler, more predictable approach while leaving room for future on-chain voting mechanisms when blob capacity stabilizes." This suggests that BPO forks are designed as a transitional solution during Ethereum's high-growth phase.

## Conclusion

EIP-7892 represents a significant advancement in Ethereum's ability to scale responsively to L2 demand. By introducing Blob Parameter Only Hardforks, Ethereum gains the ability to adjust blob capacity in weeks rather than months, ensuring that data availability never becomes a bottleneck for L2 growth.

The technical implementation is elegant in its simplicity—treating blob parameters as configuration data rather than hardcoded values eliminates the complexity of traditional hard forks while maintaining network security and decentralization. With BPO forks, Ethereum transforms from a system that scales in large, infrequent jumps to one that can adapt continuously to market demand.

This innovation ensures that Ethereum can confidently support the next generation of L2 applications, from consumer-facing social networks to enterprise-scale financial systems. As the ecosystem continues to grow, BPO forks provide the scaling agility that will keep Ethereum competitive with alternative data availability solutions.

As Ethereum approaches its next major upgrade phase, EIP-7892 demonstrates that significant protocol improvements don't always require complex implementations. Sometimes the most powerful innovations come from reimagining how we approach familiar problems—in this case, turning the challenge of blob scaling into a predictable, automated response to network growth.

## Frequently asked questions

**What is EIP in Ethereum?**
EIP stands for Ethereum Improvement Proposal. EIPs are standards that describe potential new features or processes for Ethereum. They contain technical specifications for proposed changes and serve as the primary mechanism for proposing new features, collecting community input on issues, and documenting design decisions that have gone into Ethereum. EIP-7892 introduces Blob Parameter Only Hardforks to enable rapid scaling of blob capacity through lightweight, focused hard forks.

**How do BPO forks differ from regular hard forks?**
BPO forks modify only blob-related parameters through configuration changes, without requiring any client-side code modifications. Regular hard forks typically bundle multiple protocol changes and require extensive coordination, testing, and implementation changes across all client software. BPO forks can be deployed in weeks rather than months and eliminate the thousands of lines of boilerplate code typically required for hard fork implementation.

**What are blobs and why do they matter for scaling?**
Blobs are large data packets introduced in Ethereum's Dencun upgrade that provide cheap data availability for Layer 2 solutions. L2 rollups use blobs to store compressed transaction data, enabling them to offer much lower fees than mainnet Ethereum. As L2 adoption grows, blob demand increases, making it critical for Ethereum to scale blob capacity to prevent congestion and high fees.

**Who controls when BPO forks activate?**
BPO forks activate automatically at predetermined timestamps specified in node configuration files. The timing and parameters are coordinated by Ethereum's core development community through the same process used for regular hard forks, but without requiring code changes across client implementations. This allows for much faster deployment while maintaining the same security and decentralization guarantees.

**Will BPO forks replace regular hard forks?**
No, BPO forks are designed specifically for blob parameter adjustments. Regular hard forks will still be necessary for broader protocol upgrades, new features, and other improvements. BPO forks complement regular hard forks by providing a streamlined mechanism for one specific but critical type of network upgrade, allowing regular hard forks to focus on more substantial protocol changes.

**What is the purpose of EIP-7892 in relation to Ethereum's blob capacity?**
EIP-7892 introduces Blob Parameter Only Hardforks to enable rapid scaling of Ethereum's blob capacity in response to Layer 2 demand. The proposal allows Ethereum to adjust blob capacity in weeks rather than months, ensuring that data availability never becomes a bottleneck for L2 growth. This transforms Ethereum from a system that scales in large, infrequent jumps to one that can adapt continuously to market demand.

**How does EIP-7892 enable scaling of Ethereum's blob capacity?**
EIP-7892 enables scaling through configuration-based parameter changes that activate automatically at predetermined timestamps. Instead of requiring extensive code changes across all client implementations, nodes simply update their configuration files with new blob parameters and activation times. This eliminates the thousands of lines of boilerplate code typically required for hard forks and allows for rapid deployment when network conditions demand increased capacity.

**What are blob-related parameters that can be modified through EIP-7892?**
EIP-7892 allows modification of three critical blob parameters: the blob target (expected number of blobs per block under normal conditions), the blob limit or maximum (maximum number of blobs allowed in a single block), and the blob base fee update fraction (controls how aggressively blob pricing adjusts based on demand).

**What are Blob Parameter Only (BPO) hardforks?**
BPO hardforks are specialized protocol upgrades that modify only blob-related parameters through configuration changes, without requiring any client-side code modifications. Unlike traditional hard forks that bundle multiple protocol changes, BPO forks focus exclusively on blob parameters and can be deployed through automatic parameter switching at specified block heights, enabling streamlined coordination and rapid deployment.

**How do BPO forks differ from traditional hard forks?**
BPO forks treat blob parameters as configuration data rather than hardcoded values, eliminating the need for extensive code changes, testing cycles, and coordinated deployment across all client implementations. Traditional hard forks typically require 6-12 months from proposal to activation and thousands of lines of boilerplate code, while BPO forks can be deployed in weeks and require only configuration file updates.

**What are the target and limit parameters mentioned in EIP-7892?**
The target parameter represents the expected number of blobs per block under normal conditions, while the limit (or maximum) parameter sets the absolute maximum number of blobs allowed in a single block. These parameters work together to manage blob capacity and pricing - the target establishes baseline expectations while the limit provides headroom for periods of high demand.

**Why might lightweight hard forks for blob parameters be beneficial for Ethereum?**
Lightweight hard forks for blob parameters provide rapid scaling response to L2 growth, reduced operational overhead for client development teams, enhanced stability when deploying new technologies, and predictable upgrades that give L2 solutions confidence in Ethereum's scaling roadmap. This approach allows Ethereum to respond quickly to demand spikes and maintain competitiveness with alternative data availability solutions while reducing the complexity burden of frequent major protocol upgrades.

Blob Parameter Only (BPO) Hardforks are specialized protocol upgrades that modify blob-related parameters through simple configuration changes—no client code modifications required. 

About EIP-7892

Dune's platform processes an impressive 3TB of new blockchain data daily, aggregating information from over 60,000 decoded protocols across major networks. This comprehensive infrastructure transforms raw on-chain activity into accessible insights, making it an essential tool for identifying emerging cryptocurrency trends before they gain widespread attention.

The platform's effectiveness stems from its ability to monitor multiple data streams simultaneously. Rather than relying on social media sentiment or speculative indicators, Dune tracks actual blockchain activity—transaction volumes, wallet interactions, token transfers, and smart contract deployments—to identify genuine market movements as they develop.

## Monitoring transaction volume patterns

Transaction volume analysis provides the clearest early signals of emerging trends. Successful protocols typically follow predictable growth patterns: modest initial activity, followed by gradual increases, then exponential expansion as adoption accelerates.

Consider how a new decentralized finance protocol might evolve. Initial daily volumes of $50,000 could grow to $500,000 within two weeks as early adopters discover the platform, then potentially reach $5 million daily as broader awareness develops. This 100-fold growth trajectory, when identified early, often indicates significant emerging opportunities.

Volume analysis becomes most valuable when combined with user metrics. Protocols showing both increasing transaction volumes and expanding user bases demonstrate genuine organic growth, distinguishing them from artificial activity generated by a few large participants.

## Tracking user adoption metrics

Sustainable trends require consistent user growth rather than temporary spikes. Dune's wallet tracking capabilities reveal whether emerging protocols are building genuine communities or experiencing short-lived speculation.

A healthy emerging marketplace might begin with 100 unique daily users, expand to 500 within a month, then reach 2,000 within three months. This steady progression indicates authentic market interest rather than artificial inflation.

The platform also segments users by behavior patterns. "Power users"—wallets performing multiple transactions or maintaining significant positions—often signal trend strength. When protocols attract both casual participants and sophisticated users simultaneously, it typically indicates robust market validation.

## Analyzing token distribution patterns

Token ownership distribution reveals crucial information about emerging opportunities. Healthy projects typically show gradual broadening of token distribution as legitimate adoption increases, moving away from initial concentration among early participants.

Whale activity monitoring provides early signals for both opportunities and risks. When a new token initially shows 60% concentration among 10 large holders, healthy development might see this decrease to 40% over three months as retail participation increases.

Conversely, sudden whale accumulation in previously stable tokens often precedes major announcements or protocol developments, providing advance notice of significant changes.

## Identifying smart contract innovation

New smart contract deployments frequently signal emerging trends weeks before they become visible through traditional metrics. Monitoring deployment patterns across protocol categories can reveal developing market themes.

A surge in decentralized exchange contract deployments might indicate growing demand for new trading solutions. Multiple lending protocol contracts appearing simultaneously could signal innovation in decentralized finance mechanisms. These patterns typically precede user adoption, providing early identification opportunities.

Contract interaction patterns add another layer of insight. New contracts that rapidly attract interactions from diverse addresses often indicate successful product-market fit, suggesting significant emerging trends.

## Cross-chain trend analysis

Dune's multi-chain capabilities enable tracking how trends migrate between blockchain ecosystems. Successful protocols often expand from their origin network to others, creating early identification opportunities on new chains.

A yield farming protocol might launch on Ethereum, gain traction over three months, then expand to Layer 2 networks like Arbitrum and Polygon. Analysts monitoring cross-chain deployment patterns can identify these expansion opportunities before broader market recognition.

Bridge transaction data provides additional insights. Increased bridging activity between specific networks often precedes major protocol launches or ecosystem developments on destination chains.

## Leveraging community intelligence

Dune's community creates thousands of specialized dashboards focusing on specific protocols, token categories, and market segments. These resources often highlight emerging trends before mainstream attention develops.

Thematic dashboards tracking categories like gaming tokens, real-world assets, or artificial intelligence projects provide systematic trend identification approaches. When multiple tokens within specific narratives show simultaneous growth patterns, it often indicates sector-wide development.

The platform's trending features highlight protocols experiencing unusual activity levels, providing systematic methods for discovering emerging opportunities.

## Automated monitoring capabilities

Dune's API enables automated tracking of trend indicators across multiple protocols simultaneously. This systematic approach eliminates the need for constant manual monitoring while ensuring early trend identification.

Automated alerts can trigger when specific thresholds are met—such as when daily transaction volumes increase 200% above 30-day averages, or when unique wallet interactions exceed predetermined levels. This real-time capability provides competitive advantages in rapidly evolving markets.

## Risk assessment integration

Effective trend identification requires balancing opportunity recognition with risk evaluation. Dune's comprehensive data enables thorough analysis of emerging prospects.

Liquidity analysis helps distinguish genuine trends from potential manipulation schemes. Tokens with gradually increasing liquidity across multiple platforms typically represent more sustainable opportunities than those with sudden, concentrated spikes.

Smart contract audit status, developer activity levels, and code update frequency provide additional risk assessment metrics. Active development communities generally present lower risks than projects with stagnant activity.

## Building systematic strategies

Successful trend identification requires organized approaches rather than sporadic analysis. Effective strategies typically monitor multiple metrics across different timeframes to identify convergent signals.

Comprehensive monitoring might include daily volume tracking, weekly user growth analysis, and monthly distribution reviews. When multiple indicators align within the same protocol or category, confidence in trend identification increases substantially.

Portfolio diversification across multiple emerging trends helps manage risks while maximizing exposure to opportunities. Rather than concentrating on individual tokens, experienced analysts typically track 10-15 emerging prospects simultaneously, allowing successful positions to offset unsuccessful ones.

Dune Analytics provides sophisticated capabilities for identifying emerging cryptocurrency trends through comprehensive blockchain data analysis. The platform's strength lies in transforming complex on-chain activity into actionable insights, enabling users to discover opportunities weeks or months before mainstream recognition.

Success requires systematic monitoring of transaction patterns, user adoption metrics, smart contract developments, and cross-chain dynamics, combined with effective risk management. By focusing on actual blockchain activity rather than speculative indicators, Dune enables data-driven decision-making in the rapidly evolving cryptocurrency landscape.

## Frequently asked questions

### How to find upcoming crypto tokens?

Monitor smart contract deployment patterns across major blockchains to identify new tokens before they gain widespread attention. New contract deployments often signal emerging trends weeks before user adoption becomes visible. Track contracts that quickly gain interaction from multiple unique addresses, as this typically indicates successful product-market fit. Additionally, monitor bridge transaction data between chains, as increased bridge activity often precedes major protocol launches or token deployments on destination chains.

### How to identify trends in crypto?

Use a multi-faceted approach that combines transaction volume analysis, unique wallet interactions, and token distribution patterns. Look for characteristic volume patterns where protocols show gradual increases followed by exponential growth phases - for example, a protocol growing from $50,000 daily volume to $5 million within a month. Monitor unique wallet growth alongside volume increases to ensure organic adoption rather than artificial inflation from large transactions. Cross-reference these metrics with community dashboards and narrative-focused categories like GameFi, RWA, or AI tokens to identify sector-wide trend development.

### What crypto has a 1000x potential?

While no specific token can be guaranteed to achieve 1000x returns, look for early-stage protocols with strong fundamentals and growth patterns. Focus on tokens showing gradual distribution broadening (moving from whale concentration to broader retail adoption), consistent user base expansion, and active development communities. Emerging protocols in innovative sectors like decentralized infrastructure, cross-chain solutions, or real-world asset tokenization may offer significant upside potential. However, diversify across 10-15 emerging opportunities rather than concentrating on single tokens to manage risk while maximizing exposure to potential winners.

### How to identify potential crypto coins?

Analyze multiple convergent signals including transaction volume patterns, user adoption metrics, and whale activity. Look for tokens with healthy growth trajectories in unique wallet interactions - for example, growing from 100 to 2,000 unique daily users over three months. Monitor token distribution patterns where whale concentration gradually decreases as retail adoption increases. Pay attention to protocols that attract both casual users and power users simultaneously, as this indicates robust market adoption. Combine this with liquidity analysis across multiple DEX platforms and smart contract audit status to distinguish genuine opportunities from potential pump-and-dump schemes.

Discover how to identify emerging cryptocurrency trends using Dune Analytics' 3TB daily blockchain data from 60,000+ protocols. Learn proven strategies for analyzing transaction volumes, user adoption metrics, and smart contract patterns.

How to identify emerging trends and tokens with Dune

George Hristov

## Update as of 08/02/2023

The barter solver who got hacked already [refunded the losses it caused.](https://etherscan.io/tx/0x61a5196468b276bcedc3aab2f2fe255c2d54ca1c655523f4b25c99b1a224e715?source=post_page-----2faa9f918e29--------------------------------)

Next steps for CoW DAO are to [decide on the slashing process and to judge whether the Barter Solver can be re-added to the solver competition.](https://forum.cow.fi/t/cip-draft-slashing-of-the-barter-solver-responsible-for-a-hack-causing-cow-dao-a-loss-of-1-week-fee-accrual/1440?source=post_page-----2faa9f918e29--------------------------------)

## TL;DR

On February 7th 2023, CoW Swap’s settlement contract suffered an exploit wherein a hacker was able to drain  [~$166K](https://dune.com/queries/1975506)  from the contract. Although still an exploit, it is important to highlight two crucial facts regarding this hack:

-   User funds  **WERE NEVER AT RISK**  and have  **NOT**  been  **COMPROMISED**.
-   The protocol  **WILL RECOVER**  the stolen funds through its solver bonding pool mechanism, which is intended to mitigate such incidents.

To recap: as a trader, there is  **NO**  reason to worry or revoke approvals. CoW Swap never takes custody of your funds, since all trades are purely atomic. In order to have your funds compromised through CoW Swap, a hacker would need to obtain a signature from your private keys or have direct access to them.

## Background information

CoW Swap engages in a so-called “solver competition”, where external parties develop an algorithm to compete against other solvers to find the best execution route for CoW Swap users. Each solver team is independent from each other, and is able to deploy the necessary measures for their algorithm to perform in the best possible way.

In the hunt for better prices, solvers are allowed to tap into the CoW Swap settlement contract’s funds (called the “buffers”) to replace certain AMM interactions and thus save on gas. The  [settlement contract](https://etherscan.io/address/0x9008D19f58AAbD9eD0D60971565AA8510560ab41)  holds the buffer funds and allows the solver teams to tap into them whenever needed. These buffers accrue from fees that users pay in their sell token and are periodically drained into the protocol’s reward Safe.

In order to prevent malicious behaviour on the part of solvers and to recover from any exploits, in  [CIP-7](https://snapshot.org/#/cow.eth/proposal/0x267edf7a0bd3c771cfca763322f011ee106d8d5158612c11da29183260d1dba7)  CoW Swap implemented a bonding pool mechanism by which each solver needs to deposit $500,000 worth of cUSDC and 1.5M COW tokens as collateral for these sorts of scenarios. In the event of malicious behaviour or a hack, solvers would then get slashed and part of their bond is removed to cover for such events.

## How did it all happen?

On January 27th, 2023 a new solver entered the competition: the  [Barter solver](https://etherscan.io/address/0x55a37a2e5e5973510ac9d9c723aec213fa161919). The process was typical: after some time in staging and the depositing of the bond in the pool, the solver was allowlisted and moved onto production. Shortly after being allowlisted, the Barter solver set an  [approval](https://etherscan.io/tx/0x92f906bce94bab417cccc87ae046448d7fb8c2c0350b7ed911545577acb3bfc1)  to a contract they developed, called SwapGuard.

The aim of the intermediary SwapGuard contract is to limit the amount of tokens that can be lost in a single transaction due to slippage The goal for the Barter solver when interacting with this contract was to prevent their settlements from being exploited by MEV when submitted on-chain.

In this  [batch settlement](https://etherscan.io/tx/0x92f906bce94bab417cccc87ae046448d7fb8c2c0350b7ed911545577acb3bfc1)  that the Barter solver won, we can see that they performed a series of swaps and a single approval when executing the batch settlement. This approval is the reason for the incident.

![1-how-did-it-all-happen.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_how_did_it_all_happen_6d61046a45.webp)
[https://phalcon.blocksec.com/tx/eth/0x92f906bce94bab417cccc87ae046448d7fb8c2c0350b7ed911545577acb3bfc1](https://phalcon.blocksec.com/tx/eth/0x92f906bce94bab417cccc87ae046448d7fb8c2c0350b7ed911545577acb3bfc1)

![1-1-how-did-it-all-happen.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_1_how_did_it_all_happen_e90af26bd7.webp)
[https://twitter.com/peckshield/status/1622801412727148544/photo/1](https://twitter.com/peckshield/status/1622801412727148544/photo/1)

The SwapGuard contract was previously approved to spend the settlement contract’s DAI as part of a settlement. Because of a security issue that allowed arbitrary call execution from the SwapGuard contract, the attacker was able to leverage the existing approval to transfer funds from the settlement contract to their account ([address 1](https://etherscan.io/address/0xc0e82c1ed4786f8b7f806d1b8a6335ec485266ff)  and  [address 2](https://etherscan.io/address/0x94b6F400df694D0de29F600B15BAeed83E95658C)). The  [Barter solver](https://etherscan.io/address/0x55a37a2e5e5973510ac9d9c723aec213fa161919)  made the mistake of approving a vulnerable contract with the maximum value of DAI to SwapGuard, which is the root cause of the attack. This meant that since the contract had an interface for an arbitrary call, any informed hacker could call upon this function to drain the token allowances with the correct permissions.

It appears that the hacker was aware of the CoW Swap solver process, as they waited until the last day of fee accrual before performing the attack. Fees are usually withdrawn once a week on Tuesdays.

Once the issue came to light, the Barter team and the CoW Swap team hit the ground running to mitigate any possible damage or side effects. After some debugging, the issue was discovered and mitigated. All approvals for the ‘bad contract’ have been revoked, and the Barter Solver has upgraded to a new  [contract](https://etherscan.io/address/0xCce534eE5eba0bC94ddBB2B831D264AD86a5FFf4#code)  which has no arbitrary execution code functionality built in.

## What are the next steps?

As mentioned before, all approvals for the bad contract have been revoked, and no more funds are at risk. As per the rules defined by  [CIP-7](https://snapshot.org/#/cow.eth/proposal/0x267edf7a0bd3c771cfca763322f011ee106d8d5158612c11da29183260d1dba7), CoW DAO will slash the barter solver to compensate for the losses and will denylist the solver until full repayment is done.


large_CoW-Swap-Solver-Exploit-Cover-Photo.webp

medium_CoW-Swap-Solver-Exploit-Cover-Photo.webp

small_CoW-Swap-Solver-Exploit-Cover-Photo.webp

thumbnail_CoW-Swap-Solver-Exploit-Cover-Photo.webp

CoW-Swap-Solver-Exploit-Cover-Photo.webp

CoW Swap Solver Exploit— Post mortem 07/02/2023

On February 9th, 2023, After a successful  [governance vote](https://www.tally.xyz/gov/ens/proposal/45461903078948131870051132081249892009497709518413744958551889217805827301425)  from ENS, CoW Swap processed a large trade for the ENS DAO using the exchange’s signature intent-based trading design and Milkman contract.

## Trade Details

[ENS DAO sold 10,000 ETH](https://twitter.com/CoWSwap/status/1623680760522612738)  in exchange for USDC in order to reduce its exposure to ETH.

-   **USD value of the trade**: $16,145,549.60
-   **Slippage tolerance:**  2%
-   **Actual slippage**: 0.5%
-   **Price surplus**: $80,992.87

## Why CoW Swap?

CoW Swap’s solver competition ensured that ENS received the best possible execution price, even after announcing trade details publicly in a governance proposal ahead of time.

CoW Swap provided several benefits for a trade of this size:

1.  Protection from attack vectors caused by the delayed execution
2.  Allowing ENS to create a governance proposal that includes the exact swap parameters and protects the trade with a price checker — guaranteeing that the trade receives some minimum amount determined at the moment of swap execution (not during the creation of the governance proposal)
3.  Use of the Milkman bot for protection against MEV, slippage, and re-entrancy risk

## Milkman

The CoW Grants Program-funded, and Yearn.fi-developed  [Milkman bot](https://github.com/cowprotocol/milkman-bot)  was critical to the ENS trade.

The Milkman bot ensures that trades execute for the real-time price or better by utilizing a price checker, such as a Uniswap v3 pool, Chainlink oracles, or a custom price checker. Instead of setting a slippage tolerance, DAOs can utilize Milkman to determine a maximum percentage deviation from the price checker, guaranteeing that their trade will finalize at a fair market price. Milkman also simplifies governance for trades as DAOs don’t have to define a fixed price re-vote if the market moves significantly.

For this swap, ENS DAO chose to use a Uniswap v3 ETH/USDC pool, with a maximum slippage of 2%, guaranteeing that they would receive no less than the minimum specified in the governance proposal.

## CoW Swap: The leader in DAO trading

The largest DAO trades take place on CoW Swap, and the exchange is single-handedly responsible for more than 30% of all DAO trades. Check out  [CoW Swap for DAOs](/learn/cow-swap-for-daos)  to learn why DAOs such as  [Aave](/learn/aave-trade-breakdown),  [Nexus Mutual](/learn/nexus-mutual-trade-breakdown), and more trust CoW Swap with their large trades.

If you’re a DAO looking to make a large trade on CoW Swap, get in touch with us on  [Twitter](https://twitter.com/CoWSwap)  or through our  [Discord](https://discord.com/invite/cowprotocol). You can check out CoW Swap for yourself  [here](https://swap.cow.fi/#/swap?utm_source=medium&utm_campaign=ENS-trade).



large_ens-trade-breakdown-cover-photo.webp

medium_ens-trade-breakdown-cover-photo.webp

small_ens-trade-breakdown-cover-photo.webp

thumbnail_ens-trade-breakdown-cover-photo.webp

ens-trade-breakdown-cover-photo.webp

The smartest DAOs trust CoW Swap with their most-important trades


ENS Trade Breakdown

Don’t worry, trade happy! CoW Swap has been busy cooking up Conditional Orders, an architecture that allows developers (and their users) to create sophisticated orders of all kinds. At the core of this system is a flexible smart contract wallet that allows the protocol to implement its unique logic. What’s better than standing on the shoulders of giants in the ecosystem and within the Gnosis family  [Safe](https://safe.global/)?

Wait? Smart contract wallet?

That’s right: CoW Swap pioneered intents across the Ethereum space for EOAs (think MetaMask, Trezor, Trust Wallet, etc.), but what’s less well-known is that the protocol can actually work in a similar way for smart contracts by relying on a flexible intents system with the ERC-1271 integration. It sounds technical, but this standard is basically designed to allow smart contracts to “Sign” a message like any other EOAs. This is a familiar procedure for the seasoned CoWmunity, but Conditional Orders now allow anyone to define a set of conditions and have the smart contract wallet do the clicking for you.

Incubated through the  [CoW Grants Program](https://grants.cow.fi/), and supported by the Safe team throughout the testing/auditing process, the ExtensibleFallbackHandler is now live. Sounds complicated, we know! Put simply, this is a way to add extra powers to your Safe, while preserving the strong security guarantees that the Safe is well known for.

Upgrading your Safe’s fallback handler is a secure process, all you have to do is tick a box when placing an order, and your Safe upgrade will be batched with your order, making for a single-transaction order placement and upgrade. The contracts that implement this system have been audited both by an independent auditor, and an external auditor from Ackee Blockchain (You can read the final audit reports  [here](https://github.com/cowprotocol/composable-cow/tree/ab3addad9bc05acdbf5fb040eb5c336209b58e31/audits)).

The owl-eyed among you would be aware that smart contracts have always been able to use CoW Protocol, though this required both a transaction on chain to signal your intent, and that the orders be fixed (not conditional). Wave goodbye to these limitations!

With an ExtensibleFallbackHandler+ComposableCoW-enabled Safe you now benefit from all the CoW Swap features directly from your smart contract wallet: MEV protection, no failed swap transactions, at-execution path discovery, conditional orders, and batching if you need to do pesky things like approve or wrap ETH.

If you’re technically inclined, check out how you can  [start building with conditional orders using ComposableCoW](https://hackmd.io/@mfw78/HyuvoGt9h#), or drop into  [#tech-talk on our discord](https://discord.gg/cowprotocol)! While you’re busy reading up on how to write the latest and greatest conditional order, you could also be gradually buying up more of your favorite token using TWAP!

## What is a Safe fallback handler?

Long story short, Safe is designed to have strong security guarantees over basic operations (think executing transactions, spending your precious tokens, etc.), but there’s not enough time to program all functionality that a user may require. Therefore, the Safe can “forward” all function requests that it doesn’t recognize to another contract (the fallback handler).

**CRITICALLY**: Fallback handlers do  **NOT**  have the same authority as the Safe from which they were called. Due to the security architecture of Safe, it is not possible for the fallback handler to execute transactions on behalf of the Safe.

OK, the fallback handler can’t execute a transaction for you, so why should you care? Safe doesn’t by default (without a fallback handler) support ERC-1271 signatures. The standard deployment of a Safe deploys with CompatibilityFallbackHandler as the fallback handler, which has limited ERC-1271 support (meaning: it cannot read and thus, cannot be automated). CoW Swap intents super-charge this by allowing a Safe to also specify a smart contract that can sign messages for a particular application on its behalf.

This is where ComposableCoW takes over! 🐮🎶 You can think of ComposableCoW as an autonomous agent, signing orders that meet whatever conditions you have specified. After you create your first conditional order, the second transaction you see in the batch will enable ComposableCoW, which tells your Safe “I want ComposableCoW to be able to sign orders from CoW Protocol”. TWAP is just a conditional order type that works with ComposableCoW.

**CRITICALLY**: Due to the design of ERC-1271, all signature verification is  **read-only**  which means it is  **impossible**  for a ComposableCoW or any conditional order to directly access user funds (the movement of funds during a swap is initiated by the settlement contract  **ONLY**).

In summary, to make CoW Swap’s new TWAP order feature work:

-   Safe users need to upgrade their fallback handler(enables conditional signing)
-   Conditional orders are automatically placed in the CoW Protocol order book (now signed with the new handler)
-   Automated signing of orders means you may hear less of CoW’s trademark moo. Feel free to set  [this](https://github.com/cowprotocol/cowswap/blob/develop/apps/cowswap-frontend/public/audio/success.mp3)  as your phone’s notification tone if suffering withdrawal symptoms 🐄

CoW Swap takes security very seriously. The underlying Safe fallback handler code has been fully audited by both the Safe and CoW teams as well as by two independent external auditors, G0 and Ackee Blockchain. You can find all the audit final reports  [here](https://github.com/cowprotocol/composable-cow/tree/ab3addad9bc05acdbf5fb040eb5c336209b58e31/audits).

The solution presented follows Safe’s high security standards. What’s more, the fallback handler isn’t just about placing orders. It allows limitless and, as of yet, unknown functionality. Maybe you want to:

-   Define a custom method handler for any non-standard method (if you really want you can turn your Safe into an ERC-20 token)
-   Define a custom EIP-712 domain verifier, whereby a contract implementing ISafeSignatureVerifier can do your menial signing automatically (it is this interface that ComposableCoW implements to power the shiny new TWAP orders)
-   Define a set of methods (interfaceId) that your Safe supports, and report such using ERC-165

The architecture for the ExtensibleFallbackHandler can be viewed  [here](https://hackmd.io/@mfw78/HyuvoGt9h).

**NOTE**: Audits are not a guarantee that code is free from error. Use with caution.

We wish you much surplus and happy  [TWAP order trading](https://swap.cow.fi/swap?utm_source=medium&utm_campaign=fallback-handler)! Give  [TWAP orders a try](https://swap.cow.fi/swap?utm_source=medium&utm_campaign=fallback-handler)  today and let us know what you think by reaching out on  [Twitter](https://twitter.com/CoWSwap)  or  [Discord](https://discord.com/invite/cowprotocol)!



large_all-you-need-to-know-about-cow-swap-new-safe-fallback-handler-cover-photo.webp

medium_all-you-need-to-know-about-cow-swap-new-safe-fallback-handler-cover-photo.webp

small_all-you-need-to-know-about-cow-swap-new-safe-fallback-handler-cover-photo.webp

thumbnail_all-you-need-to-know-about-cow-swap-new-safe-fallback-handler-cover-photo.webp

all-you-need-to-know-about-cow-swap-new-safe-fallback-handler-cover-photo.webp

Don’t worry, trade happy! Upgrading your Safe fallback handler is a secure process. This Safe fallback handler extension has been developed by the CoW Swap team in collaboration with the Safe team, and has undergone a successful audit.

All you need to know about CoW Swap’s new Safe fallback handler

On-chain user activity evaluation begins with identifying key performance indicators that reflect genuine engagement rather than superficial metrics. Active users represent individuals who perform transactions within specific timeframes, but this metric alone provides limited insight. More sophisticated analysis examines transaction frequency, value transferred, smart contract interactions, and cross-protocol activity patterns.

Dune Analytics, a comprehensive blockchain data platform, captures transaction-level data that allows analysts to distinguish between different types of user behavior. A user who performs ten high-value decentralized finance (DeFi) transactions demonstrates different engagement patterns than someone executing hundreds of low-value transfers. These distinctions become crucial when evaluating ecosystem health or protocol adoption.

Transaction volume provides another fundamental metric, but raw volume figures can be misleading without proper context. A protocol showing $10 million in daily volume might appear successful, yet further analysis could reveal that 90% of this volume comes from automated bots or wash trading activities—artificial transactions designed to inflate apparent demand. Dune's comprehensive data enables analysts to identify such patterns through detailed address analysis and behavioral clustering.

User retention represents a critical metric that indicates protocol sustainability. Dune enables analysts to track user cohorts over time, examining how many users return after their first interaction. For instance, an analyst might examine users who first interacted with a DeFi protocol in January and determine what percentage remained active three months later.

Consider a scenario where a non-fungible token (NFT) marketplace launches with 50,000 users in its first month. Initial metrics appear promising, but cohort analysis reveals that only 5% of users return in month two, with retention dropping to 1% by month three. This pattern suggests fundamental issues with user experience or value proposition that raw user counts fail to reveal.

Geographic and temporal patterns provide additional insights into user behavior. Dune's timestamp data allows analysts to identify peak usage hours, which can indicate the primary geographic regions driving adoption. A protocol showing consistent activity during Asian business hours likely has strong adoption in that region, while activity concentrated during US market hours suggests different user demographics.

Sophisticated user activity evaluation requires segmentation based on multiple behavioral dimensions. Dune's comprehensive dataset enables analysts to create detailed user profiles based on transaction history, interaction patterns, and value metrics. These segments reveal distinct user archetypes that require different strategic approaches.

Power users typically represent a small percentage of total users but generate disproportionate activity and value. These users might interact with multiple protocols daily, participate in governance activities, and maintain significant token holdings. Identifying and understanding power user behavior patterns helps protocol teams optimize for their most valuable participants.

Casual users form the largest segment in most ecosystems but exhibit sporadic engagement patterns. These users might interact with protocols monthly or quarterly, often driven by specific events or incentives. Understanding casual user triggers enables protocol teams to design targeted engagement strategies.

Inactive users represent those who have stopped engaging with a protocol after initial activity. Analyzing the final interactions of churned users often reveals friction points or competitive pressures that drive user attrition. This analysis helps identify areas requiring improvement or features that might re-engage dormant users.

Modern blockchain ecosystems operate across multiple networks, making cross-chain user analysis increasingly important. Dune's multi-chain coverage enables analysts to track user behavior across different blockchain networks, revealing migration patterns and multi-chain strategies.

Users who bridge assets between networks—transferring cryptocurrency from one blockchain to another—demonstrate sophisticated blockchain knowledge and often represent valuable protocol participants. An analyst might examine users who bridge significant value from Ethereum to Polygon, tracking their subsequent activity patterns to understand layer-2 adoption drivers. Layer-2 solutions are secondary networks built on top of primary blockchains to improve transaction speed and reduce costs.

Cross-chain activity analysis also reveals protocol stickiness and competitive dynamics. Users who maintain activity on Ethereum while exploring alternatives on Arbitrum or Optimism exhibit different risk profiles compared to those who completely migrate to new networks. These patterns help protocols understand competitive positioning and user loyalty factors.

User activity evaluation requires temporal context to identify meaningful trends versus temporary fluctuations. Dune's historical data enables analysts to examine user behavior across different market cycles, protocol upgrades, and external events.

Daily active user trends provide insights into protocol momentum, but weekly and monthly patterns offer better signal-to-noise ratios. A protocol showing consistent week-over-week growth in unique users demonstrates healthier adoption than one with volatile daily metrics but flat weekly trends.

Seasonal patterns affect many blockchain protocols, particularly those related to DeFi yield farming or NFT trading. Understanding these cycles helps distinguish between fundamental growth and cyclical variations. For example, increased DeFi activity during market volatility periods reflects utility-driven engagement rather than speculative interest.

Transaction count metrics fail to capture user activity quality without corresponding value analysis. Dune enables analysts to examine both transaction frequency and economic value, providing comprehensive activity assessments.

Average transaction values reveal user sophistication and protocol utility. A decentralized exchange (DEX) with declining transaction counts but increasing average trade sizes might be evolving toward institutional usage patterns. Conversely, increasing transaction counts with declining average values could indicate growing retail adoption or potential spam activity.

Value retention analysis examines how much economic value users maintain within protocols over time. Users who consistently hold significant balances demonstrate stronger commitment than those who immediately withdraw funds after interactions. This metric proves particularly valuable for assessing DeFi protocol health and user confidence levels.

Dune's comprehensive datasets enable analysts to identify unusual behavioral patterns that might indicate manipulation, exploits, or emerging trends. Sudden spikes in user activity, particularly when concentrated among new addresses, often warrant detailed investigation.

Coordinated activity patterns suggest potential manipulation or bot networks. Multiple addresses exhibiting identical interaction sequences or timing patterns typically indicate non-organic behavior. Identifying these patterns helps distinguish genuine user growth from artificial inflation.

Conversely, organic growth patterns typically show natural distribution curves in user behavior metrics. New user onboarding follows predictable patterns, with gradual adoption curves and normal retention distributions. Deviations from these patterns often signal either exceptional product-market fit or artificial manipulation.

Effective user activity evaluation requires systematic approaches to data collection, analysis, and interpretation. Dune's query capabilities enable analysts to create automated monitoring systems that track key metrics over time.

Regular monitoring dashboards should include core metrics like daily active users, transaction volumes, new user acquisition, and retention rates. These baseline metrics provide context for deeper analysis when unusual patterns emerge.

Comparative analysis across similar protocols provides valuable benchmarking opportunities. Understanding how user activity patterns differ between competing DeFi protocols or NFT marketplaces reveals relative strengths and weaknesses that inform strategic decisions.

On-chain user activity evaluation through Dune requires combining multiple analytical approaches to develop comprehensive understanding. Simple metrics like transaction counts provide starting points, but meaningful insights emerge from examining user behavior patterns, cross-chain activity, temporal trends, and value-based assessments. Successful analysis identifies both organic growth patterns and potential manipulation while providing actionable insights for protocol development and strategic planning. The foundation lies in maintaining analytical rigor while adapting methodologies to specific protocol characteristics and ecosystem dynamics.

## Frequently asked questions

### How to do chain analysis in crypto?

Chain analysis in crypto involves examining on-chain data to understand user behavior, transaction patterns, and protocol health. Start by identifying key performance indicators like active users, transaction frequency, and value transferred. Use comprehensive datasets to distinguish between different user behaviors - for example, analyzing whether high transaction volumes come from genuine users or automated bots. Focus on transaction-level data to track smart contract interactions, cross-protocol activity, and user retention patterns. Create user segments based on behavioral dimensions like power users, casual users, and inactive users. Monitor temporal trends to distinguish between fundamental growth and temporary fluctuations, and always combine multiple analytical approaches rather than relying on single metrics.

### What is the valuation of Dune crypto?

Dune Analytics is not a cryptocurrency but rather a blockchain analytics platform that provides tools for querying and analyzing on-chain data. Dune doesn't have its own native token or crypto valuation. Instead, it operates as a data analytics service that helps users create dashboards, run queries, and analyze blockchain activity across multiple networks. The platform generates revenue through subscription services for advanced features rather than through a cryptocurrency token model.

### What chains does Dune support?

Dune Analytics provides multi-chain coverage that enables comprehensive cross-chain user analysis. The platform supports major blockchain networks including Ethereum, Polygon, Arbitrum, and Optimism, among others. This multi-chain support allows analysts to track user behavior across different networks, examine migration patterns between chains, and understand layer-2 adoption drivers. Users can analyze cross-chain activity to see how participants bridge assets between networks and maintain activity across multiple blockchain ecosystems, providing insights into protocol stickiness and competitive dynamics in the multi-chain landscape.

### How to check crypto activity?

To check crypto activity, examine multiple metrics beyond simple transaction counts. Monitor daily, weekly, and monthly active users to understand engagement patterns and protocol momentum. Analyze transaction volumes alongside frequency to assess activity quality - look at average transaction values to gauge user sophistication and protocol utility. Track user retention through cohort analysis to see how many users return after their first interaction. Examine geographic and temporal patterns to identify peak usage hours and regional adoption. Use value-based assessments by analyzing how much economic value users maintain within protocols over time. Watch for behavioral anomalies like coordinated activity patterns that might indicate manipulation, and always compare metrics across similar protocols for proper benchmarking context.

Learn how to evaluate on-chain user activity using blockchain analytics platforms like Dune. Discover key metrics, user segmentation strategies, cross-chain analysis, and behavioral pattern identification for comprehensive crypto protocol assessment.

How to evaluate on-chain user activity with Dune

![MEV bot.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/MEV_bot_3057653da1.png)
Maximal Extracable Value is a hidden tax on all types of Ethereum transactions.

  

That means any time you want to transact in DeFi: from buying or selling an NFT, lending tokens to a liquidity pool, or swapping one token for another, a group of opportunistic users known as “searchers” have the opportunity to see your trade, and manipulate the criteria surrounding your trade to ensure they make profit, at your expense.

  

The workhorses of MEV are MEV bots, programs designed to look for certain types of transactions that can be exploited to make money.

  

In this article, we’re going to be exploring MEV Bots in more detail, looking at how they work and the different types.

  

First, let’s take a look at what MEV is first, before jumping into bots.

### What is MEV?

  

At its simplest, Maximal Extracable Value is a hidden tax on all types of Ethereum transactions. That means any time you want to transact in DeFi: from buying or selling an NFT, lending tokens to a liquidity pool, or swapping one token for another, a group of opportunistic users known as “searchers” have the opportunity to see your trade, and manipulate the criteria surrounding your trade to ensure they make profit, at your expense.

  

There are lots of different ways MEV can take place on Ethereum, which we’ll explore further down in the article. But for now, it’s important to understand the mechanics of MEV, and how Ethereum makes this all possible.

### What is a MEV Bot?

  

MEV bots are programs designed to maximize profits by exploiting opportunities within blockchain transactions.

  

They operate on Ethereum, but also on chains where transaction ordering and gas price bidding are a feature.

  

By analyzing mempool data (pending transactions) and executing precise strategies, MEV bots can extract significant value from transactions across the DeFi space.

### How Does a MEV Bot Work?

  

On Ethereum, validators, the entities responsible for verifying transactions, are allowed to re-arrange the order of transactions as they see fit. Validators typically do this if there are opportunities to improve the profit they receive from validating transactions.

  

Let’s take a closer look at this concept. When you submit a transaction on Ethereum, it does not immediately get added to the next block.

  

Instead, it first goes into the “mempool” which is the collection of all pending transactions. This pool is visible to anyone. You can see a screenshot of this below. And if you’re curious to see what it looks like, [here’s a live feed.](https://www.blockchain.com/explorer/mempool/eth)

  ![Screenshot 2025-02-21 at 10.25.29.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/Screenshot_2025_02_21_at_10_25_29_7b8f7f2374.png)

Here is where MEV bots come in.

  

Because validators are not required to add transactions to the block in the same order that they were submitted by users, anyone can pay those validators to re-arrange transactions in a certain way.

  

This manipulation of the order of things allows MEV to happen. An MEV bot sometimes referred to as ‘searchers’ look for trades they can make money from.

  

In the next section we’ll look at what types of bots are there and what they are looking for.

### What are the different types of MEV Bots?

  

Now we understand what an MEV bot does, let’s take a look at the different types of MEV Bot.

  

-   **Frontrunning Bots** - Frontrunning bots place transactions ahead of others by outbidding them in gas fees. They look for high-value trades in the mempool with certain features inh high slippage or lo typically focus on high-value transactions where their execution priority can yield significant profits. [Learn more about frontrunning](https://cow.fi/learn/what-is-frontrunning).
    

-   **Backrunning Bots** - Backrunning is a specific type of MEV (Maximal Extractable Value) which causes some traders to miss out on potential profit opportunities from their trades. In practice, backrunning involves strategically executing a transaction immediately after another, high-value transaction. By doing this, the backrunning transaction capitalizes on the arbitrage opportunity left over from the [price impact](https://cow.fi/learn/cow-protocol-glossary#:~:text=Price%20impact) of the initial transaction. [Learn more about backrunning.](https://cow.fi/learn/what-is-backrunning-mev-attacks-explained)
    
-   **Sandwich Bots** - Sandwich attacks occur when a user’s transaction gets trapped, or “sandwiched,” between two hostile transactions — one before and one after. As a result, the original transaction executes at a much higher price than necessary, leading to an inflated price for the original trader and a profit for the malicious trader placing the two extra trades (known as a “searcher”). [Learn more about sandwich attacks.](https://cow.fi/learn/what-is-a-sandwich-attack-and-how-can-you-protect-yourself)
    
-   **Arbitrage/LVR Bots** - MEV arbitrage bots identify and exploit price differences for the same asset across different decentralized exchanges or DEXes. This is also known as loss versus rebalancing. These bots look for a token price to be higher or lower on different exchanges, and then exploit the price difference between the two. Many liquidity providers haven’t even heard of LVR, but it costs them 5–7% of their liquidity, resulting in hundreds of millions lost each year. In fact, when accounting for LVR, many of the largest liquidity pools are not profitable for LPs at all. [Learn more about LVR.](https://cow.fi/learn/what-is-loss-versus-rebalancing-lvr)
    
-   **Liquidation Bots** - Liquidation bots specialise in monitoring lending platforms looking for undercollateralized loans. If a borrower’s collateral falls below a required threshold, these bots execute liquidation transactions to claim rewards.
    
-   **Flash Loan Bots** - Technically not an MEV bot in the strictest sense, flash loan bots work to finance and facilitate MEV by utilizing flash loans. Flash loans are unsecured loans that must be repaid within a single transaction block. Flash Loan bots are often paired with bots above to facilitate the execution of MEV.
    

## The key features of MEV Bots

There are a number of crucial features that make up how an MEV bot operates. Below are

### Gas Fee Optimization

  

When bots are looking for potential trades to exploit, they also need to calculate how much gas is required to position its trade in a way that optimizes profits.

  

If the bot uses too much gas, it eats into potential profitability. Too little gas however, and it risks been gazumped by a rival bot. Bots are always trying to find a balance between profitability and efficiency.

### The ability to analyse smart contracts

  

As MEV bots have become more sophisticated they are able to not only look at single trades, but often multiple ones, too.

  

Advanced MEV bots leverage algorithms to dive into smart contracts looking for exploitable patterns or lucrative opportunities.

  

MEV bots now have the capability to assess different conditions around a potential trade. They can look at liquidity pools - and how easily they can facilitate the trade - the tokens inside the contracts, and the arbitrage possibilities within these contracts.

### Trading autonomy

  

For bots to be effective, they need to act quickly. Which is why MEV bots are designed to execute precise transactions just at the right time to maximise profits.

  

To do that, many MEV bots are trade on their own, looking for the right sort of trades and the right conditions and then executing on behalf of its owner.

### Mempool Monitoring

  

MEV bots are designed to constantly monitor the mempool, looking for transactions that it can make profits from.

  

Because transactions aren’t executed straight away, these bots have time to analyse vast amounts of transactions, identifying which ones can be exploited. Depending on the bot, it will look for trades it can either frontrun, backrun, sandwich, or liquidate, as we explored in an earlier section.

## How to beat MEV bots?

Beating MEV bots on your own can be tricky, but there are many avenues you can use to protect yourself from MEV Bots.

### Reduce Slippage on Ethereum

  

The most basic defense against MEV is setting a low slippage tolerance. Slippage tolerance is essentially how much variation in the final price you receive you are willing to accept.

  

Transactions with a lower slippage tolerance give MEV bots less room to exploit trades.

  

For users who aren’t utilizing any other MEV protection tools, setting a lower slippage tolerance can be a good first line of defense, however it’s by no means a complete solution.

  

Setting the slippage tolerance too low often results in failed transactions. Even with optimal slippage, MEV bots may still be able to extract value from your trades.

  

So sometimes we need to do more than adjust our slippage.

  

### Use a Custom RPC Endpoint on Ethereum

  

A better protection method is to install an MEV protection RPC endpoint. A Remote Procedure Call (RPC) endpoint is an intermediate layer that routes transactions from a user’s wallet to the blockchain itself.

  

One of the most popular specialized RPC endpoints is [MEV Blocker](https://cow.fi/mev-blocker). As the name suggests, MEV Blocker provides protection against MEV across all of Ethereum. The RPC works by managing a permissionless network of searchers and hiding transactions from the public mempool.

  

These searchers cannot frontrun or sandwich user transactions.

Instead, they capture value through backrunning. Anytime a searcher backruns a user’s transaction, the searcher keeps up to 10% of the value and sends the other 90% back to the user as a rebate.

  

[Install MEV Blocker.](https://cow.fi/mev-blocker)

  

### The best solution? Use an MEV-Protected DEX

  

[CoW Swap](https://swap.cow.fi/#/) is a meta DEX aggregator that finds the best prices for trades and provides comprehensive MEV protection. The protocol uses a unique trading mechanism that relies on batch auctions and intents to achieve the best outcomes for users.

  

Thanks to a powerful combination of delegated trade execution, batch auctions, and protected transaction flow through MEV Blocker, CoW Swap users benefit from thorough MEV protection on all trades.

  

[Try CoW Swap.](https://swap.cow.fi/#/)

### In summary

  

MEV bots are pieces of software that have become embedded into the fabric of the DeFi ecosystem.

  

While there is an argument that they can help make markets run more efficiently, more often than not, they create an unfair advantage, helping sophisticated actors exploit those with less knowledge and expertise.

  

But that doesn’t mean you have to just accept MEV’s role in DeFi. There are plenty of tools and services which can help you live free from MEV bots.

  

You just have to know where to look. 👀

large_MEV bot.png

medium_MEV bot.png

small_MEV bot.png

thumbnail_MEV bot.png

MEV bot.png

In this article, we’re going to be exploring MEV Bots in more detail, looking at how they work and the different types. 


What is an MEV Bot?

Token flows represent the movement of cryptocurrencies between different addresses, exchanges, and protocols. These movements can indicate buying pressure, selling activity, or strategic positioning by major market participants. Nansen categorizes token flows into several key areas: fresh wallet activity, smart money movements, exchange flows, and general transfer patterns.

Fresh wallet activity tracks newly created addresses that receive significant token amounts. When a new wallet suddenly receives $2 million worth of ETH from multiple sources within 24 hours, this could signal institutional accumulation or preparation for a large trade. The platform filters out noise by focusing on wallets with substantial balances or high-volume transactions.

Smart money flows monitor addresses labeled as highly profitable or institutional. These wallets often demonstrate superior market timing and token selection. When smart money addresses collectively accumulate a specific token, it frequently precedes positive price movements. Conversely, mass selling by these addresses can signal impending market corrections.

# Fresh wallet dashboard analysis

The Fresh Wallet dashboard serves as a primary tool for identifying newly funded addresses and their token activities. This feature helps users discover emerging patterns before they become widely recognized. The dashboard displays fresh wallets by token balance, inflow value, and transaction frequency across multiple timeframes.

Consider a scenario where the dashboard shows 50 fresh wallets receiving LINK tokens worth $5 million collectively over seven days. Further analysis reveals that 80% of these wallets have not sold their positions, suggesting accumulation behavior. Cross-referencing this data with price charts and decentralized exchange trading volumes provides additional context for investment decisions.

The system allows filtering by wallet age, minimum transaction values, and inclusion or exclusion of centralized exchange addresses. Setting a seven-day wallet age filter with a $100,000 minimum transaction threshold focuses attention on the most significant new market participants.

# Smart money movement tracking

Smart Money Token Flows represent one of Nansen's most actionable features. These alerts track token movements involving addresses with proven track records of profitable trading or institutional status. The platform identifies these addresses through various criteria including transaction history, profit ratios, and association with known entities.

A practical application involves monitoring smart money flows for mid-cap tokens. Setting parameters for tokens with market caps between $10 million and $250 million, minimum daily inflows of $10,000, and maximum token age of 365 days creates a focused alert system. This configuration helps identify emerging opportunities while filtering out established tokens and insignificant movements.

Portfolio defense represents another crucial use case. Creating alerts for tokens in your watchlist with smart money flow thresholds of $150,000 provides early warnings of significant position changes by sophisticated traders. If smart money addresses begin selling tokens you hold, this may indicate undisclosed negative developments requiring immediate attention.

# Token and NFT signal implementation

Nansen's Signals feature automatically identifies extraordinary on-chain activity across multiple categories. Centralized exchange token flow signals highlight unusual inflows or outflows to major exchanges, often indicating buying or selling pressure. Decentralized exchange token flow signals track similar activity on automated market makers and order book exchanges.

Fresh Wallet Flow signals identify new addresses acquiring specific tokens, potentially revealing large entities attempting to obscure their activities through address rotation. Top Balance Change signals monitor whether major holders are increasing or decreasing their positions.

Creating a signal alert for all decentralized exchange token flows on Arbitrum with minimum values of $500,000 helps identify significant trading activity on that network. When tokens show large outflows from exchanges, it often indicates buying pressure as traders move tokens from exchanges to personal wallets for long-term holding.

# Exchange flow interpretation

Exchange flow monitoring provides insights into market sentiment and potential price movements. Large inflows to exchanges typically suggest selling pressure, while significant outflows indicate accumulation or withdrawal to cold storage.

Setting up exchange flow alerts with parameters of $100,000 minimum flow over 24 hours for tokens with market caps under $300 million creates a system for identifying extreme movements. When a token shows $5 million in unexpected exchange inflows, it may signal major holders preparing to sell, potentially causing price declines.

The platform distinguishes between different types of exchanges and provides context about whether movements represent genuine trading activity or routine operational transfers. This distinction proves crucial for accurate interpretation, as some large transfers represent normal business operations rather than market positioning.

# Smart contract activity monitoring

Smart Contract Call alerts enable monitoring of specific protocol interactions. This proves particularly valuable for tracking activity in protocols where you have significant funds deposited. Setting alerts for unusual transaction volumes or patterns can provide early warnings of potential security issues or market events.

Monitoring a stablecoin liquidity pool where you have funds deposited with alerts set for transactions exceeding $50 million helps identify de-pegging events or large-scale withdrawals that might affect your position. These alerts can provide crucial early warning before broader market recognition of developing issues.

# Comprehensive system integration

Effective token flow tracking requires combining multiple alert types and data sources. A comprehensive monitoring system might include fresh wallet alerts for discovery, smart money flows for validation, exchange flows for timing, and signals for confirmation.

When tracking a specific token across all these dimensions, fresh wallet alerts reveal new accumulation, smart money flows confirm sophisticated trader interest, exchange flows indicate market direction, and signals provide automated detection of unusual activity. This multi-layered approach provides robust market intelligence that no single metric could deliver alone.

# Implementation best practices

When implementing token flow tracking, start with broad parameters and gradually refine based on results. Begin with higher minimum values to reduce noise, then adjust thresholds based on the tokens and markets you monitor. Different token categories require different parameter settings—high-capitalization tokens need higher thresholds than emerging tokens to filter meaningful activity.

Geographic and temporal considerations also matter. Monitoring flows across different blockchain networks and time zones provides comprehensive coverage. Setting alerts for multiple timeframes captures both immediate opportunities and longer-term trends.

Regular review and adjustment of alert parameters ensures continued relevance as market conditions evolve. What constitutes significant flow values changes with overall market volatility and individual token characteristics.

Token flow tracking transforms raw blockchain data into actionable intelligence. By systematically monitoring fresh wallet activity, smart money movements, exchange flows, and automated signals, users gain comprehensive market insight. Success lies in proper parameter configuration, multi-dimensional analysis, and consistent refinement of monitoring systems. This approach enables early identification of market trends, validation of investment decisions, and protection of existing positions through real-time awareness of significant token movements.

## Frequently asked questions
### How to track money flow in crypto?

Track crypto money flows by monitoring token movements between addresses, exchanges, and protocols using specialized analytics platforms. Focus on fresh wallet activity that shows newly created addresses receiving significant token amounts, exchange flows indicating buying or selling pressure, and general transfer patterns. Set up alerts for different flow categories including minimum transaction thresholds (like $100,000) and specific timeframes to filter out noise and focus on meaningful movements. Combine multiple data sources including fresh wallet alerts for discovery, exchange flows for market timing, and automated signals for comprehensive market intelligence.

### How can you track crypto transactions?

Crypto transactions can be tracked through blockchain explorers and analytics platforms that monitor on-chain activity. Use tools that categorize transactions into key areas like smart money movements, exchange flows, and fresh wallet activity. Set up monitoring systems with specific parameters such as minimum transaction values, wallet age filters, and timeframe restrictions. For comprehensive tracking, monitor transactions across multiple dimensions including DEX and CEX flows, smart contract interactions, and unusual activity patterns. Geographic and temporal considerations are important, so track flows across different chains and time zones with alerts set for multiple timeframes.

### How to track liquidity in crypto?

Track crypto liquidity by monitoring exchange flows, DEX token movements, and smart contract interactions within liquidity pools. Large inflows to exchanges typically indicate selling pressure and reduced liquidity, while significant outflows suggest accumulation. Set up alerts for exchange flows with parameters like $100,000 minimum flow over 24 hours for tokens under $300 million market cap. Monitor DEX token flows to identify significant trading activity, and use smart contract call alerts to track protocol interactions, especially for pools where you have funds deposited. Watch for unusual transaction volumes or patterns that might indicate liquidity events or market movements.

### How to track smart wallets in crypto?

Track smart wallets by monitoring addresses with proven track records of profitable trading or institutional status, identified through transaction history, profit ratios, and association with known entities. Set up smart money flow alerts with specific parameters like tokens with market caps between $10 million and $250 million, minimum daily inflows of $10,000, and maximum token age filters. Focus on wallets that demonstrate superior market timing and token selection. When smart money addresses collectively accumulate specific tokens, it often precedes positive price movements. Create portfolio defense alerts with thresholds around $150,000 to get early warnings when sophisticated traders change positions in tokens you're monitoring.

Track cryptocurrency token flows and smart money movements to identify market opportunities and protect investments. Learn how to monitor fresh wallet activity, exchange flows, and institutional trading patterns using advanced analytics platforms for bett

How to track token flows with Nansen

CoW DAO develops the most user-protective products in Ethereum - so you can do more with less worry.

All articles