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

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  • Abhimanyu Nag
  • Madhur Prabhakar
  • Tanuj Behl

Abstract

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

Suggested Citation

  • Abhimanyu Nag & Madhur Prabhakar & Tanuj Behl, 2025. "A Coincidence of Wants Mechanism for Swap Trade Execution in Decentralized Exchanges," Papers 2507.10149, arXiv.org.
    • Handle: RePEc:arx:papers:2507.10149
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    References listed on IDEAS

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    1. Semyon Malamud & Marzena Rostek, 2017. "Decentralized Exchange," American Economic Review, American Economic Association, vol. 107(11), pages 3320-3362, November.
    2. Vijay Mohan, 2022. "Automated market makers and decentralized exchanges: a DeFi primer," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-48, December.
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