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What is the Cove Protocol?

Cove pairs off-chain intelligence with on-chain automation to deliver curated 1-click DeFi vaults that earn higher, risk-adjusted yield 24/7.

  • A simplified way to earn onchain that hides the complexity of best-in-class management.
  • Easy access to sophisticated strategies run by experts like Gauntlet.
  • Earns $1B+ in additional profit for LPs by eliminating loss-versus-rebalancing (LVR) using Programmatic Orders.
  • Better execution when internal trades are matched offchain by Cove’s solver and settled without leaking value, like ring trades in batch auctions.

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How does it work?

Cove aggregates deposits and rebalances periodically using Programmatic Orders. When rebalancing, strategies may have a coincidence of wants (CoW) like ring trades in CoW Swap’s batch auctions.

Cove maximizes the volume of CoWs using linear programming. This is done by considering the current/target protocol level allocations off-chain. When there are matches, trades occur without losing value from price impact, slippage, fees, or MEV. Any external trades are routed through CoW Swap (which now supports programmatic orders including TWAP via their Programmatic Order Framework) to ensure the best execution and capture positive slippage.

Cove uses the ERC-4626 tokenized vault standard and ERC-7540 Asynchronous ERC-4626 Tokenized Vaults to combine diverse yield sources.

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Deposits and Withdrawals

Cove offers flexible options for deposits and withdrawals for coveUSD:

  • Deposits: Users deposit USDC into the protocol. These deposits are processed asynchronously. After the next rebalancing cycle, users can claim their corresponding coveUSD (the tokenized vault share).
  • Withdrawals:
    • Synchronous Pro-Rata Redemption: Users can redeem their coveUSD for a proportional share of the vault’s underlying assets at any time, except during the rebalancing window.
    • Asynchronous USDC Withdrawal: Users can request to withdraw USDC. These requests are processed during the subsequent rebalancing event, after which the USDC becomes claimable. This process typically takes around 24 hours, though this window is subject to tuning in collaboration with Gauntlet.

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Rebalancing Window

The Cove Protocol pauses operations for a rebalancing window that typically lasts 15 minutes. During this period, deposits, claims, and withdrawals are temporarily unavailable. The rebalancing process may retry up to two times if needed, potentially extending this window up to 45 minutes.

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What makes Cove unique?

Traditional AMMs are not well suited for portfolio or index construction because they suffer from loss-versus-rebalancing (LVR). This is because of toxic order flow: all trades execute at worse-than-market prices.

Cove proposes an innovative new approach that eliminates LVR and offers the best onchain execution. Internal trades avoid slippage, MEV, price impact, and external trading fees. External trades route through CoW Swap which also protects from MEV and captures positive slippage.

Key Differentiators

  1. Expert strategies - earn best-in-class yields optimized by curators like Gauntlet.
  2. Automation - no more manual management or rebalancing of positions to chase yield. Cove is the next generation of yield farming and portfolio management.
  3. Earn the most yield - Cove protects you from loss-versus-rebalancing and common DeFi pitfalls like slippage, MEV, price impact, and external trading fees.
  4. Fully collateralized - redeemable pro-rata synchronously, or in the base asset asynchronously.
  5. Less risk - No exposure to cross-chain or duration risk (outside of the rebalancing period).