Time-weighted Average Price (TWAP)

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Time-weighted Average Price (TWAP)

What is Time-weighted Average Price (TWAP)

Time-Weighted Automated Market Maker is referred to as TWAMM. Its objective is to aid traders in processing large orders with little slippage and low gas costs without having a detrimental impact on price. In traditional finance (TradFi), traders frequently use brokers to carry out sizable orders algorithmically over a predetermined time period, which frequently yields the best price. A Time-Weighted Average Price (TWAP) order, which provides a security or asset’s price over the specified time frame, is frequently the simplest method for accomplishing this.

For instance, huge traders cannot just make that trade when they wish to purchase an item, such as $10 million worth of Solana, as that would significantly raise the market price. In order to reduce the influence on market pricing, they typically utilize a trading desk or an algorithm to split the $10 million order into smaller orders of $1,000 across several hours or days. The TWAMM attempts to replicate TWAP orders by fragmenting them into a combination of an almost infinite number of small orders over a period of time using an automated market maker (AMM).

Prices using this trading strategy could differ from those seen on the crypto market as a whole. By trading against the AMM’s price to bring it back to the market price, arbitrageurs help the TWAMM mitigate this problem and ensure the effective execution of long-term orders.


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