Time-Weighted Automated Market Makers: Improving DeFi Liquidity

Time-Weighted Automated Market Maker (TWAMM) is an order system designed to help traders make large trades with minimal slippage and low commissions.

What is a Time Weighted Automatic Market Maker (TWAMM)?

TwAMM, the platform for trading large orders with minimal slippage and low commissions, is designed to help users perform large orders with minimal slippage and low commissions. It is also used to help traders execute large orders with minimal slippage and low commissions without negatively affecting the price. 

The most common practice is that traders hire brokers to algorithmically execute large orders over a period of time, which results in the better price. In most of the times, this is done with a Time-weighted Average Price (TWAP) order, that showes the value of an asset or security over some time. This is also done by creating TWAP orders, in them there is a price for assets and securities at a certain period of time. 

Large trading players can’t just buy an asset like Solana for $10 million, since that will lead to the market price rise in some way. Then they use an algorithm to break out of 10 million orders in smaller parts, such as $1,000. Over many hours or days, it is possible to have less impact on the price at market.

The TWAMM order seeks to mimic TWAP orders by breaking them into a combination of an almost infinite number of small orders using an automated market maker (AMM).

This method of trading can cause prices to deviate from the cryptocurrency market as a whole. TWAMM relies on arbitrageurs to mitigate this problem by trading against the AMM price to return it to the market price, ensuring efficient execution of long-term orders.

When traders place large buy orders on AMM, they face the same problems as TradFi, because AMM uses a constant product formula, and buying all at once pushes the market makers’ price up against the trader.

Manually splitting trades as an alternative can be time-consuming and cost additional gas fees because of the additional transactions required. TWAMM is designed to solve this problem by automating small trades, maximizing the smoothness of trade execution while minimizing commission costs.

The TWAMM algorithm is one of DeFi’s first, allowing users to enter parameters to buy and sell an asset over a period of time, such as a week, a few hours or days, without visiting CEX or any trading desk.

As DeFi and cryptocurrencies grow in popularity and larger investors enter the market, features like TWAMM will play an important role in providing a better trading experience for all users, fostering further adoption and use of DEX.

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