Time-Weighted Automated Market Maker (TWAMM)
Time-Weighted Automated Market Maker (TWAMM) aims is to help traders execute large orders with minimal slippage and low gas fees without negatively affecting the price.
What Is a Time-Weighted Automated Market Maker (TWAMM)?
TWAMM refers to Time-Weighted
Automated Market Maker. Its aim is to help traders execute large orders with minimal
slippage and low gas fees without negatively affecting the price.
In traditional finance (TradFi), traders will often employ brokers to execute large orders algorithmically over a designated time frame, which often gets them the best price. This is often done in the most straightforward way via a Time-Weighted Average Price (TWAP) order, which gives a security or asset’s price over the designated time frame.
For example, when large traders want to buy an asset, like $10 million worth of Solana, they cannot just execute that as one trade as it will increase the market price by a large number. Typically they will use a trading desk or an algorithm to break down the $10 million order into smaller orders of $1,000 across many hours or days to have less impact on price in the market.
The TWAMM strives to emulate TWAP orders by breaking them up into a combination of an almost infinite number of small orders via an
automated market maker (AMM) over a period of time.
This method of trading may result in prices deviating from the crypto market as a whole. The TWAMM relies on
arbitrageurs to mitigate this issue, by trading against the AMM’s price to return it back to the market price, ensuring effective execution for long-term orders.
When traders place large buy orders on AMMS, they face the same problems encountered in TradFi due to the constant product formula utilized by the AMM, and buying all at once pushes market makers to raise the price against the trader. Breaking up the trades manually as an alternative can be time-consuming and costs extra gas fees due to the additional transactions required. The TWAMM aims to resolve this issue by automating the small trades, maximizing the smoothness of executing trades at minimal gas fees.
The TWAMM algorithm is one of the first in DeFi which allows users to enter parameters on how much to buy and sell of an asset over a time period like 1 week, number of hours, or days without going to a
CEX or some trading desk.
As
DeFi and crypto become more mainstream and larger investors enter the market, features like the TWAMM will become essential in facilitating a better trading experience for all users, further facilitating the adoption and usage of
DEXs.Author Bio: Hisham Khan, CEO of Aldrin
Hisham Khan comes from a decade-long background in managing and building robust and innovative financial and enterprise technology. With an extensive career at Bloomberg and based in New York, Hisham has worked as a project manager with some of the world’s top engineers. It was here where he discovered the transformative impact of cryptocurrencies, and has since left Bloomberg to build comprehensive and accessible trading tools through Aldrin. His core mission is to make advanced crypto trading and strategy development available for everyone.