What is Time-Weighted Automated Market Maker (TWAMM)?
Let's find out Time-Weighted Automated Market Maker (TWAMM) meaning, definition in crypto, what is Time-Weighted Automated Market Maker (TWAMM), and all other detailed facts.
Time-Weighted Automated Market Maker (TWAMM) is a part of decentralized exchanges (DEXs) that allows traders to execute large orders with minimal slippage and low gas costs without decreasing the price.
Traders in traditional finance frequently use brokers to execute large orders algorithmically over a set time frame, aiming for the best price. A Time-Weighted Average Price (TWAP) order, which is the average price of a security over a specified time, is the most straightforward way to do this. The TWAMM attempts to replicate TWAP orders by breaking them down over time into an almost endless number of small orders via an automated market maker (AMM).
For instance, when major traders want to acquire an item, such as $10 million worth of Solana, they can't just do it in one deal because it will raise the market price by a significant amount. To have a lower impact on market pricing, they would typically use a trading desk or an algorithm to break down the $10 million order into smaller orders of $1,000 and spread it out across many hours or days.
This form of trading might cause prices to diverge from the overall crypto market. To address this issue, the TWAMM relies on arbitrageurs to trade against the AMM's price in order to return it to the market price, assuring effective execution for long-term orders.
Manually breaking apart the deals is a time-consuming approach that incurs additional gas fees due to the multiple transactions required. The TWAMM attempts to overcome this problem by automating minor trades and maximizing the smoothness of trade execution while reducing gas costs.
The TWAMM is one of the first algorithms in DeFi that allows users to specify how much of an asset they want to purchase or sell over a specific time period without having to go to a CEX or a trading desk.