Paradigm Team Outline Efficient AMM Design for Large Trades

Paradigm research partners Dave White, Dan Robinson and Uniswap founder Hayden Adams have cooked up another trading protocol.

The decentralized exchange, called TWAMM, which stands for time-weighted average market maker, aims to help traders execute large orders, quickly, at low gas prices and without negatively affecting price.

In traditional finance, traders will often employ brokers to execute large orders algorithmically over a set period of time. This often gets them the best price. The most simple way this happens is through something called Time-Weighted Average Price, or TWAP order, which gives a security’s price over a set period of time. 

The TWAMM protocol aims to replicate TWAP orders on-chain by breaking them up as a long-term order into “many infinitely small virtual sub-orders,” as the Paradigm post says. 

The automated long-term trade may make prices deviate from the crypto market at large. To solve this, the TWAMM protocol will depend on arbitrageurs to “trade against the embedded AMM’s price to bring it back in line, ensuring good execution for long-term orders,” according White. 

When traders place large orders on automated market makers (AMMs), they face the same problem of TradFi — buying all at once pushes  market makers to raise the price against the trader. AMMs work the same way due to their constant product formula, plus DeFi makes it a Catch-22 as breaking up the trades yourself takes time and costs extra gas for the extra transactions. The TWAMM model automates the small trades, “providing smooth execution for low gas cost,” as the post said.

A protocol geared for large orders may prepare DeFi as it makes its way into the mainstream. 

Or, as the trader who goes by Hsaka on Twitter said, “interesting timing,” considering a presentation at EthCC in Paris where Uniswap growth lead, Ashleigh Schap said the protocol’s team is striving to work closely with consumer financial applications like PayPal, E-Trade, and Robinhood.