The Decentralized Time-Weighted Average Price (TWAP) order protocol from Orbs aims to overcome DeFi’s liquidity and volatility issues while unlocking opportunities for traders and platforms.
Orbs, the decentralized layer-3 blockchain infrastructure, has introduced a new decentralized Time-Weighted Average Price (TWAP) protocol to support new order types for decentralized exchanges (DEXs) and Automated Market Makers (AMMs).
TWAP is frequently deployed by algorithmic trading strategies across the centralized finance (CeFi) landscape.
Traders rely on the Time-Weighted Average Price (TWAP) method to minimize a large order’s impact on the market by dividing the order into multiple smaller trades, wherein each trade is executed at regularly defined intervals over a given period.
Although the decentralized finance (DeFi) ecosystem has grown into a multi-billion-dollar industry, the existing infrastructure, primarily the limitations of EVM smart contracts, makes it very hard to implement TWAP in a decentralized format.
On top of that, the current DeFi ecosystem has few features designed to manage increased volatility and liquidity issues that regularly unfold in the decentralized crypto economy.
With its decentralized TWAP protocol powered by its layer3 technology, Orbs overcomes these shortcomings while benefitting traders and trading platforms simultaneously by significantly reducing material price impacts that arise from large orders.
Orbs’ decentralized backend ensures that all TWAP orders are executed at an optimal price and fair fees without sacrificing decentralization and security.
Accordingly, participating DEXs and AMMs grant their users more ways to engage in sophisticated trading activities, especially algorithmic strategies like those commonplace in CeFi, while also experiencing increased liquidity and user activity.
The protocol also enables users to leverage automated dollar-cost averaging (DCA) – an investing strategy whereby an investor purchases an asset or set of assets at a defined fiat value according to a predetermined schedule.
Orbs’ TWAP protocol can be used to generate an automated version of the DCA strategy, empowering traders to enter market orders with longer intervals and extended durations. Effectively, the TWAP protocol can serve as an automated DCA trading bot that requires no additional input from the trader.
In technical terms, Orbs’ layer-3 infrastructure extends the capabilities of existing EVM smart contracts. By leveraging the network’s validators as off-chain bidders, Orbs’ TWAP protocol will allow DEXs and AMMs to unlock new opportunities in a fully decentralized and secure setting.
Orbs’ TWAP smart contracts consist of two components: a market maker and a market taker. While the “maker” (user or order creator) controls all parameters related to the order, such as limit price, size, expiration, and the period, “takers” are incentivized participants who monitor orders and are selected for trade execution after submitting bids, including the taker fee.
The highest bid and lowest fees are selected for execution automatically.
In addition to the TWAP protocol, the Orbs team has developed a new user interface (UI) that DEXs and AMMs can easily integrate with their existing infrastructure.
The new UI is intuitive and user-friendly, allowing users to customize the parameters and initiate TWAP trades.
“We are always looking at CeFi as a template for new protocols that can enhance our stakeholders’ experience, and TWAP (Time-Weighted Average Price) was no exception. Until now, it has been extremely hard to implement a TWAP strategy in blockchain-based financial primitives in a decentralized manner using EVM-based smart contracts. With our new TWAP Protocol, everyone benefits – be they traders or trading platforms. Besides managing liquidity better, support for more sophisticated trading strategies, automated DCA orders, customizable parameters, and much more can also help us attract institutional participation in-kind.”
Nadav Shemesh, CEO of Orbs
Orbs is a public and decentralized blockchain infrastructure operated via a secure network of permissionless validators and the Proof-of-Stake (PoS) consensus mechanism.
The platform serves as a decentralized execution layer between existing layer-1 and layer-2 chains and the application layer.
By enhancing the capabilities of EVM smart contracts, Orbs powers new use cases for DeFi, NFTs, GameFi, and other emerging blockchain-based sectors.
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