TWAP (Time-Weighted Average Price)
An average price calculated over a specific time period to reduce volatility impact.
What is TWAP (Time-Weighted Average Price)?
TWAP, or Time-Weighted Average Price, is a pricing mechanism used by Perp DEXs to calculate the average price of a digital asset over a set time period, smoothing out short-term volatility. For example, GMX might use a 30-minute TWAP of an oracle-fed index price to determine the mark price for liquidations or funding rate calculations, reducing the risk of manipulation from sudden price spikes.
TWAP is computed by taking periodic price snapshots (e.g., every minute) and weighting them by time, ensuring a fairer representation of market conditions. This is particularly useful in volatile markets, where spot prices can fluctuate rapidly. Perp DEXs rely on TWAP for critical functions like position valuation and settlement.
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