Time-weighted average price is an algorithmic trade execution strategy commonly used in traditional finance tools. The goal of the strategy is to produce an average execution price that is relatively close to the time-weighted average price for the period that the user specifies.
Breaking up the larger order can give the DEX time to resolve any price differences within the respective liquidity pools, helping to bring the asset back to its spot price. The strategy can benefit DEXs since larger price impacts can affect the token pairs in the liquidity pool. Deg3ntrades, part of the undoxxed development team at SpiritSwap — a decentralized exchange and DeFi platform on Fantom — also shared his thoughts, mentioning decentralized TWAP , the version of TWAP implemented on SpiritSwap.
For example, if Coin B’s price fluctuates every other day for a month, an investor can buy $250 worth of Coin B every week instead of trying to buy at a perfect time. This is because the cost will eventually reach an average price point over time, despite the asset’s fluctuating price.