Delphi Labs is proud to present a overview on arithmetic and geometric mean TWAPs.
In this piece we’ll try to answer a simple question: within the context of DeFi lending protocols, is it preferable to use an arithmetic mean (AM) TWAP or a geometric mean (GM) TWAP as an oracle. To answer this question, we’ll compare these two pricing methodologies in two dimensions: manipulation cost and price freshness. The first one refers to the cost of manipulating the TWAP, while the latter refers to how closely the TWAP tracks the spot price. As we’ll see, these two dimensions cover the most relevant factors when assessing DEX-based TWAP oracles.
If you’re a DeFi builder or part of a protocol and are interested in experimenting with this model, please reach out to us; we want to hear from you!
