How Does a Time-Weighted Average Price (TWAP) Help Defend against Price Feed Attacks?
A Time-Weighted Average Price (TWAP) is a method that calculates the average price of an asset over a specific period, rather than taking the price at a single moment. This mechanism effectively smooths out any sudden, short-lived price spikes or drops caused by manipulation attempts, such as those executed via flash loans.
Since a flash loan attack is instantaneous, the momentary manipulated price has minimal impact on the overall calculated average, thus protecting the smart contract.
Glossar
Robust Price Feed
Integrity ⎊ A robust price feed within cryptocurrency derivatives necessitates a high degree of integrity, functioning as a foundational element for fair valuation and risk management.
Price Feed
Feed ⎊ A price feed is a continuous stream of real-time pricing data from various sources used to determine the fair value of an asset.
Average Price
Calculation ⎊ The Average Price represents the volume-weighted mean execution price of an underlying asset or derivative contract over a specified interval, crucial for settlement procedures in many crypto derivatives markets.