Clear DefinitionsTime-weighted Average Rate (TWAR)
1 min read
Pronunciation
[time-weyt-ed av-er-ij reyt]
Analogy
Think of TWAR like averaging hourly electricity rates over a month to determine your final bill.
Definition
A method to calculate the average interest or exchange rate over a period, weighting each rate by the time it was in effect.
Key Points Intro
TWAR computes averaged rates for financial protocols based on time duration.
Key Points
Rate sampling: records rate and timestamp at each change
Weighted average: multiplies each rate by its duration
On-chain storage: accumulators track cumulative rate*time
Use cases: interest accrual and dynamic fee calculations
Example
A lending protocol uses TWAR to calculate borrower interest over a week by sampling the variable rate each hour and weighting by duration.
Technical Deep Dive
Contracts maintain `cumulativeRate` and `lastUpdateTimestamp`. On each rate change: `cumulativeRate += currentRate * (now – lastUpdateTimestamp)`. TWAR = `cumulativeRate / (now – startTimestamp)`. Fixed-point arithmetic (e.g., UQ112x112) ensures precision.
Security Warning
Sparse sampling during rapid rate changes can misestimate effective yields.
Caveat
Higher sampling frequency improves accuracy but increases gas costs.
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