Visible TWAP Orders, Market Impact, and Adverse Selection on Hyperliquid

Summary

This study examines whether publicly displayed trading intentions reduce execution costs, using protocol-native TWAP orders on Hyperliquid as an example of “sunshine trading.” It compares visible TWAP executions with hidden metaorders reconstructed from address-level data. The hidden orders tend to follow front-loaded, U-shaped schedules, while visible TWAPs trade more uniformly, consistent with their different execution designs.

The analysis finds lower execution costs and smaller permanent price impact for visible TWAPs than for comparable hidden metaorders. However, hidden orders trading in the same direction as an already-visible TWAP face greater permanent costs, suggesting that some adverse selection shifts to traders who do not announce their intentions. While a TWAP is active, displayed depth increases and liquidity tilts toward the side absorbing the announced flow, with a stronger response to larger orders. These results come from one on-chain perpetual futures venue; the findings may not generalize to markets with different disclosure rules or liquidity structures.

Key ideas

• Visible TWAPs trade more uniformly than hidden metaorders, which often use front-loaded, U-shaped schedules.
• Comparable visible TWAPs have lower measured execution costs and smaller permanent price impact than hidden metaorders.
• Hidden orders trading alongside visible same-direction TWAPs incur greater permanent costs, indicating a redistribution of adverse selection.
• Displayed depth rises and the order book tilts toward the side absorbing active TWAP flow.
• The evidence comes from Hyperliquid perpetual futures and may depend on its on-chain market design.

Tags

# Trading in the Sunshine or in the Shade: Market Impact and Adverse Selection on Hyperliquid


# Trading in the Sunshine or in the Shade: Market Impact and Adverse Selection on Hyperliquid









Sunshine trading theory predicts that publicly disclosing trading intentions can reduce adverse selection and attract liquidity provision, lowering execution costs. Evidence is scarce, because explicit preannouncement of large orders is rare in traditional markets. We study Hyperliquid, a fully on-chain limit order book for cryptocurrency perpetual futures, where protocol-native TWAP orders disclose their terms from inception and remain visible while active, a natural form of sunshine trading. Using address-level data, we reconstruct 4.3 million hidden metaorders and compare them with 465,000 visible TWAP executions. The two execution styles differ sharply: hidden metaorders follow front-loaded, U-shaped schedules consistent with transient-impact optimal execution, whereas TWAPs trade nearly uniformly. We test the preannouncement predictions of Admati and Pfleiderer (1991). Visible TWAPs face lower execution costs than comparable hidden metaorders and leave a smaller permanent price impact. Hidden metaorders executed alongside already-visible same-direction TWAP flow incur higher permanent costs: adverse-selection costs shift toward non-announcers. Finally, visible TWAP programs elicit liquidity provision: while active, displayed depth rises and the book tilts toward the absorbing side, the more so the larger the announced order.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.