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

2026-06-14

AI Summary

This study investigates whether pre-disclosing trading intentions can reduce execution costs and adverse selection while attracting liquidity. Leveraging on-chain perpetual futures order book data from Hyperliquid, it provides the first empirical validation of the “sunshine trading” hypothesis in a real market setting. By reconstructing implicit large orders at the address level and comparing them with explicit time-weighted average price (TWAP) orders, the paper employs econometric methods to analyze their execution characteristics and market impact. The findings reveal that TWAP orders exhibit lower execution costs and smaller permanent price impact. Moreover, their presence significantly enhances market liquidity while intensifying adverse selection costs for non-disclosed large orders, thereby demonstrating how pre-disclosure mechanisms reshape order execution dynamics and market microstructure.

Abstract

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.

Problem

• sunshine trading
• adverse selection
• market impact
• liquidity provision
• execution costs

Innovation

• sunshine trading
• adverse selection
• on-chain order book
• TWAP execution
• market impact