Slippage is the difference between the expected price of a trade and the actual price at which it executes. In crypto, slippage has two causes: price impact (for AMM-based DEXs, larger trades move the pool price more, resulting in worse execution) and market movement (for order book exchanges, price changes between when an order is placed and when it fills). In DeFi, slippage tolerance is a user-set parameter: if the trade actual execution price deviates by more than the tolerance (e.g. 0.5%), the transaction reverts, protecting the trader from frontrunning or sudden price moves. Setting tolerance too low means transactions revert frequently during volatile markets; too high exposes the user to sandwich attacks by MEV bots. Slippage is directly related to liquidity: deep pools experience minimal slippage even on large trades; thin pools show significant price impact even on small swaps. DEX aggregators like Jupiter and 1inch reduce slippage by splitting orders across multiple pools to find the best combined execution price.
Example: Example: A trader swaps $100 of ETH for an obscure token with only $5,000 of liquidity. Their $100 trade represents 2% of the pool, causing ~4% price impact – they receive $96 worth of tokens instead of $100. Setting slippage tolerance at 1% would cause the transaction to revert. They must accept high slippage or find a deeper liquidity pool.
Learn more: Uniswap – Swaps & Slippage
