Slippage

On a DEX, swap users often encounter the term “slippage” or “price slippage.” This refers to the potential change in price that may occur while a transaction is being processed.

To address this, DEXs implement the concept of slippage tolerance. Slippage tolerance is set by the user and defines the maximum price impact they are willing to accept for their trade. If the final execution price falls outside the user’s defined tolerance range, the transaction will automatically fail, ensuring protection against unfavorable price movements. By default, there’s a minimum slippage of 0.5%.

In practice, this mechanism ensures that traders do not end up paying significantly more (or receiving significantly less) than expected due to sudden shifts in liquidity or market conditions.