• People often get confused over these as they can have a similar effect in terms of losses.
• Price Impact, is affected by the size of your trade relative to the available liquidity within the pool. It is a function of the constant product formula:x∗y=kx∗y=k.
• Slippage is affected by the difference in price, between the point at which you send your transaction and the moment it gets mined.

What is slippage?

• A basic example would be swapping your ETH for SUSHI, in an attempt to exit an ETH dump and enter a SUSHI pump.
• However, while waiting for your transaction to get mined, the price of ETH drops by 1%, while SUSHI went up by 1%. This would incur a 2% slippage.
• If you had set your slippage below this amount, the swap would fail.

❓ If my trade is routed through another pool, is that n% slippage for the entire trade, or is it applied to each hop?

It’s applied to the entire trade.

• When setting the slippage, you are effectively inputting a minimum quantity of tokens you will receive from the swap.
• The swap confirmation screen will show you the minimum amount of tokens you will receive according to the slippage setting.

Example:

I swap 1000 UDSC for SUSHI, with a projected cost of $3.031 per SUSHI.

The exchange rate shows that we would receive: 329.9 SUSHI tokens.The minimum received shows: 328.259 which is 99.5025% of 329.9. This means a maximum of 0.4974% slippage will be taken into account before a transaction revert occurs.

What is Price Impact?

In a traditional order-book model, you might have an asset that trades at $10. However, if a buyer with a large enough order comes, he/she may take up all offers to buy the asset at $10, $11 & $12. This will cause the average buying price on that asset to fall somewhere in between the range of $10 to $12 for that particular individual.

With an AMM (Automated Market Maker), the value of an asset is directly related to the balance of tokens in the pool. This balance is shifted during the swap, thus the final execution price will always fall somewhere in between.