Intermediate
If you have already bought or sold cryptocurrencies, you may have noticed that the final price of your transaction was not exactly the one you expected. Well, this is what is called the Slipping. But why does it happen, and how can you avoid it? This article will explain everything to you, with concrete examples and practical tips.
Table of contents
Understand the crypto panties
Slipping designates the difference between the expected price of a transaction and the actual price to which it is executed. In other words, this is this sometimes frustrating gap that can occur when buying or selling cryptocurrencies. This phenomenon is particularly common in volatile markets like that of cryptos, where prices can fluctuate in a few seconds.
The main causes of crypto panties
Slipping, this phenomenon where the execution price differs from the expected price, can occur for several reasons. Here is a detailed analysis of the three main factors:
The volatility of cryptos
Cryptocurrencies are renowned for their quick and unpredictable price fluctuations. For example, an asset can evolve from 1 to 2 % in a few seconds. If you place an order at a certain price, the latter may have changed before your transaction is executed. Result: your order adjusts to the new price, causing a panties.
Lack of liquidity
The order book, which brings together all the purchase and sale offers for a cryptocurrency , plays a crucial role. If there are not enough orders corresponding to your desired price, your transaction will have to run at different price levels to be completed.
How does it work?
Suppose you place a purchase order from 10 ETH to $ 1,600 each , but that the order book contains only 5 ETH available at this price. To run the remaining 5 ETHRs, the system will have to "search" for offers at higher prices (for example, $ 1,610 or $ 1,620). This process is called "eating" several levels in the order book .
The higher the volume of your order, the more it may exceed a single price level in the order book, thus increasing the risk of panty. If you trade a little liquid cryptocurrency (low volume of exchanges), this phenomenon is amplified because there are fewer offers or requests available at each price level.
Important orders and their impact
Large orders amplify this phenomenon of Slipping. Indeed, a large order can swallow several price levels in the order book , increasing the gap between the initial price and the final execution price.
Concrete example:
- You want to buy 100 ETH in a market with little liquidity.
- The order book offers the following prices:
- $ 1,600 for 50 ETH,
- $ 1,620 for 30 ETH,
- $ 1,650 for 20 ETH.
- Your order will lead to a panties because it will have to be distributed over these three price levels. You will thus pay an average of $ 1,616 per ETH instead of the $ 1,600 hoped for.
Slipping management: adjustment and behavior of platforms
When the order book does not contain enough offers or requests, several scenarios can occur according to the parameters defined by the trader and the rules of the platform.
How to measure and anticipate the Slippage?
To measure the Slippage, most DEXs make it possible to define a tolerance to the Slipping. For example, on Uniswap, you can choose an acceptable percentage (1 %, 2 %, etc.). This prevents your transaction from being realized beyond this margin.
Strategies for reducing the pantry
- Fraction your orders : Divide a big order into several smaller ones.
- Favor liquid markets : Trade on platforms where the volume of exchanges is high.
- Use limited orders : this guarantees that your transaction will not be executed beyond a defined price.
How does a liquidity pool work on a Dex?
A liquidity pool is a reserve of two assets, such as ETH and USDT , provided by users called Liquidity Providers (LPS) . The latter deposit equivalent quantities of the two assets in a pool to facilitate exchanges, and in return, they receive liquidity tokens , which represent their share in the pool.
When a user wishes to exchange an asset for another on a Dex, the protocol takes the assets directly from the pool. For example, if you exchange 10 ETH for USDT :
- The 10 ETH are added to the pool.
- An equivalent quantity of USDT (calculated according to the AMM formula , or automatic market content) is removed from the pool and transferred to your wallet .
The price of the assets is determined by the proportion between the two reserves in the pool, according to the X × Y equation = K where and represent the reserves of the two active ingredients and is a constant. If the proportion of assets changes, their price also changes. Consequently, the greater a transaction compared to the size of the pool, the more it unbalances the ratio between the two active ingredients, increasing the Slippage .
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Slipping: positive or negative?
- negative slipping is more common: you pay more (or sell at a lower price) when your order lacks liquidity.
- However, if the market is evolving in your favor, you can benefit from a positive panty : a more advantageous than expected execution price. This phenomenon generally depends on volatility at the time of the transaction.
Slipping adjustment
- The platforms, in particular the Dex (such as Uniswap ), make it possible to define a tolerance to the Slipping . For example, 1 % adjustment means that your transaction will not run if the Slippage exceeds this limit. This protects the trader from excessive price variations.
What happens if there is really no corresponding order?
- If no level of the order book corresponds to your price or tolerance, the order fails and is not executed. On a Dex, this can also lead to lost Gas costs, because the Ethereum invoices the attempt, even if it fails.
What happens if the pools have different proportions between platforms?
The proportions of assets in the pools can vary from one platform to another, which can theoretically lead to price differences between Dex. However, in practice, these price differences are quickly corrected thanks to the activity of arbitrans , specialized traders who exploit price differences between platforms to make profits. For example :
- If the price of the ETH is lower on Uniswap than on sushiiswap , an arbitragist will buy ETH on Uniswap and will immediately resemble it on sushiswap.
- These transactions balance the proportions in the pools concerned, thus synchronizing prices on the different platforms.
Arbitragists therefore play a crucial role in maintaining uniform price through Dex, by adjusting the imbalances caused by variations in liquidity. This dynamic guarantees that, despite different proportions in the pools of each Dex, the prices of assets remain generally aligned with the market.
What happens if the pool lacks liquidity?
If a pool does not contain enough an asset to satisfy a transaction, several consequences can occur:
Increase in the Slipping: When the pool is unbalanced, the MA formula will adjust the price significantly to compensate. For example, if a user tries to remove a large amount of USDT , the price of ETH will increase sharply because the remaining proportion of ETH in the pool will decrease. This leads to an increase in costs for the trader.
Faced transaction: If the Slippage exceeds the tolerance defined by the user (for example 1 %), the transaction is canceled automatically to avoid excessive loss. However, Gas fees incurred to initiate the transaction are lost, which can be expensive on blockchains like Ethereum .
Complete exhaustion of an asset: if a pool is completely empty for a specific asset, it becomes impossible to execute transactions involving this asset. low liquidity problem , which is often a challenge for Dex dealing with less popular cryptocurrencies.
To reduce these risks, traders must monitor the size and liquidity of the pools before executing transactions. Adjusting tolerance to the Slipping in the Dex settings is also essential to limit losses in the event of the pool imbalance.
The impact of market makerS on the Slippage: why are they committed?
Market market maker S are essential players in the financial markets, including in cryptocurrencies. Their role is to permanently provide purchase and sale orders on exchange platforms, thus increasing liquidity and reducing the risk of panty . But why do they invest time and resources to play this role? Simply because they derive strategic and financial benefits.
How do the market makerreduce the panties?
By offering a wide range of purchase and sale orders at different prices, the market makerfill the holes in the order book, making transactions more fluid. This guarantees that a trader can execute a transaction at the desired price or with a minimum of pants, even for high volumes.
For example, if a trader wishes to buy a large quantity of ETH on a centralized platform ( CEX ), the presence of a market maker with sales orders at different levels makes it possible to respond to this demand without strongly unbalance the market. Without market maker S, such orders would result in high price fluctuations.
Why are the market makerdoing it?
The market makerS do not provide this liquidity by simple altruism. Here are the main reasons that encourage them to act:
Take advantage of the gap between supply and demand (SPREAD) : market maker place orders slightly below the current price to buy and slightly above to sell. This gap, called Spread , represents their profit on each transaction. On large volumes, even small spreats generate substantial benefits.
Remuneration by platforms : many platforms, such as Binance or Coinbase , encourage market maker S by offering them reduced trading costs or even bonuses. In return, these market maker ensure better liquidity, which attracts more users to the platform.
Portfolio management : market maker also optimize their portfolios by buying and selling strategically assets. This allows them to take advantage of market movements while minimizing risks.
Increased their influence on the markets : by playing a central role in liquidity, market maker S can also indirectly influence market conditions. This allows them to have a strategic advantage in the face of other participants, especially in volatile markets such as cryptos.
Concrete example: Jump Trading
Major actors such as Jump Trading actively participate in the reduction of the Slippage on exchange platforms. By injecting constant liquidity on digital assets, they stabilize prices and make exchanges more attractive for traders. For example, on a platform like Binance , their regular orders prevent large price imbalances, even during significant market movements.
In short, the market makers are not content to make the transactions more fluid for traders: they also play a strategic role by exploiting volatility and taking advantage of their privileged position on the markets. Their presence is an essential pillar to reduce the risks linked to the Slipping and maintain dynamic and liquid markets.
Conclusion and perspectives on the Slippage in Crypto
Slipping is an inevitable reality of crypto trading, but it can be mastered with the right strategies. Whether you use a CEX or a dex, or tradie perpetuals , understanding this phenomenon is essential to optimize your transactions.
FAQ on crypto panties
What is crypto slipping?
Slipping designates the difference between the expected price and the actual price of a transaction.
Can we completely avoid the Slippage?
No, but you can reduce it using limited orders and choose liquid markets.
Why is the Slipping more common on a Dex?
DEX depend on liquidity pools, which can cause large price variations for low volumes.
What types of traders are the most exposed to the Slippage?
Traders carrying large transactions or operating on unliquid markets.
Do you want to know more? Click on the words in bold to explore our articles on perpetuals , the difference between CEX and Dex , and the role of market maker S to improve your trading strategies.
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Yohan Uzzan
Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.
