FOLLOW THE MECHANISM
- 1Quote
Read the current expected output and fee assumptions.
- 2Constrain
Set a minimum output or maximum input.
- 3Execute or revert
The actual state determines whether the boundary is met.
A conceptual sequence. Real implementations can add steps, intermediaries, and conditions.
Price impact belongs to the trade
Price impact is the difference caused by executing an order against finite liquidity. In an AMM, the trade changes reserves along a curve. In an order book, it can consume multiple price levels. Even in a perfectly quiet market, a large trade can execute at a worse average price than the initial marginal quote. Comparisons must also say whether trading fees are included. A percentage shown by one interface may use a different benchmark from another.
Slippage compares expectation with outcome
A quote describes a state at a time. Other trades, changed reserves, order cancellations or price movement can alter the state before your order executes. Slippage describes the difference between an expected execution and the eventual one, and can be favorable or unfavorable. Slippage tolerance is a constraint you set on an acceptable result; it is not a forecast. Increasing tolerance does not make a shallow market deeper or remove the trade’s existing price impact.
A minimum-output rule
Suppose an illustrative quote promises 500 output units for a particular input, after the quoted fee. A 1% tolerance gives a minimum acceptable output of 495 if the interface uses that simple rule. If execution would yield 494, a correctly applied minimum-output check rejects the swap. If it yields 496, the swap can execute. This protects a boundary, not the original quote. A reverted onchain transaction can still cost a network fee for work performed.
Ordering can exploit a loose boundary
On public transaction paths, another participant may observe a pending swap and change the price before it executes, then reverse their own position afterward. This is one form of sandwich behavior. Wide tolerance can leave room for worse execution, although the exact exposure depends on routing and ordering protections. Private submission mechanisms can change who sees an order but add their own trust and availability assumptions. No single tolerance percentage is universally safe or suitable; the mechanism depends on liquidity and changing conditions.
MAKE IT CONCRETE
Separate the two percentages
A quiet pool may quote an output already 4% below its initial spot-price benchmark because the trade is large. A 1% slippage tolerance constrains deterioration from that quote; it does not reduce the original 4% price impact.
FAILURE PATHS & COMMON MISREADINGS
Where the model can break
- Tolerance is an execution condition, not a price-impact setting.
- A rejected swap may still incur gas.
KEEP EXPLORING