The most discussed topic during this time is Binance's alpha, but many people notice that the rewards they receive are less than the wear and tear they incur. What's going on? This is where slippage plays a role, and today we will learn about the concept of slippage together.

This is where slippage plays a role, and today we will learn about the concept of slippage together.

The above image is based on our personal experience; we currently don't know why, but we only know that we paid 2400 USDT to obtain 1 ETH, but we ultimately only received 0.95 ETH, which means we expected 0.05 ETH less. This is what we often refer to as wear and tear, and here it is more professionally known as slippage.

1. Definition of slippage

The above is the most straightforward definition: Slippage in on-chain transactions refers to the difference between the execution price of a trade and the expected price by the user, meaning that the expected price when the user submits the trade does not match the actual execution price.

2. Slippage calculation formula and categories

Slippage = |(Actual Price - Expected Price) / Expected Price| × 100%

Positive and negative slippage:

Negative slippage: The actual price is unfavorable to the user (e.g., the purchase price is higher than expected, and the selling price is lower than expected).

Positive slippage: The actual price is favorable to the user (rare, usually occurs during rapid market fluctuations).

3. Causes of slippage

Next, we will learn slowly from shallow to deep.

3.1 On-chain confirmation

We all know that creating a block on the blockchain takes time to package, for example, confirming on the Ethereum chain takes 12 seconds. This means that when we submit a transaction (the current ETH price we see is 2400, but the market is fluctuating in real-time), and when the transaction we purchased is packaged on-chain in 12 seconds, the price might rise to 2450, making it impossible to purchase 1 ETH, and we can only receive 0.95 ETH.

3.2 Miner ordering and front-running


When we submit a large purchase of ETH transaction, the transaction is visible to everyone in the transaction pool, so miners can see this transaction first and can detect it to execute a buy order before us, pushing up the ETH price. The user's transaction is then executed, with the price higher than expected, resulting in slippage. Of course, this operation is also known as a sandwich attack.

Our transaction is like being sandwiched in a sandwich; the bot or miner buys before the transaction (pushing up the price), and after our transaction is executed, the bot sells again (lowering the price), profiting from it, and we bear additional slippage due to price fluctuations.

3.3 Price curve of AMM (price slippage)

Most DEXs use an automated market maker (AMM) model to provide trading pairs through liquidity pools (e.g., ETH/USDT). The assets in the pool follow a constant product formula (like Uniswap's x * y = k), where x and y are the quantities of the two assets, and k is a constant. When we make a large trade, it significantly alters the asset ratios in the pool, leading to price divergence. For example, buying a large amount of ETH will reduce the USDT in the pool and increase ETH, pushing up the ETH price. The larger the trade, the higher the price slippage, as the trade causes the asset ratio in the pool to deviate from the equilibrium point.

3.4 Low liquidity pools: If the total amount of assets in the liquidity pool is small, large trades will significantly change the price, leading to high slippage. For example: A small pool has 10 ETH and 20,000 USDT; buying 5 ETH will greatly push up the price, and slippage may reach over 10%. In contrast, large pools (such as mainstream trading pairs on Uniswap) have high liquidity and lower slippage.

So do you know why you have so much wear and tear?