Slippage

How it is calculated

The AMM formula makes slippage fully predictable before a trade executes. For a constant-product pool with reserves x and y, a buyer inputting delta_x receives delta_y, where delta_y equals y times delta_x divided by (x plus delta_x).

The starting price is y over x; the effective execution price is (y minus delta_y) over (x plus delta_x). The difference between those two, as a percentage, is the slippage. It is deterministic and can be modeled for any trade size before launch.

Design consequence

There is a specific trade size at which a pool crosses each slippage threshold. Identify the sizes that produce 1%, 5%, and 10% slippage, then check whether those are plausible for your community. If 5% slippage hits at a $3K trade in a community where participants commonly hold $100K-plus positions, the pool is not sized for its actual user base.

Example

A v2 pool with $500K in paired reserves produces about 1% slippage on a $5K trade, 5% on $25K, and 10% on $50K. A project with the same depth but a user base used to $50K trades will see every meaningful purchase carry 10% execution cost, driving sophisticated buyers to other venues rather than trade at a penalty.

Common mistake

Teams set a blanket slippage tolerance in the UI without checking whether the pool can service the real trade distribution at that level. Tolerance is a ceiling enforced by the interface; actual slippage is set by the formula. A low tolerance on a shallow pool means larger trades fail outright instead of executing.