How Does Slippage Affect Arbitrage in Decentralized Exchanges (DEXs)?

Slippage is the difference between the expected price of a trade and the price at which it is actually executed. In DEXs, which use automated market makers (AMMs), large arbitrage trades can significantly impact the price, leading to high slippage.

This slippage can reduce or completely eliminate the potential profit from an arbitrage opportunity. Arbitrageurs must carefully calculate potential slippage before executing a trade, as it directly subtracts from their gains.