How Does Slippage in Decentralized Exchanges Affect the Outcome of a Large Liquidation?

Slippage is the difference between the expected price of a trade and the price at which it is actually executed. In a large liquidation, a significant amount of collateral is sold on a decentralized exchange (DEX).

This large sell order can overwhelm the available liquidity in the trading pool, pushing the asset's price down significantly during the trade. This results in the liquidator receiving fewer funds than expected for the collateral, a high slippage.

This can lead to the protocol not fully recovering the debt, creating bad debt within the system.