How Does Slippage in Decentralized Exchanges (DEXs) Impact Arbitrage Effectiveness?

Slippage is the difference between the expected price of a trade and the executed price, especially in large trades. In a death spiral, panic selling rapidly drains liquidity from DEX pools.

Arbitrageurs trying to execute large trades to restore the peg face massive slippage, which eats into or completely eliminates their profit margin. If the slippage cost exceeds the potential arbitrage profit, the trade becomes non-viable, and the peg cannot be restored.