How Does ‘Slippage Tolerance’ Make a Transaction Vulnerable to a Sandwich Attack?
Slippage tolerance is the maximum percentage change in price a user is willing to accept for their trade before it fails. A high tolerance allows a sandwich attacker to execute their 'buy' transaction, move the price significantly, let the target trade execute at the worse price, and then execute their 'sell' transaction, all within the user's acceptable slippage range.
A low tolerance minimizes the profit window for the attacker.
Glossar
Slippage Tolerance
Mechanism ⎊ Slippage tolerance, within cryptocurrency, options, and derivatives trading, defines the maximum acceptable difference between the expected price of a trade and the price at which the trade is actually executed.
Optimal Slippage Tolerance
Balance ⎊ Optimal Slippage Tolerance represents the strategically determined maximum percentage difference between the expected trade price and the worst acceptable execution price, striking a crucial balance between execution certainty and cost minimization.