What Is “Slippage Tolerance” and How Does It Enable Sandwich Attacks?
Slippage tolerance is the maximum percentage deviation from the expected trade price that a user is willing to accept for their transaction. It is a necessary setting on DEXs due to the volatile nature of on-chain liquidity.
High slippage tolerance enables sandwich attacks because it signals to the front-runner that the victim is willing to accept a wide range of prices. The attacker can then confidently execute their "buy" transaction (driving the price up) and "sell" transaction (driving the price down) around the victim's trade, knowing the victim's trade will still execute at the now-manipulated price.
Glossar
High Slippage Tolerance
Tolerance ⎊ High slippage tolerance, within cryptocurrency and derivatives markets, signifies an investor’s or trading system’s capacity to accept price discrepancies between order execution and the anticipated price.
Expected Trade Price
Valuation ⎊ Expected Trade Price, within cryptocurrency derivatives, represents a probabilistic assessment of fair value derived from option pricing models and adjusted for prevailing market dynamics.
Sandwich Attacks
Execution ⎊ Sandwich attacks, within cryptocurrency derivatives and options trading, represent a sophisticated market manipulation tactic exploiting order book dynamics.
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.