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What Is the Concept of “Slippage” in a Decentralized Exchange Liquidity Pool?

The difference between expected and executed swap price caused by a large trade changing the ratio of assets in the AMM pool, especially in low-liquidity pools.
Greeks.Live22.11.25

What Is the Concept of “Slippage” in a Decentralized Exchange Liquidity Pool?

In a decentralized exchange (DEX) liquidity pool, slippage is the difference between the expected price of a token swap and the actual executed price. It occurs because the ratio of tokens in the pool changes with the size of the trade.

A large trade removes a significant amount of one token, causing the price of the remaining token to rise dramatically according to the Automated Market Maker (AMM) formula. This effect is compounded in low-liquidity pools, resulting in a worse-than-expected execution price for the trader.

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