Market liquidity and slippage are two core concepts for anyone trading crypto on decentralized exchanges (DEXes). They strongly influence the price you get and the overall success of your trades. This article blends our previous pieces to give you a thorough understanding of how liquidity and slippage work, why they matter, and what Slingshot does to minimize their impact on your trading.

Liquidity refers to how easily (and how much) you can buy or sell an asset without causing a major change in its price. In a highly liquid market, there are many buyers and sellers, so trades can be executed quickly at stable prices. In a market with low liquidity, even smaller trades can cause large price swings, leading to increased slippage and higher spreads.

When trading tokens with low liquidity, the order book or liquidity pool can be shallow. This means fewer tokens are available at each price level, so your trades can move the market price more dramatically. Conversely, high-liquidity tokens are usually more stable, as trades fill more easily with limited price movement.

Slippage is the difference between the price you expect to pay (or receive) for a token and the price at which the trade actually executes. It happens because the market price can shift while your trade is being processed—often due to volatility, liquidity issues, or large trade sizes.

In decentralized exchanges (DEXes), slippage often comes down to the size of the liquidity pool and how big your order is relative to that pool. Low liquidity or large orders can lead to a bigger price difference between the quote you see and the final execution.

When you see a quoted price in Slingshot, that price assumes a certain balance of tokens available at that rate. If the liquidity isn’t deep enough—or if the market moves quickly—you may end up paying more (or receiving less) than you initially expected.

For example, if you swap 1 ETH for USDC at a quoted rate of 4000 USDC, a 1% slippage tolerance means you’re willing to accept at least 3960 USDC and at most 4040 USDC. If market volatility pushes the final price outside this range, the trade will fail.

Slippage occurs in both centralized and decentralized markets, but it can be more noticeable in DeFi because:

Even large single-DEX apps (like Uniswap or Sushiswap) can suffer from slippage when liquidity is fragmented or heavily concentrated in certain pools. If a token has low liquidity or is only listed on one or two small DEXes, you may see higher slippage.

Slingshot is powered by DEX aggregators, which source liquidity from multiple DEXes simultaneously. This broader liquidity access helps reduce slippage because your trade is routed through the best combination of pools across different exchanges, ensuring a more favorable price.
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By pooling multiple DEXes, Slingshot effectively increases the overall liquidity available to your trade. This results in fewer price swings and less chance of executing a portion of your trade at an unfavorable price.

Slingshot finds trade routes for the most optimal execution. For example, if your transaction can be split across two or three DEXes to get a better aggregate price, Slingshot will automatically do that.

Instead of manually checking multiple DEX interfaces, Slingshot aggregates them for you in one place. You simply enter your trade details, and Slingshot handles the rest.

Slingshot’s auto slippage feature (currently live on Solana) estimates a slippage tolerance that balances price impact with transaction success. On other chains, the default slippage is set to 3%, but you can manually adjust it in the swap interface.

📖You can override this automatic setting any time if you prefer a custom tolerance, check out How Can I Change the Slippage Tolerance?

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