🍌 What is slippage?
Slippage is a term used in the context of cryptocurrency swaps. It refers to the difference between the expected price of an asset and the price at which the asset is actually traded.
In a cryptocurrency swap, slippage can occur when there is a significant difference between the asset's price at the time the swap is initiated and the asset's price at the time the swap is executed.
This can happen because blockchain transactions are not instantaneous - they may take several seconds to several minutes to execute, depending on the blockchain network and the number of pending transactions that its' users are trying to execute. At the same time, the market for cryptocurrencies is decentralized and can be highly volatile, with prices fluctuating rapidly and unpredictably.
As a result, when you swap one coin for another one it is common that the prices when the order actually executes are different than the prices the coins had when you confirmed and submitted a swap.
When you conduct a swap, you set a "slippage tolerance" (or just "slippage" for short) that you're willing to accept for a swap. If the price changes by more than your slippage between when the swap transaction is submitted and when it's executed, your swap will be canceled.
🧙 Slippable Explained by Example
Here's an example to illustrate what slippage is and why it's important when you're doing a swap. Imagine you're trying to trade some amount of Ethereum for 100 USDC, and you have set your slippage to 2%.
This means that for the same amount of Ethereum you're trying to trade for 100 USDC, you're willing to accept a 2% difference in the amount of USDC that you receive: between 98 USDC and 102 USDC.
When you confirm the swap transaction, the transaction will be submitted to the blockchain. Once the transaction is executed on the blockchain (seconds to minutes later), if the Ethereum to USDC swap price has changed by more than 2% from when you submitted the transaction, your swap will be canceled so that you don't get less USDC than you're expecting.
🪄 Swaps & Slippage in Your Zelus Wallet
When you do a swap through your Zelus wallet, we automatically set your slippage to strike a balance between ensuring that you get a good price, and ensuring that your swap is likely to be completed. It's usually around 2%, although it can change depending on market conditions.
But, we know that understanding slippage can be complicated, so we simplified it for you! When you try and do a swap through your Zelus wallet, we highlight the "Minimum amount you'll receive" before you confirm a swap. The swap will only be completed if we can guarantee that you'll receive that amount, preventing you from receiving less coins than you expect from a swap.