Slippage
During liquidity deposits and withdrawals, the exchange rate in a pool may slightly change ('slip'), due to other users trades. When it happens after you sign the transaction in your wallet app, but before the transaction is executed in the blockchain, here's where slippage comes in place.
If the expected exchange rate shifts, in either direction, by more than your slippage tolerance, then your deposit or withdrawal transaction won't be executed. Your tokens will be returned to your wallet, in case of deposit, or will stay in the pool, in case of withrawal.
Network fee for interaction with the blockchain is consumed anyway, even if deposit or withdrawal failed.
Default slippage value for both liquidity deposits and withdrawals is 1%. And they're tuned separately.
To make it clearer, let's compare the expected outcome of a deposit at different slippage levels.
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The expected exchange rate is equal for all four cases, with slippage from 0.1% to 10%. But if suddenly, during the execution, the rate changes — then "we agree" to proceed, only unless:
the price change is within 1%, resulting in we'd get position equivalent at least $201.22
the price change is within 5%, resulting in we'd get position equivalent at least $193.09
the price change is within 10%, resulting in we'd get position equivalent at least $182.93
the price change is within 1%, resulting in we'd get position equivalent at least $203.05
And in this case the unused amount of one token or another (depending on which direction price goes), initially taken from our wallet for the deposit, will be credited back to the wallet.
If the rate change (in this specific liquidity pool) exceeds the slippage defined by user, then whole deposit transaction will be reverted, and both tokens (in full) will be returned to wallet.
So in short, the slippage tolerance defines when to proceed or not, if market conditions change. And which amount of user's assets should go to pool or back to his wallet in this case.
Refer to slippage in trade to find out more about slippage.
Users are responsible for setting their slippage tolerance.
If you set it too high or too low, you accept the risks and potential consequences.
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