What Is Slippage on Uniswap? How It Works and How to Avoid It

Slippage is one of the most misunderstood concepts in DeFi trading. You expect to pay $2,500 per ETH, but your swap executes at $2,550—that $50 difference is slippage. Understanding why slippage happens and how to minimize it can save you hundreds or thousands of dollars on trades.

This guide explains exactly what slippage is, why it occurs on Uniswap, and how to reduce it. You'll learn how liquidity depth affects slippage, why fee tiers matter, and how to set appropriate slippage tolerance. By the end, you'll trade more efficiently and understand why liquidity providers are essential for good execution.

What Is Slippage?

Slippage is the difference between the expected price of a trade and the actual execution price.

Simple example:

• You want to buy 1 ETH
• Current price shows: $2,500
• You execute the swap
• Actual price paid: $2,510
• Slippage: $10 (0.4%)

Why it matters:

• On a $2,500 trade, 0.4% slippage = $10
• On a $25,000 trade, 0.4% slippage = $100
• On a $250,000 trade, 0.4% slippage = $1,000

Slippage can significantly impact your trading costs, especially for large trades or low-liquidity pairs.

Why Does Slippage Happen on Uniswap?

The AMM Mechanism

Uniswap uses an Automated Market Maker (AMM) model with the formula: x × y = k

How it works:

• Pool holds two tokens (e.g., ETH and USDC)
• When you buy ETH, you add USDC and remove ETH
• This changes the pool ratio
• The formula adjusts the price to maintain the constant product (k)
• Larger trades = bigger ratio change = more price movement

Real Example: Why Slippage Occurs

Initial pool state:

• 1,000 ETH
• 2,500,000 USDC
• Price: 2,500 USDC per ETH

You want to buy 10 ETH:

Step 1: Calculate new pool state

• Remove 10 ETH: New ETH = 990
• Maintain k: 1,000 × 2,500,000 = 2,500,000,000
• New USDC: 2,500,000,000 / 990 = 2,525,253 USDC
• You pay: 2,525,253 - 2,500,000 = 25,253 USDC

Step 2: Calculate effective price

• You paid 25,253 USDC for 10 ETH
• Effective price: 25,253 / 10 = 2,525.30 USDC per ETH

Slippage:

• Expected: 2,500 USDC per ETH
• Actual: 2,525.30 USDC per ETH
• Slippage: 25.30 USDC per ETH (1.01%)

Key insight: Your trade moved the price because it changed the pool ratio. The larger your trade relative to pool size, the more slippage you experience.

Factors That Affect Slippage

1. Trade Size Relative to Pool Size

Most important factor: How big is your trade compared to the pool?

Example comparison:

Small trade (0.1% of pool):

• Pool: $1 million
• Your trade: $1,000
• Slippage: ~0.01-0.05%

Large trade (10% of pool):

• Pool: $1 million
• Your trade: $100,000
• Slippage: ~5-15%

Rule of thumb: Keep trades under 1% of pool size for minimal slippage.

2. Liquidity Depth

More liquidity = less slippage

Example:

• Pool A: $10 million TVL → Buying $10,000 ETH = 0.5% slippage
• Pool B: $100 million TVL → Buying $10,000 ETH = 0.05% slippage

Why: Larger pools absorb trades better. Your $10,000 trade is 0.1% of Pool A but only 0.01% of Pool B.

This is why liquidity providers matter—more liquidity means better prices for traders. Track your LP positions with PoolShark to see how your liquidity contributes to better execution.

3. Token Volatility

More volatile tokens = more slippage

Example:

• Stablecoin pair (USDC/USDT): Low volatility → Minimal slippage (0.01-0.1%)
• Blue-chip pair (ETH/USDC): Moderate volatility → Low slippage (0.1-0.5%)
• Volatile altcoin (ETH/PEPE): High volatility → High slippage (1-10%+)

Why: Volatile tokens have wider price ranges, so even small trades can experience more slippage.

4. Fee Tier Selection

Different fee tiers can have different liquidity depths

Example: ETH/USDC

• 0.05% tier: $100 million TVL → Low slippage
• 0.30% tier: $5 million TVL → Higher slippage

Why: Traders prefer lower fees, so 0.05% tier gets more liquidity. Trading on 0.30% tier might have more slippage due to less liquidity depth.

Important: Uniswap's router automatically finds the best route, but understanding fee tiers helps you understand why some swaps have more slippage.

5. Network Congestion

High gas prices don't directly cause slippage, but:

• Slower transactions = more time for price to move
• Front-running can increase effective slippage
• Network delays can cause price changes between submission and execution

Solution: Use Layer 2 networks (Arbitrum, Optimism) for faster execution and lower gas.

How to Calculate Slippage

Simple Calculation

Formula:

Slippage % = ((Actual Price - Expected Price) / Expected Price) × 100

Example:

• Expected price: $2,500 per ETH
• Actual price: $2,525 per ETH
• Slippage: ((2,525 - 2,500) / 2,500) × 100 = 1%

Price Impact on Uniswap

Uniswap shows price impact before you confirm:

Example display:

• Input: 10 ETH
• Output: 25,000 USDC
• Price impact: 1.2%
• Minimum received: 24,700 USDC (with 0.5% slippage tolerance)

Price impact = expected slippage based on current pool state.

Important: Price impact can change between when you see it and when transaction executes (especially during high volatility).

Setting Slippage Tolerance

What Is Slippage Tolerance?

Slippage tolerance is the maximum price movement you'll accept. If actual slippage exceeds your tolerance, the transaction fails.

Example:

• You set: 0.5% slippage tolerance
• Expected price: $2,500
• Maximum acceptable: $2,512.50 (2,500 × 1.005)
• If actual price > $2,512.50 → Transaction fails

Why it matters: Protects you from excessive slippage, but too low tolerance causes failed transactions.

Recommended Slippage Settings

Stablecoin pairs (USDC/USDT):

• Slippage tolerance: 0.1-0.5%
• Why: Very low volatility, tight spreads

Blue-chip pairs (ETH/USDC):

• Slippage tolerance: 0.5-1%
• Why: Moderate volatility, good liquidity

Mid-cap altcoins (ETH/INJ):

• Slippage tolerance: 1-3%
• Why: Higher volatility, less liquidity

Exotic/volatile pairs:

• Slippage tolerance: 3-5%+
• Why: Very high volatility, thin liquidity

Rule of thumb: Start with 0.5% for stablecoins, 1% for blue chips, 2-3% for altcoins. Adjust based on experience.

Common Mistakes

Mistake #1: Setting tolerance too low

• Problem: Transactions fail unnecessarily
• Solution: Increase tolerance slightly (0.1-0.2% more)

Mistake #2: Setting tolerance too high

• Problem: Accept excessive slippage
• Solution: Use recommended ranges above

Mistake #3: Not adjusting for volatility

• Problem: Same tolerance for all pairs
• Solution: Match tolerance to token volatility

Strategies to Minimize Slippage

Strategy 1: Use Larger Pools

Action: Trade on pools with more liquidity

How to check:

• Uniswap shows TVL for each pool
• Larger TVL = better execution
• Compare pools before trading

Example:

• Pool A: $1 million TVL → 1% slippage on $10,000 trade
• Pool B: $10 million TVL → 0.1% slippage on $10,000 trade

Benefit: 10x less slippage by choosing the right pool.

Strategy 2: Split Large Trades

Action: Break large trades into smaller ones

Example:

• Instead of: 1 trade for 100 ETH
• Do: 10 trades for 10 ETH each
• Benefit: Less price impact per trade

Tradeoff: More gas costs (10 transactions vs 1)

When to use: Large trades where gas savings don't offset slippage reduction.

Strategy 3: Use Limit Orders (Uniswap V3)

Action: Set target price and wait

How it works:

• Set limit: "Buy ETH if price drops to $2,400"
• Order executes automatically when price hits
• Benefit: No slippage (executes at target price)

When to use: You're not in a hurry and want specific price.

Strategy 4: Trade During Low Volatility

Action: Avoid trading during high volatility periods

Example:

• High volatility: Major news, market crashes → 2-5% slippage
• Low volatility: Stable markets → 0.1-0.5% slippage

Benefit: More predictable execution.

Strategy 5: Use Layer 2 Networks

Action: Trade on Arbitrum, Optimism, or Base

Benefits:

• Lower gas costs (can split trades more easily)
• Faster execution (less time for price to move)
• Often better liquidity (lower fees attract more LPs)

Example:

• Ethereum Mainnet: $50 gas + 1% slippage
• Arbitrum: $0.50 gas + 0.8% slippage (more liquidity)

Strategy 6: Check Multiple Routes

Action: Let Uniswap router find best path

How it works:

• Router checks all possible routes
• Chooses path with best price (lowest slippage)
• Often uses multi-hop routes

Example:

• Direct: ETH → LINK (1.5% slippage)
• Multi-hop: ETH → USDC → LINK (0.8% slippage)
• Router automatically chooses multi-hop

Benefit: Better prices without manual route finding.

How Liquidity Providers Affect Slippage

More Liquidity = Less Slippage

The relationship:

• LPs provide liquidity to pools
• More liquidity = larger pools
• Larger pools = less slippage for traders
• Better execution attracts more traders
• More traders = more fees for LPs

It's a virtuous cycle: LPs enable better trading, which generates more fees.

Why Fee Tiers Matter

Different fee tiers have different liquidity:

Example: ETH/USDC

• 0.05% tier: $100 million TVL → Low slippage
• 0.30% tier: $5 million TVL → Higher slippage

Why: Traders prefer lower fees, so 0.05% tier gets more liquidity. This means:

• Better execution on 0.05% tier
• More volume on 0.05% tier
• More fees for 0.05% tier LPs

This is why analyzing fee tier performance matters—volume distribution affects both slippage and LP returns. Start tracking with PoolShark to see which fee tiers are actually earning the most.

Concentrated Liquidity (V3) Impact

V3 concentrated liquidity:

• LPs choose price ranges
• Liquidity concentrated in active ranges
• Better capital efficiency
• Result: More liquidity depth at current price = less slippage

Example:

• V2: $10 million spread across full range → ~$5 million effective liquidity
• V3: $5 million concentrated at current price → Same effective liquidity with less capital

Benefit: V3 pools often have better execution despite lower TVL.

Real-World Slippage Examples

Example 1: Stablecoin Swap (Low Slippage)

Trade: Swap $10,000 USDC for USDT

Pool: USDC/USDT (0.01% tier)

• TVL: $50 million
• Your trade: 0.02% of pool

Result:

• Expected: 10,000 USDT
• Actual: 9,998 USDT
• Slippage: $2 (0.02%)

Why so low: Stablecoins have minimal price difference, large pool absorbs trade easily.

Example 2: Blue-Chip Swap (Moderate Slippage)

Trade: Swap 4 ETH for USDC (worth ~$10,000)

Pool: ETH/USDC (0.05% tier)

• TVL: $80 million
• Your trade: 0.0125% of pool

Result:

• Expected: 10,000 USDC
• Actual: 9,950 USDC
• Slippage: $50 (0.5%)

Why moderate: Good liquidity, but ETH price moves more than stablecoins.

Example 3: Altcoin Swap (High Slippage)

Trade: Swap $10,000 USDC for INJ tokens

Pool: ETH/INJ (0.30% tier)

• TVL: $8 million
• Your trade: 0.125% of pool
• Route: USDC → ETH → INJ (multi-hop)

Result:

• Expected: ~400 INJ
• Actual: ~385 INJ
• Slippage: 15 INJ (3.75%)

Why high: Lower liquidity, volatile token, multi-hop route adds complexity.

Example 4: Large Trade (Very High Slippage)

Trade: Swap $100,000 USDC for ETH

Pool: ETH/USDC (0.05% tier)

• TVL: $80 million
• Your trade: 0.125% of pool (but large absolute size)

Result:

• Expected: 40 ETH
• Actual: 38.5 ETH
• Slippage: 1.5 ETH (3.75%)

Why very high: Large absolute size moves price significantly, even with good liquidity.

Solution: Split into smaller trades or use limit orders.

Slippage vs Price Impact

Price Impact

Price impact is the expected slippage shown before you trade.

Example:

• Uniswap shows: "Price impact: 1.2%"
• This means: Expected slippage is 1.2%
• Based on: Current pool state

Important: Price impact can change between when you see it and when transaction executes.

Actual Slippage

Actual slippage is what you actually experience.

Example:

• Price impact showed: 1.2%
• Actual slippage: 1.5%
• Difference: Price moved during transaction delay

Why difference occurs:

• Network delays
• Other trades executed first
• Price volatility
• Front-running

Solution: Use Layer 2 networks for faster execution, reducing delay between seeing price impact and execution.

Front-Running and MEV

What Is Front-Running?

Front-running is when someone sees your transaction and executes a trade before yours to profit from the price movement.

Example:

• You want to buy 100 ETH
• Front-runner sees your transaction
• Buys ETH first (pushes price up)
• Your transaction executes at higher price
• Front-runner sells immediately (profits from your slippage)

Impact: Increases your effective slippage.

How to Minimize Front-Running

1. Use Private Transactions:

• Some wallets offer private transaction options
• Hides your transaction until execution
• Reduces front-running risk

2. Use Layer 2 Networks:

• Faster execution = less time for front-running
• Lower gas = less incentive for front-runners
• Often better execution

3. Set Appropriate Slippage:

• Don't set tolerance too high
• Protects you from excessive front-running impact

4. Split Large Trades:

• Smaller trades less attractive to front-runners
• Reduces front-running risk

Conclusion: Master Slippage for Better Trading

Understanding slippage helps you:

• Trade more efficiently (minimize costs)
• Choose better pools (better execution)
• Set appropriate tolerance (avoid failed transactions)
• Understand LP value (why liquidity matters)

Key takeaways:

• Slippage is difference between expected and actual price
• Larger trades = more slippage
• More liquidity = less slippage
• Set slippage tolerance based on token volatility
• Use strategies to minimize slippage (larger pools, split trades, Layer 2)

For traders: Understanding slippage helps you trade more efficiently and choose better execution venues.

For liquidity providers: Your liquidity directly impacts slippage—more liquidity means better execution for traders, which generates more volume and fees. Track your LP positions with PoolShark to see how your liquidity contributes to better trading and higher returns.

Want to learn more? Check out our guides on how Uniswap works, AMM mechanics, or liquidity pool returns. Get started with PoolShark to track your positions and optimize returns.