What is slippage and how does it play into your DeFi journey?
When you make your first transaction in DeFi, it can be quite daunting to go through all of the different options that a decentralized exchange (DEX) has. The most confusing of all is the slippage. What is slippage exactly? Slippage is essentially the "breathing room" that you are allowing the transaction to make before the transaction declines due to the price you wanted becoming unavailable. This usually occurs when you are acting within a volatile market, with the biggest volatility on Binance Smart Chain (BSC) coming from things such as launches of new tokens, as they are expected to see prices changes very quickly once they begin trading.
An example of this is that if you allow a 2% slippage/price change, meaning if you made a $1 purchase and the price changed by 2%, the best price it could accept would be $0.98 (a 2% difference).
However, you might find yourself trying to perform a transaction that has low volatility and the prices fairly stagnating, but your transaction is declining. Why would that be? With the rise of DeFi, it has brought something called tokenomics to the table. Tokenomics is a process in which your chosen token has a fee (on top of gas) that it takes on each transaction. An example is SafeMoon, where we currently have:
10% Buy/Sell Fee
4% is split proportionally among all holders based on the holding percentage
3% to Liquidity Pool
2% to Burn
1% to Ecosystem Growth Fund
This means with tokens that have tokenomics, you will need to increase your slippage to cater to the tokens fee structure that they have in addition to a recommended 2% for volatility. For SafeMoon, you would have the following:
Token Tax (10%) + 2% = 12% Slippage Setting
Now, please understand that the slippage is NOT a tax. Slippage is the "breathing room" you're allowing the Swap to have when trying to get the best price/value. With the likes of SafeMoon tokenomics, the slippage needs to include the tokenomics fee of 10% because the system is detecting an instant 10% deduction on the value meaning without the slippage being set your transaction will fail.
An example of a failed transaction via bscscan.com
The Swap will always try its best to give you the best value based on the slippage parameters that are set but sometimes the market is simply too volatile and requires repeated attempts to create a successful transaction.
SafeMoon SWaP Automation
With SafeMoon and its partner program, the SafeMoon Swap is able to take away a lot of the heavy labor of trying to set the correct slippage. When a partner is listed on the SafeMoon Swap, SafeMoon is able to automatically set the slippage to the token you're trying to transact with. This does include any tokenomics fees that might apply. In addition to this, it also calculates with multi-swap, meaning if you swap from one token (5% tokenomics) to another token (12% tokenomics) it will set the slippage (20%) to include both tokens' values to maintain the best price. It is important to know that even with this automation of setting a slippage value it is a static value for your transaction; it doesn't detect volatility. So if there is a period of high volatility, you might manually need to increase the slippage above the automatic setting to get an approved transaction.
Now that you are aware of what slippage is, why not check out our guide on gas: