// GLOSSARY -- DEFI

What is Slippage?

1 min read Updated

Slippage is the difference between the expected price of a trade and the actual execution price — caused by pool liquidity depth, trade size, and price movements between submission and execution.

WHY IT MATTERS

Slippage is the gap between what you expect and what you get. On a DEX, large trades relative to pool depth cause more slippage — the constant product formula means each unit bought raises the price of the next unit.

Slippage tolerance settings let you define the maximum acceptable deviation. If actual slippage exceeds your tolerance, the transaction reverts. Setting it too low means transactions frequently fail; too high means you accept worse prices.

Slippage protection is critical for agent-executed trades. Without proper limits, an agent might execute trades at terrible prices, especially in low-liquidity pools or during high volatility.

HOW POLICYLAYER USES THIS

PolicyLayer can enforce slippage limits on agent trades — ensuring agents don't execute swaps with excessive price impact. This protects against both accidental large-trade slippage and potential manipulation of low-liquidity pools.

FREQUENTLY ASKED QUESTIONS

What's a normal slippage tolerance?
0.5-1% for major pairs on liquid DEXs. 1-5% for smaller tokens. >5% suggests very low liquidity or large trade size relative to the pool. Always check before confirming.
How to minimize slippage?
Use DEX aggregators (split trades across pools), trade on L2s with deeper liquidity, split large trades into smaller ones, or use limit orders where available.
What is sandwich attack slippage?
An MEV attack where a searcher front-runs your trade (buying before you, raising the price) and back-runs (selling after, profiting from your slippage). Private mempools help prevent this.

FURTHER READING

Enforce policies on every tool call

Intercept is the open-source MCP proxy that enforces YAML policies on AI agent tool calls. No code changes needed.

npx -y @policylayer/intercept
github.com/policylayer/intercept →
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