Slippage Explained: A Guide for Token Creators
Slippage is the difference between a trade's expected price and its actual execution price. It's a core concept for token creators launching on decentralized exchanges. Understanding slippage helps you set better launch parameters and manage holder expectations.
Key Points
- 1Slippage is the price difference between order placement and execution.
- 2High volatility and low liquidity are the main causes of slippage.
- 3On AMMs like Raydium, slippage is tied directly to the liquidity pool size.
- 4Setting a 1-3% slippage tolerance is common for established tokens.
- 5New token launches often require higher slippage settings (5-10%+).
What is Slippage? The Core Definition
The gap between expectation and reality in a trade.
Slippage occurs when you place a trade at one price, but it gets filled at a slightly different price. This is not an error or a fee; it's a natural result of how decentralized markets operate. The price of an asset can move between the moment you submit your transaction and when it's confirmed on the blockchain. On automated market makers (AMMs), slippage also accounts for the price impact of your trade on the liquidity pool.
For token creators, the verdict is clear: You must understand slippage. It directly impacts your token's trading experience. High, unexpected slippage can frustrate buyers and sellers, while properly managed slippage settings create a smoother market.
Why Slippage Happens: Two Main Drivers
Imagine trying to buy a large quantity of a token with only a small pool of liquidity available. Your buy order itself will push the price up. That price shift is slippage. Here’s the breakdown:
- Market Volatility: If a token's price is moving rapidly—common during a new launch or major news—the price can change significantly between your transaction being signed and being included in a block. Solana's fast block times (400ms) reduce this, but it doesn't eliminate it during high network congestion.
- Low Liquidity: This is the primary cause for new and small-cap tokens. If a liquidity pool only has $10,000, a $1,000 buy order represents a 10% purchase of the available assets. The AMM's pricing formula (like the constant product formula x*y=k) will cause a large price move to fulfill that trade, resulting in high slippage.
For a deeper look at how liquidity affects your project, read our guide on liquidity pools.
How to Calculate and Understand Slippage
A simple three-step process to see the impact.
You don't need complex math; most DEX interfaces show it. Here's what's happening behind the scenes:
Step 1: Identify Expected Price This is the quoted price per token you see before confirming the trade, based on the current pool reserves.
Step 2: Review Execution Price After your trade, check the actual price you paid per token (total cost / tokens received).
Step 3: Apply the Slippage Formula
Slippage % = ((Expected Price - Execution Price) / Expected Price) * 100
Example: You expect to buy 100 tokens for 1 SOL each (100 SOL total). Due to low liquidity, the trade executes at an average of 1.05 SOL per token, costing you 105 SOL.
Slippage = ((1.00 - 1.05) / 1.00) * 100 = -5% You experienced 5% negative slippage (paid more). Positive slippage is possible if the price moves in your favor before execution.
Setting Slippage Tolerance: A Creator's Guide
A slippage tolerance is the maximum price movement you accept. If the actual slippage exceeds your set tolerance, the transaction fails (and you pay gas). Setting this correctly is crucial.
- For Stable, Liquid Tokens (SOL, USDC): 0.1% - 0.5% is often sufficient. The market is deep.
- For Established Meme/Community Tokens: 1% - 3% is a standard range to account for normal volatility.
- For New Token Launches: This is where it gets critical. At launch, liquidity is low and volatility is high. Tolerances of 5%, 10%, or even higher are common. Setting it too low means potential buyers' transactions will repeatedly fail, killing momentum.
- A Special Case - Taxed Tokens: If your token has a 5% buy/sell tax (like many Token-2022 tokens), you must set slippage ABOVE the tax rate (e.g., 5.1% or 6%). Otherwise, the AMM calculates the price impact excluding the tax, and the transaction will revert.
- Stablecoins: 0.1-0.5%
- Established Tokens: 1-3%
- New Launches: 5-10%+
- Taxed Tokens: > Tax %
Slippage vs. Fees: Don't Confuse Them
New creators often mix up slippage and fees. They are separate costs that affect a trader's total expense.
| Aspect | Slippage | Trading Fees |
|---|---|---|
| What it is | Price movement due to market mechanics. | Explicit charge for using the platform. |
| Who gets it | Other traders in the pool (through better/worse prices). | The DEX (e.g., Raydium) and sometimes the token project. |
| Control | Set by user as a tolerance; actual amount varies. | Fixed percentage (e.g., 0.25% on Raydium). |
| Example on $100 trade | You might pay $102 due to 2% slippage. | You will pay $0.25 as a 0.25% fee. |
The key difference: Fees are predictable. Slippage is market-dependent. On Spawned, the creator revenue of 0.30% per trade is a fee, not slippage. Learn more about our fee structure.
Managing Slippage During Your Token Launch
Your launch day is a slippage extreme. The initial liquidity pool is small, and buy pressure can be immense. Here’s how to guide your community:
Educate Buyers: Tell them to expect high slippage initially and to set tolerance accordingly (e.g., 10%). This prevents frustration from failed transactions.
Initial Liquidity Matters: The more SOL/other asset you add to the initial pool, the lower the starting slippage will be for early buyers. A pool with 50 SOL will have less slippage than one with 5 SOL for the same size buy order.
The Slippage Curve: Slippage decreases as liquidity grows. The first $1,000 buy might see 15% slippage. Once the pool hits $50,000, that same $1,000 buy might only see 2% slippage. Your goal is to grow liquidity to stabilize price movement.
Planning your launch? Our launch checklist covers liquidity and slippage planning.
Launch Your Token with Slippage Insights
Understanding slippage transforms you from a hopeful creator into a prepared founder. You can set realistic expectations, guide your community, and build a more stable trading environment from day one.
Spawned’s AI builder and launchpad are designed with these realities in mind. We provide the tools and information to configure your token—including considerations for taxes and initial liquidity that directly affect slippage—for a more controlled launch.
Ready to launch with clarity? Start Building Your Token Now.
Related Terms
Frequently Asked Questions
Not always. While it usually means paying more (or receiving less) than expected, you can also experience positive slippage. If the market price moves in your favor between transaction submission and execution, you might get a better price. Slippage is a measure of price movement, not inherently a cost.
Your transaction will likely fail (revert). The blockchain will cancel the trade because the required price shift to complete it exceeded your maximum allowed limit. You will still pay the network fee (gas) for the failed transaction. This is a common frustration for buyers of new tokens with low liquidity.
A slippage attack is a malicious tactic. A bot watches the mempool for large pending trades. It front-runs the large trade by buying the same asset first, driving the price up due to slippage, and then sells into the victim's inflated trade for a profit. Using private transactions (like Jito bundles on Solana) and avoiding publicized, massive single trades can mitigate this risk.
Solana's fast block time (~400ms) generally reduces slippage caused by pure price volatility compared to slower chains. The gap between transaction submission and confirmation is smaller, giving the market less time to move. However, slippage from low liquidity (the price impact of your trade) remains the same regardless of blockchain speed.
For most users, manual control is better. 'Auto-slippage' features on some wallets may set tolerances higher than needed, costing you money, or lower than needed, causing failed trades. For trading established tokens, start with 1% manual tolerance. For new launches, follow the project's recommended setting, which is often 5% or more.
It makes success more likely but doesn't guarantee it. If the market is extremely volatile or liquidity disappears suddenly, the price shift could still exceed even a high tolerance like 20%. The setting is a maximum limit, not a fixed outcome.
They are directly linked for tokens with transaction taxes. If your token has a 5% buy tax, a user swapping 1 SOL for tokens only receives tokens for 0.95 SOL worth (after tax). The AMM calculates price impact based on the full 1 SOL, but the actual swap is for 0.95 SOL. To account for this mismatch, slippage must be set above the tax rate (e.g., 5.1%).
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