Slippage

You set a trade at $2,000. It executes at $1,940. That $60 gap is slippage — and in crypto lending, it can hit you when you're already losing.

Slippage happens because crypto markets move fast and liquidity is uneven. The price you see when you click "confirm" isn't always the price the blockchain settles at. For borrowers near a liquidation threshold, that gap can mean the difference between a partial loss and a wipeout.

How It Works

Every trade on a decentralized exchange (DEX) pulls from a liquidity pool — a fixed reserve of tokens. The bigger your trade relative to that pool, the more you move the price against yourself. A $500 swap barely nudges it. A $500,000 swap can shift the execution price by several percent.

Here's the concrete version. Say your collateral is ETH priced at $2,000, and your loan gets liquidated. The liquidator sells your ETH into a pool to repay the debt. If that pool is thin, the sale itself drives the price down — maybe to $1,880 by the time the last token clears. Your collateral just lost 6% more than the market price suggested.

Most lending protocols set a liquidation bonus — typically 5–10% — to incentivize liquidators. Slippage eats into that buffer. If slippage exceeds the bonus, the protocol itself can end up undercollateralized, meaning bad debt that someone else absorbs.

Why It Matters

In normal markets, slippage is a minor annoyance. In a fast crash — when everyone is being liquidated at once — it compounds. Thin liquidity plus forced selling plus price volatility is a bad combination that moves faster than any human can react to.

What to Watch

The common mistake is checking your loan-to-value (LTV) ratio against the current price and feeling safe. What borrowers miss is that the liquidation price and the actual execution price are two different numbers. If your collateral is a low-liquidity token, the liquidation itself moves the market — and your effective recovery is worse than your dashboard showed.