Slippage & Liquidity Wallets

What is Slippage?

Slippage is the difference between the expected price of a trade and the actual price at which the trade is executed. When you buy or sell a token, especially one with low liquidity, the price can shift slightly while your transaction is being processed. That small difference is called slippage.

In decentralized finance (DeFi), slippage occurs because trades happen on automated market makers (AMMs) where prices are determined by supply and demand in liquidity pools. The larger your trade relative to the pool size, the more slippage you'll experience.

Liquidity Provision & Earning Potential

You can create a smart contract wallet that provides liquidity to decentralized exchanges (like Uniswap or PancakeSwap). By depositing your crypto pair (for example, ETH/USDT or BNB/BUSD), you're helping others trade smoothly with minimal slippage.

In return, you earn a fee every time a trade happens using your liquidity. The higher the trading volume and liquidity provided, the more you earn from those fees. It's a passive investment that doesn't require active trading, just liquidity provision.

Balance is Key: When providing liquidity, you must deposit equal values of both tokens in the pair. For example, if you're providing ETH/USDT liquidity, you need to deposit $500 worth of ETH and $500 worth of USDT. This balanced approach ensures the pool functions properly and you earn proportional fees.

The beauty of liquidity provision is that it's completely automated. Once you deposit your funds, the smart contract handles everything - calculating fees, distributing rewards, and maintaining the pool balance. You simply watch your earnings grow over time.

Understanding Liquidity Pairs

A liquidity pair consists of two tokens that traders can swap between. Popular pairs include ETH/USDT, BTC/USDT, and SOL/USDC. When you provide liquidity to a pair, you're essentially becoming a market maker, enabling others to trade these tokens seamlessly.

Why Balance Matters: Maintaining equal value in both tokens is crucial because it ensures fair pricing and prevents arbitrage opportunities that could drain the pool. If the ratio becomes imbalanced, the automated market maker adjusts prices to incentivize traders to restore balance.

Your earnings come from trading fees (typically 0.3% per trade) that are distributed proportionally to all liquidity providers in the pool. The more liquidity you provide and the more trading volume the pair experiences, the higher your passive income potential.