Introduction
Swaps are the primary method for interacting with the Uniswap protocol. Users simply select an ERC-20 token they own and the token they wish to exchange it for. The protocol executes the trade by converting the owned tokens into a proportional amount of the desired tokens, deducting a swap fee that rewards liquidity providers.
Key Note: Web interfaces (like Uniswap’s frontend) may introduce additional permissions or execution variations compared to direct protocol interactions.
Unlike traditional order-book trading, Uniswap swaps execute against a pooled liquidity model, where liquidity providers earn fees based on their contributed capital.
Price Impact
In order-book markets, large orders can deplete liquidity at specific price points, causing execution prices to shift. Uniswap’s automated market maker (AMM) design creates a similar effect—price impact—where the relative value of tokens adjusts during a swap, leaving the final price between the starting and ending rates.
Factors Influencing Price Impact:
- Liquidity Depth: Higher liquidity at a price point reduces price impact.
- Swap Size: Larger swaps amplify price impact, especially in low-liquidity pools.
The Uniswap interface displays real-time price impact estimates and warns users of significant deviations.
Slippage
Slippage refers to price changes that occur while a transaction is pending on Ethereum. Since transaction execution depends on gas fees, delays can lead to shifted prices.
Managing Slippage:
- Set a slippage tolerance (e.g., 1%). If the execution price exceeds this range, the swap fails.
- Comparable to a delayed market order in traditional trading, where final prices may differ from initial expectations.
👉 Learn how to optimize slippage settings
Safety Checks
Uniswap integrates protections to mitigate unfavorable swap conditions:
Expired Transactions:
- Swaps automatically cancel if pending beyond a user-set deadline, preventing prolonged exposure to price volatility.
Insufficient Output Amount:
- Cancels swaps if the received token amount deviates beyond the slippage tolerance.
FAQ
Q: Why does my swap fail due to high slippage?
A: This occurs when market prices shift drastically during transaction pending. Adjust slippage tolerance or reduce swap size.
Q: How does liquidity affect swap prices?
A: Low liquidity pools incur higher price impact. Check pool stats before swapping.
Q: Can I avoid price impact entirely?
A: No—it’s inherent to AMMs. However, splitting large swaps into smaller transactions can minimize impact.
👉 Explore advanced swapping strategies