Price Impact
The change in an asset’s price caused by the execution of a trade relative to its size and available liquidity.
What is Price Impact?
Price impact in DeFi AMMs measures how a trade alters the market price due to pool reserve shifts, often leading to slippage. For a $100,000 trade in a $1 million liquidity pool, impact could exceed 5%, as calculated by (trade size / (pool size + trade size)) * 100%. This is distinct from slippage, which includes market volatility.
In CPMMs, impact follows a hyperbolic curve; trading 10% of a pool’s liquidity incurs about 11.1% impact, as demonstrated in ETH/USDC examples where larger swaps push prices exponentially higher.
To mitigate, traders split orders or use aggregators like KyberSwap, which route across pools for better execution, reducing impact in fragmented liquidity environments.
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Price Discovery
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