How does Bebop offer zero slippage and what does this mean?
If you have been following any of the buzz around Bebop’s recent launch and the core features that we offer, you’ve certainly seen our messaging that “the price you see is the price you get.” But what does this mean and how does this really benefit you? One of the main differentiators between Bebop and other decentralized trading platforms is that our users trade without any unpredictable slippage. Not 0.01%. Zero.
In the following article, we will explain what slippage is, why DeFi users want to avoid it, and how Bebop alleviates unpredictable slippage for trading on our platform.
What is slippage?
TL;DR: Slippage is the difference between the price you expect and the price that you end up executing at. It can be positive, but more often than not this is negative, in which case you end up with a less favorable outcome than was initially quoted.
Let’s jump right in and cover what we mean by slippage.
Any of you seasoned traders out there should be very familiar with this concept. You know this journey. You navigate to [insert exchange name here] to conduct a simple swap, only to submit the order and end up receiving a different price than you were initially quoted or had expected. It happens. This difference between the expected price of the order and the price that you end up with once the order actually executes is slippage.
On most trading platforms with slippage, you will see “Price Impact” or “Slippage” quoted in the interface — this is a prediction for how your order (and others) will impact the asset’s price and thus how your trade may be impacted as it is initiated. You can also often adjust your “Slippage Tolerance” to account for how much risk you are willing to take on if the price of the asset increases or decreases between the time when you submit the order and when the order is actually filled.
In general, there are two types of slippage users will see: positive and negative.
Slippage can be beneficial if you are a buyer and the price of the asset you are trying to purchase drops after you submit the order. Here, you would be pleasantly surprised by getting a better price than you expected. This is called positive slippage. But price uncertainty is not a factor that most traders want to add to the equation and, more often than not, users see a different version of events in which they experience the bleaker impact of slippage.
On this other, less favorable side, a buyer will experience negative slippage. For whatever reason, the price of the asset being purchased has increased and you are receiving less of the asset at a higher price than expected. This is the most common experience we see when users are referring to slippage in DeFi. And it’s even more likely to occur if one is trying to trade a newer, less liquid token — especially at a token launch.
The above can be also flipped to understand the perspective of a seller conducting a swap on a decentralized trading platform. As a seller, you will experience positive slippage if the price increases and negative if the price decreases in the time between order submission and completion.
Why does slippage occur?
TL;DR: Some slippage can be predicted and calculated due to the nature of AMMs and their liquidity pools. But other trades will also impact an asset’s price and these can be completely unpredictable. No trader wants this uncertainty when trading in DeFi (or anywhere else for that matter).
To better explain why slippage occurs, I would like to break it down into two buckets: predictable and unpredictable slippage.
To comprehend predictable slippage, you first need to understand liquidity pools. The most common approach employed by these pools is the formula x y = k. Where x is the quantity of the first asset, a, in the pool and y is the quantity of the second asset, b, in the pool. The pool will seek to keep k constant, meaning that if you were to spend n of asset b to buy asset a, the amount you will receive in asset a is:
This means the amount you receive increases logarithmically as the size of n increases linearly and the effective cost per token increases. This is known as slippage.
Predictable slippage occurs organically due to the nature of the curve on these liquidity pools. The price of the asset increases as the size of the trade increases, thus reducing your buying power. The opposite is true for sellers, where the price decreases as they offload an asset, thus reducing their selling power.
Because these liquidity pools are mathematically established, the potential impact of your trade can be calculated. This is how these platforms are able to show you estimates for price impact/slippage in the user interface. Still, this is only one way in which the price is impacted. It is the less predictable slippage that will really catch you off guard.
So, how else can you experience slippage? While the predictable slippage I’ve described pertains majorly to your own trade and how the clip size will impact the price, the unpredictable slippage has more to do with other players in the market. This slippage occurs when someone else beats you to the trade or liquidity is drawn from the pool before your trade is completed. Either way, these scenarios impact the price of the crypto asset you are trying to trade and can have a significant impact on what you are receiving, even after the order has been placed.
How does Bebop deliver trades with no slippage?
It’s no secret that crypto can be volatile. The markets change quickly and prices often fluctuate depending on trading volume and other activities.
But here’s Bebop.
We can’t control the volatility of the market, but we can promise you that the price you see quoted on our trading platform is the price that you will execute at. Bebop utilizes private market makers and a request-for-quote (RFQ) model, where the market maker will hold the quote for you for 10 seconds.
This means that you won’t encounter any of the unpredictable slippage that you would traditionally see on other platforms.
Join the waitlist!
Try trading with the benefit of zero slippage. Join our waitlist at bebop.xyz to get the chance to be one of the first whitelisted users to trade on the platform! Bebop will become available to the greater public during the course of summer 2022.
Stay tuned for announcements and surprises on Twitter and join our Discord to stay connected with the community.
Bebop. Make the most out of every exchange.
