DeFi
Price Impact
The change in token price caused by a trade execution, especially significant on AMMs with lower liquidity.
Last Updated
2026-03-29
What is Price Impact?
Price impact is the change in an asset's price caused directly by a trade, particularly on decentralized exchanges. Larger trades relative to a pool's liquidity lead to progressively worse execution prices.
How does Price Impact work?
- AMMs use a formula like
x * y = kto determine token prices based on pool ratios. - Buying a large amount of Token A shifts the ratio, pushing its price up along a bonding curve.
- The larger the trade relative to total liquidity, the worse the final execution price.
- The new price persists as the starting point for the next trade.
Why does Price Impact matter?
Large trades in low-liquidity pools can silently cost traders 5 to 20 percent or more. Understanding it drives the use of aggregators and TWAP bots that split orders to minimize losses.
Key features of Price Impact
- Scales directly with trade size relative to pool liquidity
- Deterministic calculated from the AMM formula before execution
- Distinct from slippage, which is price change while a transaction is pending
- Higher in low-TVL pools
Examples of Price Impact
Buying 100 dollars of a popular token on Uniswap may have under 0.01 percent impact due to deep liquidity. Buying 10000 dollars of a new meme coin in a 50000 dollar pool could cost 20 percent or more in impact alone.