What is a DEX Aggregator and why do I need it ?

A DEX (Decentralized Exchange) aggregator is a platform or protocol that connects multiple DEXs and their liquidity pools, allowing users to access and trade various cryptocurrency assets more efficiently. DEX aggregators aim to solve some of the main challenges associated with using individual DEXs, such as liquidity fragmentation, high slippage, and the need to navigate multiple interfaces.

What is Slippage ?

Slippage refers to the difference between the expected price of a trade and the price at which the trade is executed. It occurs due to the time taken between the decision to execute a trade and the actual execution of the trade. In volatile markets, the price may change significantly during this time, leading to a difference between the expected price and the executed price. Slippage can work both in favor of or against a trader, depending on market conditions. It is usually expressed as a percentage of the order size.

What is Price Impact ?

Price impact refers to the change in the price of an asset when a significant amount is being traded. It is the result of market adjusting it's prices to accommodate the new supply or demand introduced by the trade. Price impact is more related to the size of the order and the available liquidity depth of the market. When a large order is placed in a market with low liquidity, it can cause a significant price change, which is known as price impact.

In decentralized OTC markets like DEXs, this creates opportunities for arbitrage. It is usually in a traders best interest to minimize price impact for their swaps. The higher the price impact, the higher the average fill price of the trade will be.

What is the difference between Price Impact and Slippage ?

The two terms often gets mixed up. Slippage is the difference between the expected and executed price of a trade due to market volatility and the time taken to execute the trade, while price impact is the change in the price of an asset due to the size of the order and the liquidity of the market. Price Impact is what moves the markets while slippage is often related to inefficiencies resulting from trade execution

What does multi-hop swap mean ?

Multi-hop swap refers to a transaction in which a user exchanges one cryptocurrency for another through multiple intermediate steps, involving different tokens or trading pairs. This process is typically used when direct trading pairs between the desired input and output assets are not available on a decentralized exchange (DEX) or when the user wants to optimize their trades for better prices or lower slippage.

In a multi-hop swap, the user initiates a trade by swapping their initial token for an intermediate token, which is then swapped for another intermediate token, and so on, until the final desired token is obtained. Each swap in the sequence is executed on a different trading pair or DEX, depending on the available liquidity and the best prices at the time of the trade.

Multi-hop swaps are commonly facilitated by DEX aggregators, which search for the best trading routes across various DEXs to execute the complex swap. These platforms help users navigate the fragmented liquidity landscape of DEXs and optimize their trades for better efficiency, lower slippage, and potentially better prices.

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