Curriculum·J302 Swap Execution: AMMs, MEV, and DEX Architectures·about 43 min
Price impact and slippage
By the end of this lesson you can
- →Separate pool price, price impact and slippage, which are three different costs
- →Explain what a slippage tolerance authorizes, since it reduces nothing
- →Determine which invariant a pool uses before estimating the cost of a trade
- →Choose a tolerance by pricing a reverted transaction against a bad fill
Junior · enrolled learners
This lesson opens with The Curve stETH pool, June 2022.
- What happened
- Lido's stETH was backed close to one to one by staked ETH, but withdrawals were not yet enabled, so the only way out was to sell it on a secondary market, and the deepest by far was the Curve stETH and ETH pool, which Kaiko data put at 98.5 percent of decentralized exchange stETH volume. After Terra collapsed in May 2022, large holders exited. On 12 May Three Arrows Capital removed $400M of liquidity (128,000 stETH and 73,000 ETH) from the pool in a single transaction and Celsius removed $380M the same day, per Nansen. Alameda Research sold about $88M of stETH and Amber pulled out $160M in early June, per Kaiko. By mid-June the pool's value had fallen from $4.6B to $621M and it held roughly 492,000 stETH against 111,000 ETH, about 82 percent stETH, while stETH traded 5 to 6 percent below ETH, an asset whose backing had not changed.
- The decision point
- Nothing about stETH's redemption value moved. What moved was the ratio of two balances in one pool, and per J302-01 that ratio is the price. Holders reading a 5 to 6 percent discount as a market judgment on Lido were reading a statement about who had recently sold, which is a different fact, and the gap was not slippage, could not be reduced by any setting, and was already in the price before anybody submitted a transaction.
What you will be able to answer
- →What are the three separate costs in a swap?
- →What does a slippage tolerance do?
- →Why can you not use the constant product formula on a Curve pool?
- →What is the trade when choosing a tolerance?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://www.coindesk.com/business/2022/06/29/nansen-casts-blame-for-steth-de-peg-on-terra
- https://fortune.com/2022/06/17/steth-token-trading-pool-crypto-investors/
- https://blog.uniswap.org/minimize-slippage-on-swaps
- https://forklog.com/en/sandwich-attack-victim-swapped-732583-for-18636/
Confidence high·Volatility medium·Reviewed 2026-08-06·Owner unassigned
Contested
Whether the stETH discount was purely a liquidity phenomenon or also reflected genuine doubt about withdrawal timing is contested and both were present. The lesson's claim is narrower and is not contested: the pool price is a function of the pool's reserves, so a skewed pool reports a discount whatever the market believes.
The constant product comparison in the worked example is a deliberate counterfactual to show what the stableswap invariant is doing. Curve did not use constant product for this pool and the 0.226 figure is not a price anybody was ever quoted.
Pool figures are from Fortune's 17 June 2022 report citing Kaiko and on-chain data (about 492,000 stETH against 111,000 ETH, a 5 to 6 percent discount by early June) and from Nansen's report as quoted by CoinDesk on 29 June (Three Arrows removing $400M, being 128,000 stETH and 73,000 ETH, on 12 May). Fortune describes Three Arrows as having redeemed about 400,000 ETH and stETH in May; we use Nansen's transaction-level figure. CoinDesk put the discount at 4 percent on 29 June, so the exact discount depends on the day.
An earlier version of this lesson said a single whale removed 84,000 ETH from the pool during June 2022. That withdrawal happened on 24 November 2022, after the Merge, and has been removed.