Slippage and Rates
The initial rate is calculated using the DEX price quote at the time of the route building. However, on decentralized exchanges, the problems of price slippage and price impact are very acute.
These problems are especially typical for cross-chain exchange, where atomicity is not guaranteed, and both price slippage and price impact get out of control.
Bridgeless cross-chain swaps
Direct cross-chain transactions with a fixed rate eliminate the effects of price slippage, thus allowing users to avoid losses during the exchange. Kinetex implements such transactions by using bridgeless cross-chain swaps (namely, its own Kinetex atomic cross-chain exchange protocol and integration with Hashflow). The Kinetex algorithms always give priority to building routes through them.
Slippage tolerance and gas level
In the case of building routes through traditional sources of liquidity, Kinetex has an effective tool for handling slippages. This feature, called "Slippage Tolerance", can be accessed within the swap settings and allows users to set the slippage percentage they can tolerate during the trade. The recommended minimum slippage is 2-4%, and the default setting is 2%.
Another important setting is the gas level. It must be taken into account that a low gas level increases the chance of a transaction not being included in the next block and, consequently, the slippage being unsuitable. Therefore, we recommend setting at least a "Medium" gas level.
Intermediate exchange assets
To reduce the impact of these metrics on a trade, Kinetex prioritizes routes with the same asset or stablecoins as intermediate assets. With such an approach, when the exchange fails within the established slippage tolerance, a user's asset is fixed in the original asset or in one of the stablecoins, reducing the risk of volatility and significant price changes throughout the exchange process.
Failed Transactions
A transaction will fail if the received amount of tokens at some stage does not pass the set slippage tolerance. If it happens at the first step of the exchange, the original asset will be returned.
In other cases, the exchange amount will be returned fully in one of the stablecoins. Even though gas fees for failed transactions cannot be returned, such a method prevents a further loss of funds.
Additionally, Kinetex introduces a deadline parameter during which a failed exchange will be automatically retried by relay nodes when better market conditions occur. The default deadline time is set to 20 minutes.
Reducing risks
The influence of price slippage and price impact is significantly reduced in the following cases:
exchange through bridgeless cross-chain exchange protocols;
exchange within the same network when using the Kinetex Advanced Router;
the exchange route includes no more than two networks, while the bridge is the last exchange point;
bridging: exchange of stablecoins or same assets in the different networks (for example, COMP.ETH -> COMP.BNB, USDC.MATIC -> USDC.ETH).