Price decline is a relatively stable risk in the trading process of centralized trading centers (CEX) and decentralized trading centers (DEX). This also happens when an investor orders at a different type of price than the estimated price. This may be due to high uncertainty, low liquidity or order implementation delay, resulting in a significant difference between the estimated buying and selling price and the actual buying and selling price.

The DEFI ecosystem gives priority to blockchain technology and transparency, so the problem of price slip is more obvious than that of centralized service platforms.

Price declines for CEX and DEX

At CEX, the price decline is caused by a variety of factors such as low liquidity, high uncertainty and deep orders. CEX is a channel to connect buyers and sellers of digital currency, and order is a core element.

The order book is the trader's record of all buy and sell orders in a particular digital currency. It indicates the quantity and price of each order, and the order is sorted by price. For example, when someone wants to buy a $1000 BTC (BTC) and another trader wants to sell its BTC for a similar amount, the order will be matched in the order. The sales market order is executed immediately at a better price, while the price limit order is carried out at the price marked by the trader during pairing.

Order depth is determined by the total number of buy and sell orders at different price levels. Market depth is the main index to test the liquidity of all service platforms. Therefore, because of the correlation between buy and sell orders, the deeper the market, the lower the probability of price decline.

In real life, liquidity is given not only by regular buyers and sellers, but also by market makers, who submit orders on both sides and profit from the bid-ask spread.

Large and medium-sized CEX can be said to have huge liquidity, which minimizes the risk of price decline, because even orders can still be carried out.

Because orders are managed by dense physical lines, DEX does not have this at all. As a result, they use fully automatic market-making (AMM), which means that every pair of digital currencies has a financing pool to cover both buyers and sellers. Liquidity pools are given by liquidity service providers, who are encouraged to lock in the equivalence of a pair of digital currencies. DEX's transaction fees are assigned to all liquidity service providers, who play market-making personas.

Although there are many kinds of AMM solid models, the multiplication formula calculation of variable definitions is the most common one. Because it must maintain a relatively stable equilibrium among the foreign exchange and currency components, standardized AMM is prone to price decline because of price and other effects, which is vulnerable to the small harm of liquidity pool size and order size. When a trader places a buy or sell order, the AMM optimization algorithm calculates the new price based on the change in the proportion of tokens in the pool. Low liquidity can lead to a sharp decline, as oversized orders often lead to misalignments.

The external factors leading to the decline of AMMS price are price fluctuation, MEV, blockchain technical freight volume, leading (prior knowledge) and sandwich attack, etc.

How to resist the decline of prices in the financial turmoil

Because DEX is more vulnerable to price decline than CEX, most DEX come with a function that allows users to set a percentage of scrolling tolerance to limit the difference between order price and execution price. If the final price exceeds the limit, the sale will be repaired. Although this is a valuable dedicated tool, relatively low rolling tolerance may lead to the failure of most oversized orders, and relatively high acceptance is likely to lead to harmful transactions.

To reduce the risk of falling prices, DEX must ensure high liquidity in its pools. In terms of liquidity, no DEX can compete with large and medium-sized CEX markets, but DEX aggregators can do so. The DEX aggregator ensures extremely high liquidity by browsing several DEX at a time. Machines such as order segmentation and order transfer can further reduce the risk of price decline.

YetAnotherDeFi (YAD) is a related example of DEX aggregator. YAD is a multi-chain interchangeable wireless router that brings together the mobility of six blockchain technologies, including ethernet, BSC, Polygon, landslides, phantom and cheerfulness. The site enables investors to swap more than 3500 tokens at a better price and a minimum transaction fee.

YAD uses decentralized and unmanaged swap techniques to enable traders to swap tokens with minimal risk of price decline.

According to the use of YAD, traders can also reduce the risk of corner overtaking, and corner overtaking occurs when hackers use the memory pool of blockchain technology to gain a priori knowledge of trading behavior.

Unlike dark pools that split and mix super-large orders, YAD is decentralized and transparent, adding unparalleled security to traders.

The moral bottom line is

Falling prices are an inevitable factor in Defi. This is also one of the biggest shortcomings of the AMM approach, block chain technology and block chain clarity. Traders need to do financial due diligence before choosing an DEX and use all available tools to reduce the risk of falling prices and related losses.

Dex aggregator is equipped with all available means to reduce negative scrolling, and users can realize the automation of transaction mode by ensuring that the transaction mode is fully transparent, decentralized and secure.