Have you ever placed an order to swap a crypto-asset, only to find that the amount you received in your wallet was less than initially quoted? The difference between the quoted price and the executed price can be a source of confusion and frustration for many traders. When you're trying to find a crypto exchange with low fees, you need to know how many tokens will actually land in your wallet, nothing else really matters. Explore the key factors behind this discrepancy and how to account for and minimize it with Matcha.

The challenges of onchain orders

Decentralized exchanges (DEXs) have revolutionized how we trade assets, from a typical centralized order book model to an automated market maker (AMM) model based on the blockchain. With an AMM, users can be liquidity providers (LPs) and traders. As a two-sided marketplace, LPs provide liquidity on one end, usually with two tokens, and traders swap based on the available liquidity using the underlying bonding curve mechanism of the AMM. 

A key difference between AMMs and traditional order books is how trades are executed and priced. With an order book, buyers and sellers post orders at specific price levels, and trades are executed by matching opposite sides of the order book. AMMs instead use liquidity pools containing paired assets, and trades are executed against this pooled liquidity. This allows for more automated and permissionless trading and introduces unique dynamics and factors to consider when calculating a trade. 

With an AMM DEX, you may have experienced swapping assets only to find that the amount you received in your wallet was still less than initially quoted. Why is that? The short answer is that you received less in your wallet due to the difference between the quoted and actually executed price, for a number of reasons. 

The difference between quoted and executed prices

The quoted price you see before executing a trade on a DEX is essentially a best-case estimate of the pricing based on the current pool liquidity levels. However, the actual executed price can end up being different due to multiple factors that add up.

• Gas fees. Gas fees for blockchain transactions can add significantly to the overall cost, especially during high network congestion which can cause fees to skyrocket. What may have looked like a profitable trade initially can become much less attractive once the gas costs for execution are factored in.
• DEX fees. Most DEXs charge trading fees, usually a percentage of the trade amount, distributed to liquidity providers. There can also be additional spreads/fees built into the quoted price that aren't always transparent. On Matcha, you can trade without fees.  
• Liquidity constraints (slippage). The AMM model introduces slippage, which quickly adds up on smaller liquidity pools. Your trade can eat up all the available liquidity at the quoted price level, where pricing is determined by the ratio of tokens in the pool based on a pre-defined bonding curve formula. So, as your order keeps getting filled from the same pool, the price moves against you, resulting in slippage. This leaves you receiving fewer tokens than the initial quoted amount. 
• Inefficient routing. DEX aggregators route trades across DEXs and liquidity sources. If done inefficiently, your trade will not be executed optimally. More sophisticated platforms like Matcha will split up orders across multiple liquidity pools for the best pricing, accounting for price impact and slippage. 

The slippage dynamic, combined with the need to account for blockchain gas fees and route trades across multiple DEX liquidity sources, leads to the differences between the quoted price shown before a trade and the final executed price after it is processed on-chain.

Varying approaches among DEXs

The way different DEX interfaces display and account for these pricing impacts can vary:

• Basic DEX interfaces: Individual DEXs may only show the ideal quoted price to attract users without factoring in likely slippage, routing needs, or gas costs. This sets unrealistic expectations, and leads to disappointment when your trade is executed.
• DEX aggregators: More advanced DEX aggregators strive for transparency by providing upfront quoted prices that estimate slippage tolerances and incorporate dynamic gas cost projections based on the token you’re trading and current network conditions so you get an accurate quote before you trade. Additionally, features like limit orders allow traders to patiently wait and only execute when the real market price meets their desirable target rather than instigating an unfavorable trade by chasing a short-lived quote.

Slippage example:

Let's say you want to swap 4 ETH to USDC. 

The quoted price on a DEX shows you'll receive 15,150 USDC based on current rates. However, after executing the trade, you only end up with 11,000 USDC in your wallet due to:

• $15 in ETH gas fees eating into the amount
• $45 in ETH paid to liquidity providers as incentive
• Your 4 ETH trade size caused roughly 25% of slippage by consuming a significant portion of the available liquidity.
• Your DEX or aggregator failed to route through other sources with better liquidity and pricing.

In many cases, DEXs will be transparent about slippage, and even prevent you from making the trade if it is greater than your set allowance. But in cases where you are using a meta-aggregator, overlooking small discrepancies can help a DEX seem more competitive than it really is.  

Making cost-efficient trades

While there will always be minor discrepancies between quoted and executed prices due to the fundamental dynamics involved that we have mentioned above, here are some tips for cost-efficient trading:

• Monitor gas fees. Check gas fees using tools like Etherscan and place trades during periods of lower network congestion if possible. Compare these to what your DEX is showing for insight into their tools’ effectiveness.
• Check liquidity levels. To minimize slippage impacts on larger orders, check liquidity levels and concentrate trading activity to the most liquid pools and pairs. Advanced aggregators like Matcha will do that for you. Matcha also provides lower fees for stablecoin trades. 
• Use advanced routing platforms. DEX aggregators can scan all significant DEXs to find and leverage the most efficient pricing and liquidity across the landscape, giving you the most efficient routing. This is why an aggregator is great for swaps with maximum cost-efficiency.  
• Trade with Matcha. Trading with Matcha gives you zero-fee trades when Matcha Auto is turned off. With Matcha Auto enabled, you benefit instead from MEV protection, gasless swaps, and faster settlement, so both routes offer efficient ways to save money depending on network conditions and what you’re trading.
  

How Matcha delivers consistent price execution

Matcha addresses the common issues of price discrepancy by being transparent on features such as true estimated slippage, dynamic gas cost adjustments, and efficiently splitting the order across multiple liquidity sources, all of which ensures that you get a more accurate reflection of your trade outcomes.

Custom market settings allow you to manage your trade parameters yourself, or automate complex execution settings with Matcha Auto, dynamically adjusting for network costs and slippage to optimize trades. You are shown a transparent view of the liquidity sources and routing your trade will take, ensuring that you get the best possible prices. 

Get the price you expect 

Understanding and accounting for the quoted versus executed price dynamics in DEX trading is crucial for cost-efficient trades. With the right tools and platforms, you can minimize these pricing gaps and make better trading decisions. Using an advanced platform like Matcha, you can ensure more accurate and favorable trade outcomes by incorporating factors like estimated slippage, dynamic gas cost calculations, and efficient routing that splits orders across multiple liquidity sources. 

Having realistic expectations for price execution significantly improves your long-term performance as you know just how much you’ll receive in your wallet. Matcha helps traders like you make more informed and cost-efficient decisions by providing accurate quotes that minimize pricing gaps and improves your overall trading experience. Try Matcha today!