Whenever you use Checkout, Fun looks to execute your transaction at the best possible rate. Although we estimate this rate ahead of time, actual order execution is heavily influenced by our downstream providers and market liquidity.
There are two main components that add to price volatility:
Slippage
What is slippage?
Slippage is the term given to describe the difference between the expected price of a trade at submission and the actual price at execution.
Example
Imaging submitting an order for 1 ETH for 2000 USDC. Between your order being submitted and fulfilled, the price of ETH rises to 2020 USDC. Your order is executed at the new ETH price and you receive 0.990099 ETH for your 2000 USDC. The 20 USDC difference between your original order price and the execution price represents a 1% slippage.
What causes slippage?
Slippage can occur for a number of reasons:
Market volatility: Increased activity around an asset can cause rapid price changes
Transaction speed: Slower orders are more susceptible to price changes
Network congestion: High blockchain activity can delay transactions and change asset prices
Liquidity: Low liquidity causes market price discrepancies between buyers and sellers
How does Fun reduce slippage?
In order to counter the impact of slippage, Fun places a threshold cap on each transaction. This ensures orders can continue to fulfill quickly without being subject to high market volatility.
Price Impact
What is price impact?
Price Impact describes the change in the market price of an asset as a result of your trade.
To fulfill your order, we work with decentralized exchanges (DEXs) that hold pairs of tokens in liquidity pools. Purchasing Token A with Token B causes an imbalance between the pools.
Example
Imagine a liquidity pool with 100 ETH and 10,000 USDC where the current price of ETH is 100 USDC. Purchasing 10 ETH will significantly change the pool's ETH to USDC ratio, changing the price of ETH in the process.
What causes price impact?
Trade size: The larger the trade, the greater the trade's impact on market price
Liquidity: The lower the liquidity of the pool, the greater the likelihood of price impact
How does Fun reduce price impact?
To protect against price impact, Fun introduces a series of measures including:
Allowlisted tokens: we have restrictions on which tokens can be used in Checkout. These are selected to meet liquidity threshold requirements.
Splitting up larger trades: we break larger transactions in a series of smaller orders. This reduces impact of the total funds movement.
Quoted vs Unquoted Checkouts
When you use Checkout, you'll be presented with a number of payment method options, from sending funds from your connect wallet, to using a debit card. Other than Transfer Crypto, all of our payment options are quoted and exact-out.
This means when you use the Balance, Exchange, or Card payment methods, you'll receive a quote to review prior to sending your funds. Should this quote be accepted, you'll receive the exact amount mentioned on the quote. As a result, Slippage and Price Impact are pre-accounted for in your quote.
On the other hand, Transfer Crypto is unquoted and more susceptible to Slippage and Price Impact. You can learn more about Transfer Crypto here.