What is Price Impact?
Price impact is the influence that trade has over the market price of the underlying asset pair.
It is directly connected with the amount of money in the pool. Price impact can be especially high for illiquid markets and may cause a trader to lose a large portion of his/her funds.
What Has Caused the High Price Impact on Uniswap?
Uniswap (UNI) is both a cryptocurrency and a Decentralized Exchange on the Ethereum Blockchain.
There are more transactions than the Ethereum blockchain can handle. Because of congestion on the chain, the fees go high and slows down processing times. hence the high price impact.
In addition, gas fees depend on the congestion at the time of a transaction, not the amount of the transaction. This makes Uniswap a poor choice if you’re only trading a small amount. It doesn’t make sense to pay $30 in fees for a $50 trade.
How Do You Reduce Price Impact on Uniswap?
Ethereum has been going through a series of upgrades toward its next version, Ethereum 2.0. The upgrades should drastically decrease processing times and gas fees. But the process is likely to take long. Until then, Ethereum issues will affect Uniswap.
Change the Uniswap Exchange Version
Use other versions of exchanges. For example, the Uniswap decentralized exchange offers exchanges in versions, that is V1 (old version) and V2 and new version V3. On the bottom navigation bar, you will select V1 as the version you want to use to transact the swap. You will check that you understand the disclaimer and click on continue with V1 for the transaction.
Break Down Transactions and Reduce the Number of Purchases
Sometimes some cryptocurrencies can be bought in very small amounts of dollars because of their very low price. Although, they may not have many big liquidity pools, therefore, the price impact mechanism can make problems for transactions that have a big amount.
To solve this problem, one can reduce the number of assets we intend to trade and buy or sell the desired amount of transactions.
Change the Price Slippage Tolerance
Changing the price slippage to complete the transaction can be the solution. Due to excessive price fluctuations and the lengthy process of registering a buy or sell transaction in decentralized exchanges, an increase in price slippage helps to complete the transaction.
There are other simple solutions that traders can employ like; making sure you have high-speed Internet or changing your device. Also changing browsers application can sometimes solve the problem of Price Impact Too High.
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