What is slippage, and how does it differ from price impact?

In short

A swap screen on a decentralised exchange usually shows two numbers: price impact and slippage tolerance. They are not the same thing, and confusing them can cost money.

Uniswap's documentation defines slippage as:

"alterations to a given price that could occur while a submitted transaction is pending"

So slippage is price movement between submitting the transaction and its inclusion in a block.

Price impact: the weight of the swap itself

Price impact has nothing to do with the pending window. It comes from the size of the swap. In an automated market maker the relative value of the two assets shifts continuously while the swap executes; a large swap moves its own price.

What decides it is depth:

"The greater the liquidity available at a given price, the lower the price impact for a given swap size."

The same swap gets a far worse price in a shallow pool than in a deep one. Price impact can be calculated before submitting; slippage cannot be calculated, only bounded.

The tolerance is a limit, not an estimate

In the documentation's terms the tolerance sets an accepted margin of change beyond price impact. How it is applied fits in one sentence:

"as long as the execution price is within the slippage range, e.g., 1%, the transaction will be executed. If the execution price ends up outside of the accepted slippage range, the transaction will fail."

On chain the protection is written as a minimum output amount (amountOutMinimum); if the output falls below that threshold the transaction reverts.

So the tolerance is not a forecast but a cancellation threshold: the way to say "I will not accept worse than this".

What raising the tolerance changes

When a transaction keeps failing, raising the tolerance looks like an easy fix. What it does is allow the transaction to go through at a worse price.

A wide tolerance opens room for third parties who collect the difference: while the transaction waits, the price can be pushed to the edge of the tolerance and the transaction still counts as valid. A narrow tolerance means failed transactions, a wide one means poor prices; there is a tradeoff, and it is left to the user.