This article explores arbitrage trading between centralized exchanges (CEX) and decentralized exchanges (DEX), comparing search-builder interactions, costs, potential revenue, and theoretical profit models based on liquidity pool reserves. It investigates the prevalence and patterns of CEX-DEX arbitrage, offering actionable insights for traders and analysts.
Table of Contents
- Introduction
- CEX vs. DEX Arbitrage: Key Insights
- Cost-Benefit Analysis of Strategies
- Theoretical vs. Actual Profit Comparison
- Conclusion
Introduction
Since Ethereum’s Merge on September 15, 2022, 91.8% of blocks have been built using MEV-Boost under the Proposer-Builder Separation (PBS) framework. This shift reduces computational burdens and decentralizes MEV extraction by separating block construction from proposal roles.
Current Landscape:
- Searchers: Identify MEV opportunities (e.g., front-running, sandwich attacks) and bundle profitable transactions.
- Builders: Optimize block allocation and participate in MEV-Boost auctions.
- Cross-Domain MEV: Emerging research highlights arbitrage between CEX and DEX (e.g., Gupta et al., 2023), though transparency challenges persist due to CEX opacity.
This study analyzes on-chain data to reverse-engineer arbitrage strategies and quantify MEV profitability.
CEX vs. DEX Arbitrage Insights
Key Findings:
Transaction Timing:
- 98% of arbitrage trades occur at the top of blocks, indicating searchers prioritize speed to exploit price gaps.
Popular Tokens & Venues:
- Tokens: WETH (45%), USDC (11.5%), USDT (5.3%).
- DEXs: Uniswap V3 dominates (74.65% of arbitrage volume).
Searcher-Builder Dynamics:
- Top searcher
0xa69captures 55.7% of market share. - Builder
beaverbuildleads with 41.77% of blocks.
- Top searcher
👉 Discover how top searchers optimize MEV strategies
Cost-Benefit Analysis
Profitability Metrics:
| Metric | Flashbots Builders | Non-Flashbots | Searcher-Builder Entities |
|----------------------|--------------------|---------------|---------------------------|
| Avg. Builder Fee (ETH) | 0.0012 | 0.0018 | 0.0015 |
| Revenue (%) | 0.45% | 0.52% | 0.48% |
Notable Trends:
- Searcher-builder entities (e.g., Symbolic Capital <> beaverbuild) show vertical integration advantages.
- Meme-coin pairs yield the highest returns due to volatility.
Theoretical vs. Actual Profit
Model Comparison:
Theoretical profit (based on AMM reserves):
Profit = (CEX Price - DEX Price) × Token Amount - FeesObservations:
- Stablecoin pairs (e.g., ETH-USDC) align closely with theoretical models.
- Large orders (>$1M) often deviate due to meme-coin volatility.
Conclusion
This study highlights the dominance of cross-domain arbitrage in MEV strategies, emphasizing the roles of speed, liquidity, and builder-searcher collaboration. Future research could expand to:
- Bid data analysis.
- Longer-term price convergence studies.
👉 Explore advanced arbitrage tools
FAQ Section
Q1: What is cross-domain MEV?
A: MEV extracted by sequencing trades across CEX and DEX venues.
Q2: Which DEX sees the most arbitrage activity?
A: Uniswap V3 handles ~75% of CEX-DEX arbitrage volume.
Q3: How do searchers minimize risk?
A: By executing trades within a narrow window (-2 to +2 seconds around block confirmation).