Cross-Chain Arbitrage: The Next Frontier of MEV in Decentralized Finance
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arXiv
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| Autori principali: | , , , , , , |
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| Natura: | Preprint |
| Pubblicazione: |
2025
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| _version_ | 1866909652139114496 |
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| author | Öz, Burak Torres, Christof Ferreira Schlegel, Christoph Mazorra, Bruno Gebele, Jonas Rezabek, Filip Matthes, Florian |
| author_facet | Öz, Burak Torres, Christof Ferreira Schlegel, Christoph Mazorra, Bruno Gebele, Jonas Rezabek, Filip Matthes, Florian |
| contents | Decentralized finance (DeFi) markets spread across Layer-1 (L1) and Layer-2 (L2) blockchains rely on arbitrage to keep prices aligned. Today most price gaps are closed against centralized exchanges (CEXes), whose deep liquidity and fast execution make them the primary venue for price discovery. As trading volume migrates on-chain, cross-chain arbitrage between decentralized exchanges (DEXes) will become the canonical mechanism for price alignment. Yet, despite its importance to DeFi-and the on-chain transparency making real activity tractable in a way CEX-to-DEX arbitrage is not-existing research remains confined to conceptual overviews and hypothetical opportunity analyses.
We study cross-chain arbitrage with a profit-cost model and a year-long measurement. The model shows that opportunity frequency, bridging time, and token depreciation determine whether inventory- or bridge-based execution is more profitable. Empirically, we analyze one year of transactions (September 2023 - August 2024) across nine blockchains and identify 242,535 executed arbitrages totaling 868.64 million USD volume. Activity clusters on Ethereum-centric L1-L2 pairs, grows 5.5x over the study period, and surges-higher volume, more trades, lower fees-after the Dencun upgrade (March 13, 2024). Most trades use pre-positioned inventory (66.96%) and settle in 9s, whereas bridge-based arbitrages take 242s, underscoring the latency cost of today's bridges. Market concentration is high: the five largest addresses execute more than half of all trades, and one alone captures almost 40% of daily volume post-Dencun. We conclude that cross-chain arbitrage fosters vertical integration, centralizing sequencing infrastructure and economic power and thereby exacerbating censorship, liveness, and finality risks; decentralizing block building and lowering entry barriers are critical to countering these threats. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2501_17335 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Cross-Chain Arbitrage: The Next Frontier of MEV in Decentralized Finance Öz, Burak Torres, Christof Ferreira Schlegel, Christoph Mazorra, Bruno Gebele, Jonas Rezabek, Filip Matthes, Florian Cryptography and Security Computational Engineering, Finance, and Science Decentralized finance (DeFi) markets spread across Layer-1 (L1) and Layer-2 (L2) blockchains rely on arbitrage to keep prices aligned. Today most price gaps are closed against centralized exchanges (CEXes), whose deep liquidity and fast execution make them the primary venue for price discovery. As trading volume migrates on-chain, cross-chain arbitrage between decentralized exchanges (DEXes) will become the canonical mechanism for price alignment. Yet, despite its importance to DeFi-and the on-chain transparency making real activity tractable in a way CEX-to-DEX arbitrage is not-existing research remains confined to conceptual overviews and hypothetical opportunity analyses. We study cross-chain arbitrage with a profit-cost model and a year-long measurement. The model shows that opportunity frequency, bridging time, and token depreciation determine whether inventory- or bridge-based execution is more profitable. Empirically, we analyze one year of transactions (September 2023 - August 2024) across nine blockchains and identify 242,535 executed arbitrages totaling 868.64 million USD volume. Activity clusters on Ethereum-centric L1-L2 pairs, grows 5.5x over the study period, and surges-higher volume, more trades, lower fees-after the Dencun upgrade (March 13, 2024). Most trades use pre-positioned inventory (66.96%) and settle in 9s, whereas bridge-based arbitrages take 242s, underscoring the latency cost of today's bridges. Market concentration is high: the five largest addresses execute more than half of all trades, and one alone captures almost 40% of daily volume post-Dencun. We conclude that cross-chain arbitrage fosters vertical integration, centralizing sequencing infrastructure and economic power and thereby exacerbating censorship, liveness, and finality risks; decentralizing block building and lowering entry barriers are critical to countering these threats. |
| title | Cross-Chain Arbitrage: The Next Frontier of MEV in Decentralized Finance |
| topic | Cryptography and Security Computational Engineering, Finance, and Science |
| url | https://arxiv.org/abs/2501.17335 |