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Correct me if my understanding is wrong, but there are no crypto transactions involved with arbitrage in the common case. Arbitrage is concerned with the relati

by joeldw 2y ago

Correct me if my understanding is wrong, but there are no crypto transactions involved with arbitrage in the common case. Arbitrage is concerned with the relative price of two assets, for example BTC/USD. There is no bitcoin transferred from exchange A to exchange B, simply the trade of USD to BTC on exchange A and BTC to USD on exchange B.

hanniabu 2y ago
That is done, but you need a lot of capital due to bitcoin's slow block times. You'll need to have capital on both places to take advantage of the price differential since the price will shift to much by the time you migrate funds from one CEX to another. But this post isn't about bitcoin, it's about Ethereum. Ethereum is where all the innovation and most of the financial activity occurs. Arbitrage MEV comes from different onchain decentralized exchanges, slippage, defi liquidations, etc.
teh_infallible 2y ago
Arbitrage definitely happens in crypto. It’s how prices stay consistent across exchanges. If you have a small decentralized exchange with relatively low liquidity, arbitrage bots come in to capitalize on price discrepancies across exchanges.
tylersmith 2y ago
The arbitrage is happening on on-chain exchanges which require transactions to work with.
beaugunderson 2y ago
sandwich bots exploit swap slippage on decentralized exchanges... e.g. a user submits a swap transaction from currency A to currency B with high allowed slippage, a sandwich bot notices and copies that transaction from the public mempool and constructs two swap transactions on either side of it where they swap from A to B before the user and swap from B to A after, profiting from the price move of the user's swap. they submit this as a bundle to MEV-relay with a tip high enough to have it included in a block, and if it's included they book the profit. if not included there's nothing at risk, not even wasted gas. there IS risk if the bundle is exposed to other searchers, which is what happened in this case. multiple bots will often find submit the same bundle with escalating tip amounts, so the profit eventually becomes slim with more participants trying the same sandwiches.

by joeldw 2y ago

hanniabu 2y ago

That is done, but you need a lot of capital due to bitcoin's slow block times. You'll need to have capital on both places to take advantage of the price differential since the price will shift to much by the time you migrate funds from one CEX to another. But this post isn't about bitcoin, it's about Ethereum. Ethereum is where all the innovation and most of the financial activity occurs. Arbitrage MEV comes from different onchain decentralized exchanges, slippage, defi liquidations, etc.

teh_infallible 2y ago

Arbitrage definitely happens in crypto. It’s how prices stay consistent across exchanges. If you have a small decentralized exchange with relatively low liquidity, arbitrage bots come in to capitalize on price discrepancies across exchanges.

tylersmith 2y ago

The arbitrage is happening on on-chain exchanges which require transactions to work with.

beaugunderson 2y ago

sandwich bots exploit swap slippage on decentralized exchanges... e.g. a user submits a swap transaction from currency A to currency B with high allowed slippage, a sandwich bot notices and copies that transaction from the public mempool and constructs two swap transactions on either side of it where they swap from A to B before the user and swap from B to A after, profiting from the price move of the user's swap. they submit this as a bundle to MEV-relay with a tip high enough to have it included in a block, and if it's included they book the profit. if not included there's nothing at risk, not even wasted gas. there IS risk if the bundle is exposed to other searchers, which is what happened in this case. multiple bots will often find submit the same bundle with escalating tip amounts, so the profit eventually becomes slim with more participants trying the same sandwiches.