Paper: arXiv 2401.01622

Authors: Lioba Heimbach, Vabuk Pahari, Eric Schertenleib

Abstract

The prevalence of maximal extractable value (MEV) in the Ethereum ecosystem has led to a characterization of the latter as a dark forest. Studies of MEV have thus far largely been restricted to purely on-chain MEV, i.e., sandwich attacks, cyclic arbitrage, and liquidations. In this work, we shed light on the prevalence of non-atomic arbitrage on decentralized exchanges (DEXes) on the Ethereum blockchain. Importantly, non-atomic arbitrage exploits price differences between DEXes on the Ethereum blockchain as well as exchanges outside the Ethereum blockchain (i.e., centralized exchanges or DEXes on other blockchains). Thus, non-atomic arbitrage is a type of MEV that involves actions on and off the Ethereum blockchain. In our study of non-atomic arbitrage, we uncover that more than a fourth of the volume on Ethereum’s biggest five DEXes from the merge until 31 October 2023 can likely be attributed to this type of MEV. We further highlight that only eleven searchers are responsible for more than 80% of the identified non-atomic arbitrage volume sitting at a staggering $132 billion and draw a connection between the centralization of the block construction market and non-atomic arbitrage. Finally, we discuss the security implications of these high-value transactions that account for more than 10% of Ethereum’s total block value and outline possible mitigations.

Complexity vs Empirical Score

  • Math Complexity: 3.5/10
  • Empirical Rigor: 8.5/10
  • Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: This paper presents a highly empirical, groundbreaking study on non-atomic MEV arbitrage across centralized and decentralized exchanges, analyzing billions in transaction volume. While it relies more on data mining, heuristic matching, and transaction-level heuristics than advanced mathematical proofs, its empirical rigor and real-world market insights are exceptional.

Research Flowchart

  flowchart TD
    A[Research Goal: Quantify & Analyze Non-Atomic MEV Arbitrage on Ethereum] --> B[Data Inputs: Ethereum Post-Merge Block Data & Top 5 DEX Volumes]
    B --> C[Methodology: Detect Cross-Venue Price Differentials On-Chain vs Off-Chain]
    C --> D[Identify Non-Atomic Arbitrage Transactions & Searcher Addresses]
    D --> E[Outcome 1: Non-Atomic Arbitrage accounts for >25% of Top 5 DEX Volume]
    D --> F[Outcome 2: Top 11 Searchers control >80% of $132B Arbitrage Volume]
    D --> G[Outcome 3: High-Value Arbitrage drives Block Construction Centralization & >10% of Block Value]

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1 of 120 cited works are in the corpus; resolved via arXiv source bundles, Semantic Scholar and OpenAlex. Corpus-wide: 2518 linked papers.