A Profit-Maximizing Strategy for Cryptocurrency Arbitrage

Abstract

In this study, the researchers examined the use of arbitrage as a strategy for identifying investment opportunities in the cryptocurrency market, specifically on decentralized exchanges (DEX) and centralized exchanges (CEX). The results of their investigation indicated that arbitrage could yield high profits and carries a lower level of risk compared to simply holding cryptocurrency. Additionally, the researchers found that dividing their equity among multiple exchanges increased profits due to the system's ability to operate more efficiently and lower withdrawal costs. The study also identified several factors that may impact the success of arbitrage, including gas prices, transaction fees, and the timing of trades. In addition to exploring arbitrage, the researchers also examined other tactics for earning profits through cross-exchange trading, using a selection of six token pairs, including UNI, SUSHI, BADGER, LINK, COMP, and CRV. Ultimately, the cross-exchange strategy demonstrated an average profit and loss (PNL) of 0.054%, which was higher than the arbitrage strategy in DEX.