Problem Description
The blockchain ecosystem is inherently multi-chain. L1 networks such as Ethereum supply security and decentralization, while a growing number of L2s deliver cheaper, higher-throughput execution. Nearly every chain now hosts its own DeFi markets, collectively processing several billion USD in daily trading volume. This market fragmentation, however, means prices often diverge across chains. Restoring parity—and thus market efficiency—relies on arbitrage, a major form of MEV in which traders buy low on one market and sell high on another.
Today, most price gaps are closed by arbitraging on-chain DEXes against off-chain CEXes, whose deep liquidity, low fees, and fast execution—advantages afforded by their centralized infrastructure—make them the primary venue for price discovery. As blockchain execution improves, DeFi adoption grows, and long-tail tokens (which can be issued permissionlessly on-chain) remain unavailable on CEXes, trading volume is expected to shift to DEXes—a long standing goal of the DeFi industry. In that on-chain future, cross-chain DEX-to-DEX arbitrage will be the canonical mechanism for price alignment.
Cross-chain arbitrage can be executed in two main ways: (i) by keeping inventory on multiple chains or (ii) by moving assets through a bridge. Holding inventory ties up capital and exposes the trader to price swings on each chain but allows near-instant execution when an opportunity arises. Bridging avoids those inventory risks yet incurs transfer delays, exposing the opportunity to competitors who can act first or to routine trading activity that can close the price gap. Arbitrageurs must therefore choose a method based on the pairs they target and the bridges available.
Despite its importance to DeFi—and the on-chain transparency that lets us track dynamics invisible in CEX-to-DEX arbitrage—cross-chain arbitrage remains under-explored. While single-domain MEV is well documented, work on cross-chain arbitrage, a subset of cross-domain MEV, is sparse. Conceptual overviews of cross-domain MEV lack a domain-specific model that contrasts inventory and bridge arbitrage. Empirical work has either examined CEX-to-DEX arbitrage by observing only the on-chain leg or studied hypothetical, inventory-based cross-chain opportunities limited to a few market pairs.
We close this gap by combining a profit-cost model for cross-chain arbitrage—which determines when to bridge versus hold inventory—with a year-long empirical study on executed arbitrages across nine blockchains.
Results
Oue 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.
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