Data Revealed: How Much Can MEV Bots Earn from CEX-DEX Arbitrage?

This article is from: Flashbots Data Analyst danning

Compiled by | Odaily Planet Daily (@OdailyChina); Translator | Azuma (@azuma_eth)

How much profit can MEV arbitrage bots earn from CEX-DEX arbitrage?

Previously, no one could answer this question, but we are excited to announce that a new paper using formal methods for measurement has finally been published (paper link:

Super Concentrated Version

• Profit? Quite considerable, but not as much as you think;
• Bot strategies vary, but the excess returns of top traders mostly decay within 0.5 to 2 seconds;
• Market centralization is intensifying, and the field of block builders is no exception;
• However, as competition among blockchain builders intensifies, the profit margins for CEX-DEX arbitrage are being compressed year by year;

1. Bots are deeply integrating into the blockchain construction process in various ways;
2. The deeper the binding with blockchain builders, the thinner the “surface” profits are (in reality, they are transferred to related parties);
3. The smaller the market share of block builders, the higher the actual profit margin retained by associated arbitrageurs.

• Even though it firmly ranks among the top two in the industry, blockchain construction remains a tough business (with profits as thin as paper).

Relatively Detailed Version

In the 1 year and 7 months of data we collected, the performance of 19 leading CEX-DEX arbitrage bot data is as follows:

• Total trading volume reached 241 billion USD;
• Extract $233.8 million in profit;
• Retained only $90.1 million in net income (paid $143.7 million in revenue share to the blockchain builders);

Overall, the average profit margin for CEX-DEX arbitrage is 38.5%.

Based on the market share analysis of arbitrageurs, we confirm that the MEV market centralization trend of CEX-DEX has reached a “highly monopolized” level.

Using the “League of Legends” rank label system proposed by @0x Rezin, we calculated the Binance marked price differences (markouts) of the arbitrage bot, defining its “total income” before hedging with a weighted average.

Data shows that most CEX-DEX arbitrage signals disappear rapidly within seconds. The income peak can be observed through the median distribution — that is, the best hedging opportunity occurs in the 0.5-1.5 second range.

After deducting the share paid to the blockchain builders, we obtained the upper limit valuation of Bot profits.

So how are the earnings of the top three block builders after adjusting for the profits of arbitragers?

Since rsync (currently ranked third) abandoned the “order flow war” last year, its market share has noticeably plummeted. However, what went unnoticed is that its profit margin has rapidly rebounded from 5% to over 25%, which brings its overall profit margin (arbitrage + block building) to approximately 27%.

However, the top two blockchain builders have limited profit capabilities.

In an 18-month data cycle, beaverbuild (currently ranked first) has a comprehensive profit margin of only 7.92% (including arbitrage income), while Titan (currently ranked second) with no self-operated arbitrage has a profit margin of only 5.85%.

Clearly, the opaque “order flow” trading makes this situation harder to explain.

In addition to the known “block builders + arbitrageur” combinations like beaverbuild + SCP, rsync + Wintermute, the correlation analysis revealed another set of significant exclusive collaboration cases. Observing the 30-day rolling correlation between “Kayle’s trading volume proportion in the Titan block building” and “Titan’s market share” in the figure below shows some clues.

Our core conclusion is that block building is a low-margin business, and if there is no order flow with extremely high MEV value, there are no entry opportunities in today’s market.

In addition, the current block auction mechanism has serious inefficiency issues. On one hand, the subsidy mechanism squeezes the profits of block builders; on the other hand, exclusive cooperation fractures order flow and extends the waiting time for transactions to be on-chain.

But the current situation is not unchangeable. Flashbots’ newly launched BuilderNet may be able to break the deadlock and enhance the earnings of block builders.