Trading & AMMs
Arbitrage
Price Arbitrage
Profiting from price differences of identical assets across markets
Definition
Arbitrage is the practice of simultaneously buying and selling identical assets on different markets to profit from price differences. In DeFi, bots exploit price gaps between DEXs or CEXs.
Example
If ETH trades at $2000 on Uniswap and $2005 on SushiSwap, an arbitrageur buys on Uniswap and sells on SushiSwap for $5 profit per ETH.
What to check
Treat it as a strategy: map each step, each contract dependency, each exit condition, and the downside before committing capital. The main checks are: Transaction costs; Failed execution; Slippage.
Risks to Consider
- Transaction costs
- Failed execution
- Slippage
Common Questions
What does Arbitrage mean in DeFi?
Arbitrage means Profiting from price differences of identical assets across markets. The useful question is not only the definition, but how the mechanism changes risk, return, liquidity, or governance for the user.
How is Arbitrage used in practice?
A practical example: If ETH trades at $2000 on Uniswap and $2005 on SushiSwap, an arbitrageur buys on Uniswap and sells on SushiSwap for $5 profit per ETH.
What should I check before relying on Arbitrage?
Check transaction costs, failed execution, slippage. Also verify liquidity, oracle assumptions, admin controls, and whether the protocol has been tested during stressed markets.
