Beyond Borders: Exploring Maximal Extractable Value (“MEV”) and Risks in Cross-Domain CEX-DEX Arbitrage

Abstract

Price dislocations exist between assets on decentralized exchanges (DEX) and centralized exchanges (CEX). This paper systematically explores the emerging CEX-DEX arbitrage opportunity and presents a long-time scale empirical characterization of the arbitrageurs' profiles, potential revenues, costs and toxic flows incurred by liquidity providers (LPs). Using a panel regression framework, I investigate the significance of factors that influence the profitability of the strategy and highlight the impacts of these arbitrages on the overall ecosystem. These results provide a preliminary evidence into this emerging opportunity, alongside policy recommendations to facilitate healthy arbitrage flows. Keywords: Ethereum, Arbitrage, Cross Domain, AMM