How much profit can MEV Bots earn from CEX-DEX arbitrage? Previously, no one could answer this question, but we are pleased to announce that a new paper has been published, using formal methods to measure this issue (Paper link), and I will summarize all the core findings of the paper through a series of images and explanations.
Super Concentrated Version
- Profit? Considerable, but not as much as you might imagine;
- Bot strategies vary, but top traders' excess returns mostly decay within 0.5-2 seconds;
- Market concentration is intensifying, including in the block builder domain;
- However, as competition among block builders increases, CEX-DEX arbitrage profit space is shrinking year by year;
- Bots deeply integrate into the block construction process through various methods;
- The deeper the binding with block builders, the thinner the "surface" profit (actually transferred to associated parties);
- The smaller the block builder's market share, the higher the actual profit rate retained by associated arbitrageurs;
- Even ranking in the top two, block construction remains a difficult business (profits as thin as paper).
Relatively Detailed Version
In the data we collected over 1 year and 7 months, the data for 19 leading CEX-DEX arbitrage Bots is as follows:
- Total trading volume reached $241 billion;
- Obtained $233.8 million in profits;
- Retained only $90.1 million in net income (with $143.7 million paid to block builders);
Overall, the average profit rate for CEX-DEX arbitrage is 38.5%.
Based on the market share analysis of arbitrageurs, we confirm that the CEX-DEX MEV market concentration trend has reached a "highly monopolistic" level.
Following @0xRezin's "League of Legends" tier labeling system, we calculated the Binance markouts of arbitrage Bots and used a weighted average to define their "total income" before hedging.
The data shows that most CEX-DEX arbitrage signals quickly disappear within seconds. The median distribution shows the income peak, with the best hedging time occurring in the 0.5-1.5 second interval.
After deducting the share paid to block builders, we obtained the upper limit of Bot profits.
So, after combining the profit correction of arbitrageurs, what is the current earnings situation for the top three block builders?
Since rsync (currently ranked third) abandoned the "order flow war" in mid-last year, its market share dropped significantly, but what went unnoticed is that its profit rate quickly rebounded from 5% to over 25%, bringing its comprehensive profit rate (arbitrage + block construction) to around 27%.
However, the profitability of the top two block builders is quite limited.
During the 18-month data period, beaverbuild (currently ranked first) had a comprehensive profit rate of only 7.92% (including arbitrage income), while Titan (currently ranked second) without its own arbitrage business had a profit rate of only 5.85%.
Clearly, opaque "order flow" trading makes this situation more difficult to explain.
Besides the known "block builder + arbitrageur" combinations like beaverbuild + SCP, rsync + Wintermute, correlation analysis reveals another important exclusive cooperation case. Observing the 30-day rolling correlation between "Kayle's transaction volume share in Titan's constructed blocks" and "Titan's market share" reveals some insights.
Our core conclusion is that block construction is a business with razor-thin profits. If you do not hold an order flow with extremely high MEV value, there is no chance of entering the market today.
Moreover, the current block auction mechanism has serious efficiency problems. On one hand, subsidy mechanisms squeeze block builders' profits; on the other hand, exclusive cooperation fragments order flow and extends transaction on-chain waiting time.
However, the current situation is not unchangeable, and Flashbots' newly launched BuilderNet may solve the problem and improve block builders' profits.
