Profit Analysis of MEV Bot Arbitrage from CEX to DEX

Recently, a study using formal methods revealed the real profitability of MEV Arbitrage bots in arbitraging between CEX and DEX. This research provides detailed data support for the long-standing questions in the industry.

The main findings of the research include:

1. Arbitrage profits, although considerable, are below general expectations.
2. The excess returns of top traders usually diminish rapidly within 0.5 to 2 seconds.
3. The trend of market centralization is becoming increasingly evident, especially in the field of block builders.
4. As competition among blockchain builders intensifies, the profit margin for CEX-DEX Arbitrage narrows year by year.
5. Arbitrage robots are deeply integrated into the block building process in various ways.
6. The closer the relationship between arbitrageurs and block builders, the lower the apparent profit, but the actual profit may be transferred to related parties.
7. Smaller market share blockchain builders have associated arbitrageurs who retain a higher actual profit margin.
8. Even industry-leading blockchain builders have quite thin profit margins.

Research data shows that during the observation period of nearly 20 months, the performance of 19 leading CEX-DEX Arbitrage bots is as follows:

• Total Trading Volume: $241 billion
• Total profit: $233.8 million
• Net Revenue: $90.1 million (Paid $143.7 million to block builders)
• Average profit margin: 38.5%

Research also found that the MEV market of CEX-DEX presents a highly monopolized situation. Most arbitrage opportunities disappear rapidly within seconds, and the best hedging timing usually occurs in the 0.5-1.5 second range.

For the top three block builders, the research results show:

• The third-ranked builder saw its profit margin soar from 5% to over 25% after abandoning the "order flow war", with an overall profit margin reaching about 27%.
• The profitability of the top two builders is relatively limited. Within 18 months, the comprehensive profit margin of the first-ranked is only 7.92%, while the profit margin of the second-ranked is only 5.85%.

The study also revealed the close relationship between blockchain builders and arbitrageurs, such as beaverbuild with SCP, and rsync with Wintermute. Some covert collaborations were also discovered through data correlation analysis.

Overall, the profit margin for block building businesses is relatively low, without the support of high-value MEV order flow, making it difficult for new entrants in the current market. The existing block auction mechanism has efficiency issues, which compresses builders' profits on one hand and leads to fragmentation of order flow on the other. However, the newly launched BuilderNet may provide new ideas to improve this situation.