Measuring CEX-DEX Extracted Value and Searcher Profitability: The Darkest of the MEV Dark Forest (2507.13023v1)

Abstract: This paper provides a comprehensive empirical analysis of the economics and dynamics behind arbitrages between centralized and decentralized exchanges (CEX-DEX) on Ethereum. We refine heuristics to identify arbitrage transactions from on-chain data and introduce a robust empirical framework to estimate arbitrage revenue without knowing traders' actual behaviors on CEX. Leveraging an extensive dataset spanning 19 months from August 2023 to March 2025, we estimate a total of 233.8M USD extracted by 19 major CEX-DEX searchers from 7,203,560 identified CEX-DEX arbitrages. Our analysis reveals increasing centralization trends as three searchers captured three-quarters of both volume and extracted value. We also demonstrate that searchers' profitability is tied to their integration level with block builders and uncover exclusive searcher-builder relationships and their market impact. Finally, we correct the previously underestimated profitability of block builders who vertically integrate with a searcher. These insights illuminate the darkest corner of the MEV landscape and highlight the critical implications of CEX-DEX arbitrages for Ethereum's decentralization.

• The paper refines heuristics for identifying CEX-DEX arbitrage, analyzing over 7.2M transactions to quantify $233.8M in extracted value.
• It introduces a novel revenue estimation method using post-trade price movements on CEX to reliably infer arbitrage profits from on-chain data.
• The study reveals significant market centralization, with three searchers capturing 73% of value and 90% of arbitrage volume by Q1 2025.

Measuring CEX-DEX Extracted Value and Searcher Profitability: An Empirical Analysis of Non-Atomic MEV Centralization

This paper presents a comprehensive empirical paper of CEX-DEX arbitrage on Ethereum, focusing on the extraction of Maximal Extractable Value (MEV) by specialized searchers operating between centralized exchanges (CEX) and decentralized exchanges (DEX). The analysis spans 19 months, from August 2023 to March 2025, and leverages a refined set of heuristics to identify CEX-DEX arbitrage transactions, a robust methodology for estimating arbitrage revenue, and a detailed investigation into the evolving market structure and profitability of searchers and builders.

Methodological Contributions

The authors advance the state of empirical MEV research by:

• Refining Heuristics for CEX-DEX Arbitrage Identification: The paper extends prior detection methods to accommodate multi-swap transactions and introduces a comprehensive filtering pipeline, resulting in the most extensive dataset to date for CEX-DEX arbitrages (over 8.7 million candidate transactions, with 7.2 million classified as genuine arbitrages).
• Empirical Revenue Estimation Without CEX Observability: Since only the DEX leg of arbitrage is visible on-chain, the authors develop a data-driven framework to infer realized arbitrage revenue. This is achieved by analyzing the timing of searchers' hedging on CEX, using post-trade CEX price movements to estimate the optimal execution horizon for each searcher. The approach is grounded in market microstructure literature and provides a consistent upper-bound estimate of extracted value and profit.
• Liquidity-Driven Analysis of Searcher Strategies: The paper systematically links searcher behavior and profitability to the liquidity profiles of traded tokens, distinguishing between high-volume, low-margin strategies on major tokens and low-volume, high-margin strategies on long-tail assets.

Key Empirical Findings

1. Scale and Centralization of CEX-DEX Arbitrage

• Magnitude: 19 major searchers extracted a total of $233.8M USD from 7,203,560 CEX-DEX arbitrages, with a cumulative trade volume of$241.7B USD.
• Centralization: The market has become highly concentrated. By Q1 2025, three searchers (Wintermute, SCP, and Kayle) captured approximately 73% of total extracted value and 90% of arbitrage volume. The Herfindahl-Hirschman Index (HHI) for both volume and value shows a marked increase in concentration over the observed period.
• Market Dynamics: The number of active, successful searchers declined from 23 to 11, with smaller searchers being marginalized despite higher per-trade margins.

2. Searcher-Builder Integration and Profitability

• Vertical Integration: The two largest searchers, Wintermute and SCP, are vertically integrated with leading builders (rsync and beaverbuild, respectively). Kayle, the third-largest, is closely affiliated with Titan.
• Profit Sharing: Neutral searchers (those distributing flow across multiple builders) retain higher profit margins (30–70%) and higher median PnL per trade. In contrast, exclusive or integrated searchers often share 80–90% of their revenue with their affiliated builder, sometimes operating at negative net profit.
• Exclusive Partnerships: The paper provides strong quantitative evidence of mutually reinforcing exclusivity between searchers and builders. For example, Kayle’s exclusive flow to Titan is highly correlated with Titan’s market share, and feedback effects are observed in both directions.

3. Token Liquidity and Arbitrage Regimes

• Major vs. ALT Tokens: Pattern 1 searchers (e.g., Wintermute, SCP) focus on major tokens, executing large trades with narrow spreads and minimal price impact. Pattern 2 searchers target ALT tokens, executing smaller trades with wider spreads but facing significant slippage and inventory risk.
• Hedging Behavior: The speed and magnitude of spread closure post-arbitrage are directly linked to token liquidity, with low-liquidity tokens necessitating rapid, high-impact hedging.

4. Builder Profitability Correction

• Integrated Profits: Previous studies underestimated builder profits by neglecting the margin retained at the searcher level. By aggregating builder and searcher profits, the authors show that integrated entities (e.g., beaverbuild-SCP, rsync-Wintermute) capture substantially higher margins than previously reported.
• Subsidization: The refined analysis reduces the apparent block subsidization burden for integrated builders, clarifying the economic incentives in the builder market.

Implications

Practical

• Centralization Risks: The increasing centralization of both searcher and builder markets raises significant concerns for Ethereum’s decentralization, censorship resistance, and proposer revenue. The dominance of vertically integrated entities and exclusive partnerships creates high entry barriers and entrenched economies of scale.
• Orderflow Auctions and Mitigations: While mechanisms such as Orderflow Auctions and BuilderNet may promote decentralization at the builder level, their impact on the upstream searcher market is uncertain. Application- or protocol-level MEV capture and redistribution mechanisms are proposed, but their effectiveness depends on the development of accurate MEV oracles.
• Data and Measurement: The methodology for inferring CEX-DEX arbitrage revenue without direct CEX observability sets a new standard for empirical MEV research, but limitations remain due to unobservable off-chain rebates and potential undetected arbitrages.

Theoretical

• MEV Supply Chain Consolidation: The findings support the view that the entire MEV supply chain—from solver to searcher to builder—is consolidating around a small set of dominant actors. This has implications for the design of future protocol upgrades and the economic modeling of MEV extraction.
• Market Microstructure: The liquidity-driven analysis of arbitrage strategies provides empirical validation for theoretical models of informed trading and optimal execution in fragmented markets.

Future Directions

• Protocol-Level Interventions: Further research is needed to assess the efficacy of protocol-level MEV capture and redistribution, especially in the context of highly centralized searcher-builder ecosystems.
• Decentralization Guarantees: The development of robust MEV oracles and new incentive mechanisms will be critical to maintaining Ethereum’s decentralization in the face of increasing MEV centralization.
• Cross-Domain Arbitrage: As cross-chain and cross-domain MEV strategies proliferate, similar empirical frameworks will be required to measure and mitigate their impact on market structure and security.

Conclusion

This paper provides a rigorous, data-driven account of the economics, profitability, and centralization dynamics of CEX-DEX arbitrage on Ethereum. The results highlight the critical role of vertical integration and exclusive partnerships in shaping the MEV landscape, with significant implications for the future of decentralized block construction and the security of permissionless blockchains.