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Arbitrage mechanism between DEXs and CEXs

Characterize the arbitrage mechanism between decentralized exchanges employing automated market makers (such as constant product market maker pools) and centralized exchanges, specifying how cross-exchange price discrepancies arise and are resolved by arbitrageurs operating across venues, beyond cyclic arbitrage confined to DEXs.

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Background

The paper reviews prior work showing that existing research on arbitrage in decentralized exchanges has largely concentrated on cyclic arbitrage within DEXs, whereas arbitrage spanning DEXs and centralized exchanges is comparatively underexplored.

To address competitive behavior among arbitrageurs on DEXs, the paper develops a two-arbitrageur gas-fee competition model linking DEX and CEX prices. Despite this contribution, the broader exploration and formalization of the arbitrage mechanism between DEXs and CEXs is explicitly noted as largely open.

References

However, on the study of arbitrage, the existing research mainly focuses on cyclic arbitrage across different cryptocurrency pools within DEXs (e.g., , , ), while the exploration on the arbitrage mechanism between DEXs and CEXs remains largely open.

— Arbitrage on Decentralized Exchanges (2507.08302 - He et al., 11 Jul 2025) in Section 1.1 (Related Literature)