Optimal block time for maximizing Uniswap v3 LP arbitrage fee returns

Determine the transaction block interval that maximizes arbitrage-derived fee income for full-range Uniswap v3 liquidity providers in ETH/USDC pools under the Loss Versus Rebalancing (LVR) with fees framework, explicitly accounting for dependence on market volatility and comparing fixed two-second block times (e.g., Optimism) to on-demand block building (e.g., Arbitrum).

Background

The paper analyzes arbitrage-driven fee returns for Uniswap v3 liquidity providers across Ethereum mainnet and Layer 2 networks, focusing on Arbitrum and Optimism where gas costs were similar during the paper window but block times differed. By isolating arbitrage transactions and using the LVR with fees framework, the authors find that L2s deliver roughly 20% higher average daily fee returns than mainnet, with Arbitrum outperforming Optimism.

Because Arbitrum constructs blocks on demand while Optimism uses fixed two-second block times, the authors attribute observed differences primarily to block production timing. They suggest that two seconds may be too long for optimal liquidity provider fee returns, but explicitly note that deriving the optimal block time is dependent on volatility and cannot be obtained within their current model, leaving the precise optimal block interval unresolved.