A Large Scale Study of the Ethereum Arbitrage Ecosystem

The Ethereum blockchain rapidly became the epicenter of a complex financial ecosystem, powered by decentralized exchanges (DEXs). These exchanges form a diverse capital market where anyone can swap one type of token for another. Arbitrage trades are a normal and expected phenomenon in free capital markets, and, indeed, several recent works identify these transactions on decentralized exchanges. Unfortunately, existing studies leave significant knowledge gaps in our understanding of the system as a whole, which hinders research into the security, stability, and economic impacts of arbitrage. To address this issue, we perform two large-scale measurements over a 28-month period. First, we design a novel arbitrage identification strategy capable of analyzing over 10x more DEX applications than prior work. This uncovers 3.8 million arbitrages, which yield a total of $321 million in profit. Second, we design a novel arbitrage opportunity detection system, which is the first to support modern complex price models at scale. This system identifies 4 billion opportunities and would generate a weekly profit of 395 Ether (approximately$500,000, at the time of writing). We observe two key insights that demonstrate the usefulness of these measurements: (1) an increasing percentage of revenue is paid to the miners, which threatens consensus stability, and (2) arbitrage opportunities occasionally persist for several blocks, which implies that priceoracle manipulation attacks may be less costly than expected.