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Cross-Rollup MEV: Non-Atomic Arbitrage Across L2 Blockchains

Krzysztof Gogol, Johnnatan Messias, Deborah Miori, Claudio Tessone, Benjamin Livshits

TL;DR

This study quantifies the potential non-atomic MEV on Layer-2 (L2) blockchains by measuring the arbitrage opportunities between cross-rollup and DEX-CEX, and finds that these opportunities persist, on average, for 10 to 20 blocks, necessitating the modification of the Loss Versus Rebalancing (LVR) metric to prevent double-counting.

Abstract

This study quantifies the potential non-atomic MEV on Layer-2 (L2) blockchains by measuring the arbitrage opportunities between cross-rollup and DEX-CEX. Over recent years, we observe a shift in trading activities from Ethereum to rollups, with swaps on rollups occurring 2-3 times more frequently, albeit with lower trade volumes. By analyzing the costs of swap on L2s and price discrepancies cross-rollup and DEX-CEX, we identify more than 500 000 unexplored arbitrage opportunities. In particular, we find that these opportunities persist, on average, for 10 to 20 blocks, necessitating the modification of the Loss Versus Rebalancing (LVR) metric to prevent double-counting. Our findings indicate that the arbitrage opportunities in Arbitrum, Base, and Optimism range between 0.03% and 0.05% of the trading volume, while in the ZKsync it fluctuates around 0.25%.

Cross-Rollup MEV: Non-Atomic Arbitrage Across L2 Blockchains

TL;DR

This study quantifies the potential non-atomic MEV on Layer-2 (L2) blockchains by measuring the arbitrage opportunities between cross-rollup and DEX-CEX, and finds that these opportunities persist, on average, for 10 to 20 blocks, necessitating the modification of the Loss Versus Rebalancing (LVR) metric to prevent double-counting.

Abstract

This study quantifies the potential non-atomic MEV on Layer-2 (L2) blockchains by measuring the arbitrage opportunities between cross-rollup and DEX-CEX. Over recent years, we observe a shift in trading activities from Ethereum to rollups, with swaps on rollups occurring 2-3 times more frequently, albeit with lower trade volumes. By analyzing the costs of swap on L2s and price discrepancies cross-rollup and DEX-CEX, we identify more than 500 000 unexplored arbitrage opportunities. In particular, we find that these opportunities persist, on average, for 10 to 20 blocks, necessitating the modification of the Loss Versus Rebalancing (LVR) metric to prevent double-counting. Our findings indicate that the arbitrage opportunities in Arbitrum, Base, and Optimism range between 0.03% and 0.05% of the trading volume, while in the ZKsync it fluctuates around 0.25%.
Paper Structure (16 sections, 17 equations, 6 figures, 6 tables)

This paper contains 16 sections, 17 equations, 6 figures, 6 tables.

Table of Contents

  1. Introduction
  2. Contributions
  3. Related Work
  4. Background
  5. Model for Arbitrage
  6. Data Collection
  7. Empirical Results
  8. Methodology
  9. Empirical MAV from WETH-USDC Pool
  10. Cross-Rollup Arbitrage
  11. Discussion
  12. Conclusions
  13. Background on Automated Market Makers
  14. Cost of Swapping
  15. Dynamics and Cost of Swapping on L2s
  16. ...and 1 more sections

Figures (6)

  • Figure 1: Median transaction fees, measured in Gwei, for selected Ethereum rollups, pre- and post-Dencun Upgrade on March 13$^{\textrm{th}}$, 2024.
  • Figure 2: These plots illustrate the price differences for USDC-ETH between the AMM on ZKsync and Binance. The AMM spot price fluctuates around the CEX price, showing how price misalignments first widen and subsequently narrow over a period of several minutes.
  • Figure 3: Empirical daily analysis of Maximal Arbitrage Value (MAV), price discrepancies, and liquidity in the current tick within the WETH-USDC liquidity pool on Uniswap (v3) deployed on the Arbitrum network.
  • Figure 4: A comparative analysis of price disparities and arbitrage opportunities across rollups for the WETH-USDC and WETH-USDC.e (e) pools on Uniswap (v3). For reference, the Ethereum WETH-USDC Uniswap (v3) pool and Binance are included.
  • Figure 5: Architecture of a rollup.
  • ...and 1 more figures