CEX-DEX Arbitrage
CEX-DEX arbitrage is the strategy of exploiting price discrepancies between a centralized exchange and a decentralized exchange for the same asset. When a large trade on a DEX pushes the price away from the CEX price, an arbitrageur buys on the cheaper venue and sells on the more expensive one, earning the spread minus fees and gas. This is the primary mechanism that keeps DEX prices anchored to broader market prices. CEX-DEX arbitrage requires simultaneous access to both venues — the CEX leg is fast (sub-millisecond API execution) while the DEX leg is constrained by block time. This latency asymmetry creates risk: the CEX leg fills but the DEX transaction fails or is sandwiched. Arbitrageurs manage this risk through builder relationships (ensuring DEX leg inclusion), inventory management (maintaining token balances on both sides), and probabilistic modeling of block inclusion. CEX-DEX arbitrage is a subset of LVR — the value captured by arbitrageurs is value lost by AMM LPs.