Cross-chain arbitrage is a trading strategy that capitalizes on price discrepancies for the same digital asset across different blockchain networks or their associated decentralized exchanges. Its purpose is to generate risk-free profit by simultaneously buying an asset on one chain where it is cheaper and selling it on another where it is more expensive.
Mechanism
The operational logic involves monitoring real-time asset prices across multiple chains, often via oracles or specialized indexing services. Upon detection of a profitable spread exceeding transaction costs (gas fees, bridge fees), an automated bot or manual trader executes a sequence of transactions: acquiring the asset on the lower-priced chain, transferring it via a cross-chain bridge, and liquidating it on the higher-priced chain.
Methodology
The strategic approach demands high-speed execution, minimal latency, and robust smart contract interaction capabilities to exploit fleeting price differentials. This methodology requires sophisticated infrastructure for multi-chain monitoring and transaction broadcasting, and careful accounting for variable network congestion and bridge finality times to ensure atomic or near-atomic execution.
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