How Do Transaction Fees and Network Latency Affect the Efficiency of Arbitrage in Decentralized Finance (DeFi)?

Transaction fees and network latency are major friction points for arbitrageurs in DeFi. High transaction fees, or "gas fees," can make small arbitrage opportunities unprofitable, as the cost of the transaction would exceed the potential profit.

Network latency, the time it takes for a transaction to be confirmed, can lead to "failed" arbitrage attempts if the price changes before the transaction is executed. Both factors reduce the overall efficiency of the market by allowing price discrepancies to persist for longer.