How Does Gas Cost Impact the Viability of Arbitrage Opportunities in AMMs?

Gas cost is a critical factor that determines the profitability and viability of arbitrage. Arbitrageurs only execute trades when the profit from exploiting the price difference between the AMM and the external market exceeds the transaction cost (gas fees).

High gas costs, especially during network congestion, narrow the window for profitable arbitrage, allowing the price divergence to persist longer. Conversely, low gas costs enable more frequent and smaller arbitrage trades, keeping the pool's price closer to the market price and exacerbating impermanent loss.