How Does the Delay Affect Time-Sensitive Trading Strategies like Arbitrage?
The long withdrawal delay in Optimistic Rollups makes Layer 1-to-Layer 2 arbitrage significantly more complex and risky. Arbitrageurs cannot quickly move capital back to Layer 1 to close out a position or exploit a short-lived price discrepancy.
This forces them to use fast withdrawal services or maintain a large, idle capital base on both layers, which increases their cost and reduces profitability, making the strategy less viable.
Glossar
Idle Capital Base
Capital ⎊ Idle capital base, within cryptocurrency derivatives and options trading, represents unutilized funds or assets held by market participants that are readily available for deployment in trading strategies or hedging activities.
Fast Withdrawal Services
Access ⎊ : Fast withdrawal services are a critical feature for maintaining participant confidence and operational flexibility within cryptocurrency and derivatives platforms.
Delay
Latency ⎊ This refers to the temporal gap between the submission of an instruction and its confirmed inclusion in the distributed ledger, a critical factor in high-frequency derivatives markets.
Optimistic Rollups
Scalability ⎊ Optimistic Rollups represent a Layer 2 scaling solution for Ethereum, designed to enhance transaction throughput and reduce associated gas fees without compromising decentralization.
Withdrawal Delay
Latency ⎊ Withdrawal delay, within cryptocurrency, options, and derivatives, represents the temporal disconnect between initiating a fund transfer and its confirmed settlement on the blockchain or custodial account.