How Does the Fee Structure of an AMM Impact the Viability of Arbitrage?

The AMM's trading fee is a direct cost to the arbitrageur, reducing the net profit of the trade. The price discrepancy between the AMM and the external market must be large enough to cover both the AMM's trading fee and the blockchain's gas cost.

Higher fees mean that only larger, less frequent arbitrage opportunities will be profitable, thus reducing the overall frequency of arbitrage.