What Role Do Slippage and Transaction Fees Play in Mitigating Arbitrage Activity?

Slippage and transaction fees act as a friction cost for arbitrageurs. Slippage is the difference between the expected and executed price, which increases with trade size.

Transaction fees are paid to the network and LPs. If the potential profit from arbitrage is less than the combined cost of slippage and transaction fees, the trade becomes unprofitable, and the price imbalance persists longer.