Why Is Fast Execution Critical for Profitable Arbitrage in DeFi?
Fast execution is critical because arbitrage opportunities in DeFi, which are often caused by temporary price deviations, are quickly spotted and exploited by competing bots. The first bot to have its transaction confirmed by a validator will capture the profit.
This competition leads to a "gas war," where bots bid up transaction fees to incentivize validators to prioritize their transactions. The speed of execution, often measured in milliseconds, is the difference between profit and a failed, costly transaction.
Glossar
Profitable Arbitrage
Exploitation ⎊ Profitable arbitrage within cryptocurrency, options, and derivatives markets represents the simultaneous purchase and sale of an asset in different markets to capitalize on temporary price discrepancies, demanding precise execution and minimal latency.
Fast Execution
Execution ⎊ Within cryptocurrency derivatives, options trading, and financial derivatives, rapid execution denotes the minimal latency between order submission and its fulfillment, critically impacting profitability and risk management.