On-chain arbitrage involves profiting from price discrepancies of a digital asset across different decentralized exchanges or protocols operating on the same blockchain. Traders execute a series of transactions within a single block to buy an asset cheaply in one location and sell it for a higher price elsewhere. This strategy relies on speed and precise execution to capitalize on transient market inefficiencies. It contributes to price equalization across decentralized markets.
Context
The discussion surrounding on-chain arbitrage often addresses its role in maintaining market efficiency and the implications of “maximal extractable value” (MEV) strategies. A key debate involves the fairness and transparency of such activities, particularly concerning transaction ordering. Future developments will likely include protocol designs that aim to mitigate front-running and improve the equitable distribution of arbitrage opportunities.
A critical oracle feed error allowed an attacker to leverage flash loans, artificially inflating collateral value and draining $1 million from Moonwell lending pools.
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