The Arbitrage System on Decentralized Exchanges

Abstract

Cryptocurrencies are in great demand in society. The number of beginners on the cryptocurrency market increases every day. Most of them only focus on a high return on the cryptocurrency investment. However, they do not aware of the high risk from its volatility. Trading is the most popular way to invest with digital currencies due to its potential returns. The cryptocurrency exchange requires a high learning curve for beginners. There exists a strategy to minimize risk in the cryptocurrency investment called It exploits the market inefficiency to discover a profitable method. This strategy has been investigated in traditional markets like stock markets. Furthermore, some researchers studied arbitrage on general exchange platforms that are operated by companies. However, to the best of our knowledge, there is no research works on arbitrage in the Decentralized Exchange (DEX). The DEX recently emerged with a huge amount of trading volume and profits. The high profit is along with the high risk. Thus, risk-reducing in the cryptocurrency investment is a crucial topic. We demonstrate arbitrage strategy on DEX. The strategy used in this work is to invest an amount of Ether and receive a higher return in each row. The market inefficiency on the current DEX platforms is searched by using an automatic method. We further investigate important factors, which should be considered for profit-maximizing in DEX arbitrage.