3.7 KiB
Opportunity taxonomy (reference)
Last Updated: 2026-04-13
Document Version: 1.0
Status: Reference (not legal or trading advice)
This document groups common MEV and arbitrage patterns as state transition inefficiencies in AMMs and surrounding orderflow. Wording is descriptive; viability varies by chain, fee regime, mempool visibility, and regulation.
1. Cross-DEX arbitrage (atomic)
Idea: The same asset pair trades at different effective prices across venues (different pools or routers).
Execution sketch: Buy on the relatively cheap pool and sell on the relatively expensive one within one atomic on-chain transaction (often via a router or custom executor).
Typical traits: High event frequency for liquid pairs; per-event profit often small; very high competition.
2. Triangular and multi-hop arbitrage
Idea: Mispricing along a cycle of pools, for example A → B → C → A, not necessarily visible as a two-pool spread.
Sources: Routing blind spots, stale aggregator paths, fee tier fragmentation, thin intermediate legs.
Typical traits: Medium frequency; pathfinding cost; size limited by the weakest pool on the path.
3. Backrun arbitrage
Idea: Profit from another actor’s trade that moves prices: observe a pending or included trade, then trade into the post-trade price (often immediately after, hence “backrun”).
Dependencies: Mempool or private-flow visibility, fast simulation, and competitive ordering.
Typical traits: Very high event count on public mempools; outcome depends on ordering and builder/relay dynamics.
4. Sandwich (front-run + back-run)
Idea: Place trades before and after a victim swap so the victim executes at a worse price; the searcher unwinds into the moved price.
Typical traits: Potentially large profit per victim trade; high execution and revert risk; wallet protections, builder policies, and legal/reputational exposure vary by jurisdiction and venue.
Internal policy note: Treat user-harming extraction as a compliance and product ethics topic, not only a technical optimization. Many teams exclude sandwich strategies by policy.
5. Liquidation arbitrage
Idea: Capture liquidation incentives (bonus, spread, or protocol-defined rewards) when positions become undercollateralized.
Typical traits: Burst-driven in volatility; can require inventory and gas bidding; protocol-specific rules dominate economics.
6. Cross-chain arbitrage
Idea: Price differences for the same economic exposure across chains.
Constraints: Bridging latency, reorg risk, inventory on each chain, and trust assumptions of bridges.
Typical traits: Medium frequency for some pairs; capital-heavy; operational complexity dominates.
7. Oracle and pricing lag
Idea: A protocol’s on-chain price lags tradable spot; actors who understand update rules may trade around the lag (within protocol constraints).
Typical traits: Infrequent relative to DEX arb; requires deep protocol knowledge; high impact when it appears.
8. AMM curve shape (convexity and fee tiers)
Idea: Non-linear pricing (constant product, concentrated liquidity, stable swaps) means large trades create local mispricings that other trades can close.
Typical traits: Often embedded inside other categories (backrun, triangular, cross-DEX) rather than a standalone label.
Related
- PRODUCTION_PIPELINE.md — how these opportunities are detected and acted on in a production-shaped stack
- ARCHITECTURE.md — diagrams
- SCALING_AND_REALITY.md — which patterns scale under competition