Definition
Arbitrage in crypto is a market-neutral trading concept where participants seek to profit from price discrepancies of the same asset across different venues. It relies on the principle that an identical token should trade at nearly the same price on all sufficiently liquid markets, with deviations representing temporary inefficiencies. Arbitrageurs simultaneously buy the asset where it is underpriced and sell where it is overpriced, aiming to lock in the spread as profit. In efficient markets, this activity helps align prices across platforms and reduces persistent mispricing.
In digital asset markets, arbitrage commonly occurs between centralized exchanges (CEXs) and decentralized exchanges (DEXs), or among multiple CEXs. The concept assumes the trader can execute and settle offsetting trades fast enough that the price gap does not close before completion. Transaction costs, slippage, and latency are critical constraints that determine whether an apparent arbitrage spread is actually realizable. As a concept, arbitrage underpins many quantitative and market-making strategies that stabilize on-chain and off-chain liquidity.
Context and Usage
Arbitrage is often discussed in the context of maintaining price parity for the same token across CEX and DEX markets. When order books or automated market maker pools diverge in price, arbitrageurs act as a balancing force by trading against the mispriced side until the discrepancy narrows. In this way, arbitrage is a core mechanism through which decentralized liquidity becomes aligned with broader market prices.
Because arbitrage depends on capturing small price gaps, the concept is closely linked to slippage and execution quality. High slippage or fees can erase the theoretical profit implied by a quoted spread, turning an apparent opportunity into a loss. In advanced discussions, arbitrage is treated as a structural feature of market microstructure, reflecting how information, liquidity, and transaction costs interact across different trading venues.