By Allium Research

The blockchain ecosystem is inherently multi-chain. Layer-1 (L1) networks such as Ethereum supply security and decentralization, while a growing number of Layer-2s (L2s) deliver cheaper, higher-throughput execution. Nearly every chain now hosts its own Decentralized Finance (DeFi) markets, collectively processing several billion USD in daily trading volume [18]. This market fragmentation, however, means prices often diverge across chains. Restoring parity—and thus market efficiency—relies on arbitrage, a major form of Maximal Extractable Value (MEV) [19] in which traders buy low on one market and sell high on another.

Today, most price gaps are closed by arbitraging on-chain Decentralized Exchanges (DEXes) against off-chain Centralized Exchanges (CEXes) [37], whose deep liquidity, low fees, and fast execution—advantages afforded by their centralized infrastructure—make them the primary venue for price discovery. As blockchain execution improves, DeFi adoption grows, and long-tail tokens (which can be issued permissionlessly on-chain) remain unavailable on CEXes, trading volume is expected to shift to DEXes—a long standing goal of the DeFi industry. In that on-chain future, cross-chain DEX-to-DEX arbitrage will be the canonical mechanism for price alignment.