Arbitrage
The practice of buying a digital asset on one exchange and selling it on another to profit from price differences.
What is Arbitrage?
Arbitrage in the digital asset space involves exploiting price discrepancies for the same asset across different exchanges or markets to generate profit. For example, if Bitcoin (BTC) is trading at $38,000 on Exchange A and $40,000 on Exchange B, a trader can buy BTC on Exchange A and sell it on Exchange B, pocketing the $2,000 difference per BTC, minus fees. This practice is common in crypto due to fragmented liquidity, varying exchange fees, and market inefficiencies, particularly in volatile or low-volume markets. Arbitrage opportunities are often fleeting, as prices align quickly due to automated trading bots and high-frequency traders.
There are several types of arbitrage in crypto: spatial arbitrage (across exchanges, as in the example above), triangular arbitrage (exploiting price differences within a single exchange using three assets, e.g., ETH/BTC, BTC/USDT, ETH/USDT), and cross-chain arbitrage (between blockchains, like Ethereum and Solana). Tools like CoinGecko or CryptoCompare help identify price disparities, while DeFi protocols like Uniswap enable on-chain arbitrage via automated market makers (AMMs). Data from 2025 shows arbitrage bots account for significant volume on DEXs, with Uniswap alone processing over $
Related Terms
Short Position
A trade betting on the price decrease of a digital asset.
Coin
A digital asset that operates on its own independent blockchain, distinct from tokens that rely on another blockchain’s infrastructure.
Lamport
The smallest fractional unit of Solana’s native digital asset, SOL, equivalent to 0.000000001 SOL (one-billionth of a SOL).
FATF Travel Rule
Financial Action Task Force standard mandating virtual asset service providers to share originator and beneficiary information for digital asset transfers, including stablecoins, to prevent illicit finance.
Basis Point
A unit of measure equal to one-hundredth of a percentage point (0.01%), used to express changes in interest rates, yields, or spreads in finance.
Bridge
A protocol or service that enables the transfer of digital assets or data between two distinct blockchain networks, such as moving ETH from Ethereum’s mainnet to a Layer 2 scaling solution.