What is arbitrage on AMM protocols?

Arbitrage on AMM protocols means that one trade leg (or two, if you are arbitraging against another AMM) has a fixed transaction cost. As an example, let's take a look at an arbitrage with ETH and DAI between Binance and Balancer and estimate what the arbitrage cost is:

What is arbitrage & how does it work?

Arbitrage describes the act of buying a security in one market and simultaneously selling it in another market at a higher price, thereby enabling investors to profit from the temporary difference in cost per share. The arbitrage strategy can be used in many markets including those for trading stocks and those for currency trading .

Can arbitrage happen if markets are inefficient?

Economic theory states that arbitrage should not be able to occur because if markets are efficient, there would be no such opportunities to profit. However, in reality, markets can be inefficient and arbitrage can happen.

What is merger arbitrage & why is it important?

However, the term “arbitrage” is also sometimes used to describe other trading activities. Merger arbitrage, which involves buying shares in companies prior to an announced or expected merger, is one strategy that is popular among hedge fund investors. Why Is Arbitrage Important?