Problems That Need Solving
Gas? Haven't heard about it!
Arbitrageurs and Gas Fee Dillema
Conceptually, DEXes represent an avenue of trading that is far less obtrusive in terms of the actions needed in order to execute a particular buying or selling move. This being one of the reasons for the incessant growth in popularity of P2P exchanges in recent years. The quality of being stripped from the confines of CEX common transgressions and encroachments on privacy is also of great merit since DEXes are completely devoid of the need for mandatory KYC measures customarily implemented on CEX to prevent alleged Money Laundering.
Despite the obvious points of attraction, DEXes built on certain Blockchains are fraught with issues of their own. The most common contentious point is fees. Ethereum gas fees have frequently been branded as the choke point for further expansion of DEX, beyond the narrows of unilateral usage as it both cripples the ability of arbitrageurs to bring equilibrium to the pool and extends the potentialities of common mining exploitations during swaps.
Arbitrage opportunities and arbitrageurs specifically are the crucial players that instantiate a price equilibrium if or when a “supply shock” arises. The incentive to do so lies in the personal gain from the price deviation that they can effectively exploit in order to get the positive difference to themselves. The profit that arbitrageur gets and liquidity-providing that ensues from that creates a necessary interrelation between different players of the “game” ensuring the liquid state of the pool. Therefore it’s important for a platform to make sure that arbitrageurs have an incentive and profit to arbitrage when there is a price fall-off or misalignment present. For example, trades to maximize its profit from arbitrage p (t,2) B ∆q (t,3) B + p (t,2) A ∆q (t,3) A, where ∆q (t,3) A and ∆q (t,3) B are respectively the change in the amount of A and B tokens held by the arbitrageur. This trading opportunity can be exploited by the arbitrageur only if its order is confirmed by the blockchain before others. The arbitrageur adds a transaction fee g (t,3) arb to its order.
The common causes of non-active arbitraging include network fees that tend to make the act of arbitraging unprofitable.
This issue is rectified on Jumbo DEX since it is built on Near, a blockchain that institutes a predictable pricing system, in essence uprooting the problem with fee management. This allows arbitrageurs to efficiently patch the unaddressed liquidity disequilibrium issue and reap a profitable return.
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