Latency Arbitrage Across Centralized and Decentralized Exchanges: Measuring Gap Survival on L1 vs L2

Abstract

Does reducing the block confirmation delay to 48 times faster, down from 12 seconds on Ethereum mainnet (L1) to 0.25 seconds on Arbitrum One (L2), create a significant efficiency gain for DEXs from a latency arbitrage perspective? To answer this question, four weeks of minute-by-minute data between February 19 and March 17, 2026, are used to estimate the CEX-DEX price spread for ETH and WBTC pools on Uniswap v3 against Binance US, KuCoin, Coinbase, and Bitstamp. The τ ∗ criterion establishes the profitability threshold separating exploitable price gaps from false positives, while the methodology covers a total of five analytical steps: gap distributions, Kaplan-Meier survival analysis, and 1,000 replications of a Monte Carlo backtest, and four robustness checks. L2 reduces the mean ETH CEX-DEX spread by 70% (from 69.17 to 21.01 basis points) and the upper bound of the 90% confidence interval of realized P&L by 54% for ETH and 78–82% for WBTC, suggesting that L2 is an execution efficiency upgrade rather than price discovery technology. For WBTC, where the 0.30% pool fee imposes a lower bound of τ ∗ = 95.70 bps, 98.5% of gap-minutes on L2 will be unprofitable to exploit even at a trade size of $10,000. The improvement in variance increases under volatility stress and grows from 51% in normal conditions to 76% during high-volatility regimes. The key take-away from this research can be summarized into the following hierarchy of frictions: CEX fee structure > chain architecture > pool fee > block time > gas cost. For DEX developers, this finding means that switching a low-fee pool to L2 decreases the LPs’ expected loss-to-rebalancing cost and increases execution efficiency for arbitrageurs. For high-fee pools, switching to L2 improves execution quality but does not improve LPs’ welfare.