Cross-Chain Arbitrage is a Tax on User Sovereignty

Cross-chain arbitrage is a tax. Every time a user bridges assets via protocols like Across or Stargate, the final execution price includes a spread captured by MEV bots. This is not a fee for service but a leakage of user value.

The tax erodes user sovereignty. The intent is separated from execution, forcing users into suboptimal settlement. This creates a predictable profit opportunity for searchers, which is fundamentally a cost borne by the protocol's end-users.

Native vs. Bridged assets illustrate the point. A native ETH transfer on Ethereum settles at the exact market price. A bridged USDC transfer via LayerZero incurs slippage and latency, creating the arbitrage window that becomes the tax.

Evidence: The $200M annualized extractable value. Research from Chainalysis and EigenPhi quantifies the scale of cross-chain MEV, demonstrating this is a systemic, not incidental, cost of current bridge architectures.

Slippage is a tax. Every cross-chain swap via a DEX aggregator like 1inch or a bridge like Across creates a predictable price delta that arbitrageurs instantly capture. This is not risk-based market making; it is a systemic rent extraction from users who lack atomic composability.

Arbitrage is deterministic. The latency between a user's approval and a bridge's finality creates a guaranteed profit window. Protocols like Stargate and LayerZero create predictable information asymmetry, where searchers using Flashbots bundles front-run settlement. The user always pays.

Evidence: On a typical ETH→ARB bridge via Hop, a 1% slippage tolerance guarantees a ~0.8% arbitrage profit. This extracts millions monthly from users, a direct tax on sovereignty for moving assets. The 'fee' is the arbitrage spread.

The user's intent is the signal. A user signing a transaction to swap assets on Uniswap or bridge via Across/Stargate broadcasts a profitable opportunity. This intent reveals price discrepancies and pending liquidity changes across chains.

Bots front-run the settlement. Specialized searchers on Flashbots or private mempools detect this intent. They construct a bundle of transactions that executes the profitable arbitrage before the user's original transaction finalizes.

Profit is extracted at settlement. The bot's bundle executes on-chain, capturing the price delta. The user receives a marginally worse exchange rate or higher slippage. This value leakage is the arbitrage tax, often measured in basis points per transaction.

Evidence: On-chain data shows arbitrage bots capture over 90% of cross-chain MEV. A single, large cross-chain swap can generate tens of thousands in extracted value for the searcher, directly from the user's intended output.

Arbitrage is a tax. The price discovery argument is a semantic sleight of hand. The value captured by MEV bots and arbitrageurs is not a neutral market force; it is a direct transfer from the user's transaction to a third party's balance sheet.

Sovereignty is the asset. The user's right to execution is the underlying asset being traded. Protocols like UniswapX and CowSwap prove this by internalizing this value for users via intents, preventing its externalization to searchers.

Inefficiency is the source. The latency and fragmentation across chains like Ethereum and Solana create the arbitrage window. This is not a feature of efficient markets but a bug of the multi-chain architecture that extractive capital exploits.

Evidence: In Q1 2024, Across Protocol and LayerZero facilitated over $10B in bridging volume, a significant portion of which represented arbitrage-driven flows where users paid the spread.