Your guide on how to use CEX and DEX arbitrage bots
News | April 13, 2022, 9:41 AM | The content is supplied by a Guest author
The cryptocurrency market at its peak reached a capitalization of $3 trillion. Every day, cryptocurrencies acquire the status of an increasingly popular financial instrument with high returns. This entails an increase in the number of new users and transaction volumes. Transactions over the network take place with a delay that requires confirmation. The higher the number of transactions, the longer it takes which has a standard or minimum transaction fee. This leads to a shortage of offers at the average price, which forces buyers to buy back more expensive orders, and sellers to place them at an even higher price.
Many cryptocurrency projects base their development strategy on scalability and increased throughput. But by modernizing one direction, the advantage of the other is lost. Every year it becomes more and more obvious that digital asset networks do not allow for growing transaction volumes without loss of quality. It is to create this balance that arbitrage bots were developed. So what is the DEX CEX arbitrage?A cryptocurrency bot is a specially created protocol that uses different information and scanner systems. It is used for recognizing financial instrument entry points for making transactions on behalf of the user. There are more and more cryptocurrency bots, and therefore it is important to understand what bots are and where to look for them. Investors can use ScammerWatch which consists of a list of the best arbitrage CEX DEX to search for proven CEX DEX bots and escape scams.
Trading CEX and DEX bots were originally used on stock exchanges, but after the popularity of cryptocurrencies, they began to be used on the crypto market. Thanks to them, operations are performed that a trader would spend many hours on. Cryptocurrency bots are divided into two large groups - trading and arbitrage.
Arbitrage bots are used to work with several exchanges at the same time. For this, different programs are used. Some require a minimum of parameters to perform simple operations. Other programs require flexible data settings.
How does DEX bot work
So how to CEX DEX arbitrage in your trading life? The main purpose of the bots is to use incorrect pricing on different cryptocurrency exchanges. During the execution of large trade with one pool of liquidity, an imbalance is created and the value of the same asset is distorted for the trader. Due to this mismatch, arbitrage DEX bots rebalance and replenish liquidity from another exchange.
Arbitrage DEX bots can be written with basic trading strategies or special algorithms to perform cross-network transactions or provide liquidity.
The construction of a smart contract using a DEX bot occurs in such a way that the contract can carry out transactions on two or more decentralized exchanges. Bots for working in the DeFi sector are used to increase profitability and arbitrage the profitability of bets.
Trading with DEX bot
An important advantage of arbitrage DEX bots is that they can be used both for operations with large cryptocurrencies (BTC, ETH) and little-known altcoins. It all depends on the algorithms on which the smart contract is built.
The DEX arbitrage bot can be used to automate transactions on DeFi platforms such as Ethereum-based UniSwap, Binance Smart Chain-based Pancake Swap. If you hesitate about choosing the right platform go ahead and find out all the differences between Pancake Swap vs UniSwap. The bot uses data from the blockchain and smart contracts to obtain information about commissions, gas, and the current value of the cryptocurrency. This allows you to conclude the most profitable deal at the moment.
It is important to note that the arbitrage DEX bot does not allow you to gain an advantage due to the speed of trading. This may be due to the architecture of the Ethereum blockchain, where the block time is 15 seconds and each order will be confirmed only after the formation of the next block.
Using a DEX arbitrage bot needs to pay attention to miners who play an important role in trading. It is the miners who decide whose transactions will be processed first. The queue is usually formed based on the gas fee. Therefore, it is important to configure the bot in such a way that gas savings are not envisaged if you need to gain a speed advantage.
The use of arbitrage CEX bots allows you to rely on large-volume transactions. Also, users do not have to worry about the security of their funds, since they are initially stored on a centralized platform. Making transactions using CEX arbitrage bots, investors must pay high transaction fees due to the need to adjust and change order components. In addition, when using CEX bots, users will not control the assets, as they are located on a centralized platform.
At the same time, the CEX arbitrage bot is great for making large transactions on an ongoing basis due to the absence of problems with the liquidity of the platform. The legislation allows the use of CEX arbitrage bots for transactions. At the same time, the investor remains completely protected while trading with the help of a bot. On the other hand, investors do not have full control over their assets during the operation of the arbitrage bot, as they are required to store their assets on the cryptocurrency platform. This can be dangerous for users while the CEX bot is running.DEXs bot may struggle more than CEXs bot when working with larger investors. Since they cannot yet compete with the largest CEXs in size, they cannot offer as much liquidity. When they meet with insufficient liquidity. Institutional investors make large orders and they are secured from unplanned additional costs called “slippage”.
Summing up, we can say that DEX bots provide more functionality for retail investors who carry out transactions in small volumes. At the same time, CEX bots have constant liquidity, but high commission costs for investors. With this in mind, arbitrage DEX bots are more suitable for retail traders, while CEX bots are more suitable for institutional investors for whom security and liquidity are important.
Author: Nina Petrov (editor-in-chief at TradeCrypto.com)