Arbitrage Trading Mechanics

Arbitrage trading mechanics involve the process of identifying and exploiting price discrepancies between different markets or protocols. In the context of decentralized finance, arbitrageurs play a critical role in keeping prices consistent across various exchanges.

When a flash loan attack creates a price imbalance, arbitrageurs act to restore the equilibrium, often profiting in the process. They monitor the blockchain for price differences and execute trades that bring the local price back in line with the global market price.

This activity is essential for market efficiency but can also be manipulated by sophisticated actors. It relies on low-latency execution and deep understanding of protocol pricing curves.