# Scaling and competitive reality (reference)

**Last Updated:** 2026-04-13  
**Document Version:** 1.0  
**Status:** Reference

This compresses “what scales” and “what bites” for teams sizing MEV and arbitrage infrastructure. It is **not** a revenue forecast.

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## What scales (qualitatively)

| Pattern | Scales under competition? | Notes |
|--------|---------------------------|--------|
| Simple two-pool DEX arb | Usually **poorly** | Commoditized; margins often near gas |
| Triangular / multi-hop | **Mixed** | Limited by weakest leg; search cost grows |
| Backruns (mempool-visible flow) | **Often better** | High frequency; outcome dominated by simulation + execution |
| Sandwiching | **Mixed** (and often **excluded** by policy) | High per-trade upside when it works; protections, reverts, and ethics matter |
| Liquidations | **Bursty** | Large per-event when volatility spikes; protocol-specific |
| Cross-chain | **Mixed** | Capital and bridge latency bound scale |
| Oracle lag | **Rare** | High impact episodes; requires deep protocol knowledge |

Top teams typically run a **multi-strategy** portfolio (detection + simulation + execution shared), rather than a single “arb bot.”

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## Hard constraints

1. **Near zero-sum extraction** against unsophisticated flow or passive LPs: your profit is often someone else’s worse execution or lower returns.  
2. **Competitors** include specialized firms with dedicated data, execution, and builder relationships.  
3. **Edge decays** as more capital and automation chase the same signals.  
4. **Operational risk:** reorgs, relay failures, buggy adapters, key compromise, and regulatory attention (especially user-harming strategies).

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## Detection funnel (intuition)

- **Many** raw signals per second (logs, mempool hints, block diffs).  
- **Some** survive simulation as technically valid.  
- **Few** remain profitable after gas, tips, and failure probability.  
- **Fewer still** win the **ordering auction** against peers.

Framing the system as **winning blockspace under uncertainty** matches production more closely than “find positive arb.”

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## Relation to implementation work

Building a **reliable** internal platform (indexing, deterministic simulation, bundle lifecycle, observability) is valuable even when **public mempool alpha** is thin: the same components support **risk management**, **internal routing**, **testing**, and **incident replay**.

For build scope and safety gates, follow **`MEV_Bot/specs/MVP_SCOPE.md`** and **`MEV_Bot/specs/OBSERVABILITY_SAFETY_AND_ROLLOUT.md`** in the proxmox parent submodule.

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## Related

- [OPPORTUNITY_TAXONOMY.md](OPPORTUNITY_TAXONOMY.md)  
- [PRODUCTION_PIPELINE.md](PRODUCTION_PIPELINE.md)  
- [ARCHITECTURE.md](ARCHITECTURE.md)