PancakeSwap V3's Ascendancy in the MEV Market - A Comprehensive Study

90% dominance on BNB Chain and rare Sandwiches give traders reasons to explore.

Jul 19, 2023

brown and white dish on black ceramic bowl — Photo by micheile henderson on Unsplash

Traders face fierce competition, making finding arbitrage opportunities increasingly challenging daily.

In April, we put out our initial analysis on PancakeSwap V3. Today, after 3 months, we release the comprehensive research investigating the impact of the PancakeSwap V3 launch on the MEV market.

Here are 7 key takeaways.

Since PancakeSwap V3 launched, the share of arbitrages involving it on BNB Chain has soared, making up 25.8% of the total arbitrage revenue, 14.72% of the overall arbitrage count, and 37.07% of the total arbitrage volume.
PancakeSwap V3 on the BNB Chain has experienced remarkably few sandwich attacks since its launch. In fact, the sandwich revenue it generated constitutes merely 2.26% of the total sandwich revenue. Meanwhile, on Ethereum, we've not observed any sandwich attacks on PancakeSwap V3.
Regardless of whether it's the BNB Chain or Ethereum, MEV activities involving PancakeSwap V3 yield greater revenue and profit than those without PancakeSwap V3. By the week ending on 6/4, the proportion of profits that arbitrages involving PancakeSwap V3 contributed to all arbitrage profits on BNB Chain already hit 40%.
The profit from each MEV activity involving PancakeSwap V3 exceeds that from activities involving V2. However, V3's total volume and revenue from MEV activities fall short of those generated by V2. Several factors influence MEV, with market opportunities standing out as a significant one. We have found that:
1. Market Volatility: A positive correlation exists between arbitrage frequency and price volatility, as we demonstrated in Section 3.2. This correlation makes sense because larger price fluctuations tend to create more arbitrage opportunities.
2. Total Trading Volume: There's also a positive correlation between arbitrage volume and total trading volume. In Section 2.2, we found a correlation coefficient of 0.6 between the trading volume (excluding arbitrage volume) and arbitrage volume and a correlation coefficient of 0.62 between trading volume (excluding sandwich volume) and sandwich volume. This connection is intuitive since trading creates price differences and MEV opportunities. Consequently, the larger the total trading volume, the greater the MEV volume becomes. We base this conclusion on the total trading volume and transaction count from 4/1 to 6/4 on PancakeSwap.
  The total trading volume of PancakeSwap V3 is just 32.26% of that of PancakeSwap V2. This disparity explains why there are more MEV opportunities on PancakeSwap V2 than on PancakeSwap V3.
3. Pool Liquidity plays a crucial role too. Given the recent launch of PancakeSwap V3, its pools are quite new. The liquidity in these new pools is often more unstable and likely to create MEV opportunities, thus leading to potentially greater profits.
Before PancakeSwap V3 came into existence, arbitrage opportunities on PancakeSwap on Ethereum were scarce. However, after the launch of PancakeSwap V3, arbitrage bots began to monitor PancakeSwap V3 on Ethereum.
The most popular pools are the primary magnets for MEV activities. On the BNB Chain, the top 10 pools account for 61.93% of arbitrage counts involving PancakeSwap V3. On Ethereum, this proportion leaps to 93.31%.
When it comes to arbitrage bots, the most profitable one does not always have the most transactions, regardless of whether they operate on the BNB Chain or Ethereum. In contrast, sandwich bots that earn more generally carry out more transactions.

Moreover, we break down revenue, volumes, and profits by MEV types (arbitrage or sandwich) and whether involving PancakeSwap or PancakeSwap V3, on BNB Chain, from April 1st to June 4th.

Here are two highlights from the data below.

Over 90% of the total MEV on the BNB Chain comes from activities on PancakeSwap.
Sandwich attacks on PancakeSwap V3 are quite rare, with the revenue they generate constituting a mere 2.32% of the total sandwich revenue.

To read and download the full report, please click here.

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