DEX-CEX Arbitrage Module

Operator & jurisdiction: BASIS is operated by BASIS DIGITAL INFRASTRUCTURE LTD, a Seychelles-incorporated entity (LEI: 254900IX2F2KCWNSSS64).

Currency convention: Interface amounts may be displayed in USDT as an internal accounting unit for USD-equivalent reference. USDT is not a depositable or withdrawable asset on BASIS. PAXG is live and fully supported as a native asset.

The PAXG DEX-CEX structural alpha module captures price dislocations between decentralized exchanges such as Uniswap or Curve and centralized exchanges such as Binance or Kraken. Because PAXG typically trades with thinner liquidity than major crypto pairs, spread windows can persist longer and offer measurable execution opportunities when evaluated under strict cost and inventory constraints.

1. Why DEX-CEX Spreads Exist for PAXG

Price dislocations between DEXs and CEXs arise from differences in venue design:

• AMM vs. order book: DEXs use automated market makers that price assets through pool formulas such as x * y = k. CEXs use order books where prices are formed by matched bids and asks. These mechanisms can diverge when order flow hits one venue faster than the other.

• Fragmented liquidity: PAXG liquidity is distributed across multiple venues and pool configurations. A large order on one DEX pool can move the on-chain price away from the best centralized quote.

• Gas cost barrier: On Ethereum, DEX execution includes network fees. This creates a minimum profitable spread threshold below which structural alpha capture is not economical.

• Latency asymmetry: CEX prices can update in milliseconds through streaming market data, while DEX prices update when state changes are confirmed on-chain. This timing difference creates short-lived execution windows.

2. Execution Flow

1

Price monitoring

The system continuously monitors PAXG reference pricing across approved DEX and CEX venues.

2

Net spread calculation

Gross spread is adjusted for DEX swap fees, CEX trading fees, estimated gas, expected slippage, and inventory rebalance costs.

3

Eligibility check

The opportunity must exceed the minimum threshold defined by the risk engine and execution policy.

4

Paired execution

If viable, both legs are executed with high timing precision. For example, if PAXG is cheaper on a DEX, the system buys on the DEX and sells on the CEX.

5

Inventory rebalance

Post-trade inventory is normalized across venues to preserve readiness for the next cycle.

3. Cost Structure

Cost Component	Typical Range	Notes
DEX swap fee	0.05% to 0.30%	Depends on pool design and liquidity concentration.
CEX trading fee	0.02% to 0.10%	Venue-specific and strategy-dependent.
Ethereum network cost	Variable	Continuously monitored before execution.
Slippage (DEX)	0.10% to 0.50%	Can widen in thinner pools.
Slippage (CEX)	0.01% to 0.10%	Usually lower when order book depth is sufficient.

Minimum viable spread: after all explicit and implicit costs are applied, only opportunities above the configured profitability threshold are eligible for execution.

4. Risk Factors

Risk	Description	Mitigation
Execution precision risk	On-chain transactions may be displaced by competing flow before confirmation.	Use protected transaction routing, deterministic execution checks, and venue-specific timing controls.
Smart contract risk	Interaction with DEX smart contracts introduces protocol and integration risk.	Restrict activity to reviewed, production-grade protocols and controlled routing paths.
Network fee spike risk	Sudden Ethereum fee expansion can invalidate expected profitability.	Real-time fee monitoring with dynamic thresholds and abort logic.
Settlement and inventory risk	Venue transfers and asynchronous settlement can create temporary imbalances.	Maintain pre-positioned inventory and enforce state-machine based inventory controls.

5. Infrastructure Context

BASIS execution systems are designed around deterministic execution, mathematical constraints, and state machine risk controls.

Key infrastructure characteristics:

• BHLE routing architecture

• Sub-50μs internal latency targets

• 100K+ OPS processing capacity

• Proprietary routing infrastructure

• Inventory-aware execution logic

• Structural alpha capture under bounded risk policies

PAXG support is live and active on BASIS.

Deposits and withdrawals for PAXG use a connected Web3 wallet. In the BASIS wallet model, native assets such as PAXG are held in the Funding Wallet, while staking assets such as stPAXG are held in the Staking Wallet.

Supported same-token swap path: PAXG → stPAXG at 1:1

6. Research Basis

This module is informed by execution research and market structure analysis developed with the Research Partner. The operating objective is not directional speculation, but disciplined structural alpha capture through constrained execution, inventory symmetry, and repeatable venue selection logic.