How Crypto Arbitrage Bots Work: A Plain-English Guide

Prices rarely agree. The same asset trades on dozens of venues simultaneously — perpetual futures on Hyperliquid, spot markets across Solana DEXes, prediction markets on Polymarket — and the gap between them is never zero for long. Arbitrage bots exist to close those gaps faster than any human can, capturing the spread as profit in the process. If you have ever wondered how do arbitrage bots work under the hood, this guide builds a single mental model from signal detection through to cash settlement.

Step 1 — Seeing the Gap Before Anyone Else

Every arbitrage trade begins with information. The bot needs to know the best bid and ask on each venue right now, not 200 milliseconds ago.

On Solana, the fastest path to raw market data is a Geyser stream — a direct account-change feed from a validator that bypasses RPC polling entirely. A well-tuned geyser client can deliver account updates in under five milliseconds from the moment a transaction is confirmed. On Hyperliquid, the exchange exposes a WebSocket feed of CLOB order book snapshots; bots subscribe at the L2 depth level and maintain an in-memory order book that mirrors the exchange's state tick by tick.

Latency at this layer is structural alpha. If your feed arrives 50 ms later than a co-located competitor's, you will consistently react to stale prices and fill into adverse conditions.

Step 2 — Defining the Opportunity

Not every price gap is tradeable. The bot must quickly answer four questions:

• Is the spread wide enough? After accounting for fees, slippage, and gas (priority fees on Solana or Hyperliquid's taker fee), is there margin left?
• Can both legs be filled at the quoted size? Thin order books mean the second leg moves against you before you can cross it.
• Is this a structural divergence or noise? Funding rates on perpetual markets can persistently skew a contract's price above or below spot — an arb bot treating that as mispricing will fight the funding mechanism and lose.
• Does inventory risk make this trade dangerous right now? If the bot is already long on one venue and flat on the other, adding more of the same exposure concentrates risk. Good bots track inventory skew in real time and size down or pass when limits are breached.

Our cross-venue arbitrage case study walks through exactly this evaluation loop across multiple liquidity venues.

Step 3 — Executing Atomically or Abandoning

The defining challenge of arbitrage is that the opportunity exists only if both legs land. A half-filled arb is a directional position you did not intend to take.

On Solana, the cleanest solution is to bundle both legs into a single Jito bundle — an atomic transaction group submitted directly to a Jito block engine. Either every instruction in the bundle executes, or none of them do. The bot adds a Jito tip (a SOL payment to the block builder) to guarantee inclusion at the front of the block. There is no mempool in Solana's traditional sense, so front-running defense comes from block-builder relationships and simulation.

Before submission, a serious bot runs a local simulation of the bundle against the current chain state. If the simulation reverts — say, because a pool's reserves moved since the quote was fetched — the transaction is dropped rather than submitted. This anti-rug check prevents repeatedly paying base fees for failed transactions and keeps the bot's on-chain footprint clean.

On Polymarket, execution looks different: markets resolve via UMA's oracle, and the arb is typically between the implied probability on a CLOB order book and an external data source. Speed still matters at market open and close, but the edge is often in resolution logic — knowing exactly how a market will resolve before the crowd does.

Across all venues, a hard kill-switch that halts all order submission on a configurable P&L drawdown or position-limit breach is non-negotiable in production systems.

Putting It Together

Price discovery, latency infrastructure, atomic execution, and risk controls are not separate modules — they form one feedback loop that runs thousands of times per second. The bots that sustain edge over time are the ones that keep that loop tight and fail gracefully when conditions change.

If you are building in this space, our trading-bot services cover the full stack from data ingestion through to on-chain execution.

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Ready to put this into practice? Start a project with TierZero and we will scope out the right arbitrage architecture for your target venue and strategy.