Trading in CEXs and DEXs with Priority Fees and Stochastic Delays

2026-02-11

AI Summary

This study addresses the trade-offs among cost, latency, and uncertainty arising from stochastic execution delays and priority fee selection in cross–centralized and decentralized exchange trading. To tackle this challenge, the authors propose a hybrid control framework that integrates continuous control with impulse interventions subject to stochastic delays. Notably, the framework innovatively treats the mean of delay in impulse control as a controllable variable and accommodates asynchronous execution of multiple limit orders, thereby extending classical impulse control theory. The associated quasi-variational inequality is analyzed via viscosity solution theory, and the optimal trading strategy is derived through dynamic programming. Empirical results demonstrate that the proposed optimal priority fee policy significantly outperforms non-strategic fee selection, effectively mitigating cross-market latency risk and enhancing trading performance.

Technology Category

• Reasoning under Uncertainty: Stochastic Optimization
• Search and Optimization: Mixed Discrete/Continuous Search
• Multiagent Systems: Mechanism Design

Application Category

• Economics, Online Markets and Human Computation: Incentives in network design for Web infrastructures and ecosystems
• Responsible Web: Human-perceived consequences of algorithmic deployment on the web
• Graph Algorithms and Modeling for the Web: Algorithms and analysis for incomplete, noisy, or partially observed Web-related graphs

Abstract

We develop a mixed control framework that combines absolutely continuous controls with impulse interventions subject to stochastic execution delays. The model extends current impulse control formulations by allowing (i) the controller to choose the mean of the stochastic delay of their impulses, and allowing (ii) for multiple pending orders, so that several impulses can be submitted and executed asynchronously at random times. The framework is motivated by an optimal trading problem between centralized (CEX) and decentralized (DEX) exchanges. In DEXs, traders control the distribution of the execution delay through the priority fee paid, introducing a fundamental trade-off between delays, uncertainty, and costs. We study the optimal trading problem of a trader exploiting trading signals in CEXs and DEXs. From a mathematical perspective, we derive the associated dynamic programming principle of this new class of impulse control problems, and establish the viscosity properties of the corresponding quasi-variational inequalities. From a financial perspective, our model provides insights on how to carry out execution across CEXs and DEXs, highlighting how traders manage latency risk optimally through priority fee selection. We show that employing the optimal priority fee has a significant outperformance over non-strategic fee selection.

Problem

• CEX
• DEX
• priority fees
• stochastic delays
• optimal trading

Innovation

• mixed control framework
• stochastic execution delays
• impulse control
• priority fees
• CEX-DEX trading