I don't think the problem is scale, the problem is there are multi-exchanges for the same asset. You can't trade GOOG, or TSLA on both NYSE and the NASDAQ for precisely this reason - a run up on one exchange will cause the entirety of money to shift for arbitrage. This is the real problem they are facing, imho.

Actually, these stocks are traded on both NYSE and NASDAQ (and 10 other exchanges, including IEX), but Reg NMS promises the customer to get the best price on any exchange

Ehhh, you can definitely trade the same stocks on multiple exchanges at the same time. You are confusing listings with trading

Are you implying that arbitrage is the main source of trading volume on these exchanges?

And if so, how would arbitrage be a viable long-term strategy given

1. long block-times which prevent quick movement of cryptocurrencies across exchanges

2. strong AML/KYC which prevent flow of capital between countries (e.g. United States and Korea)

Actually you can trade GOOG and TSLA on both NYSE and NASDAQ. RegNMS is what prevents inter-exchange arbitrage.