Anyone thinking Arbitrage is free and easy money — hold it right there! ✋ DeFi Arbitrage requires strong technical skills and excellent market knowledge. Check out exactly how & why 👇
. Arbitrageurs bought USDT when it was below its dollar peg and redeemed it for dollars, allowing them to pocket a small but risk-free profit. In this case, the mechanism worked exactly as designed, as stablecoins are designed around arbitrageurs keeping the balance between theStablecoin arbitrage can get more complex, too.
compared to others — requiring the trader to factor in gas costs for their arbitrage. Stablecoin arbitrages can also happen across different pools. In that case, arbitrageurs take advantage of the pool imbalances.In the example of Tether, it was as simple as buying USDT when it was below its peg and waiting a few hours. No bridging or cross-exchange transactions were required: generally the case when a stablecoin trades below its peg.
If a stablecoin trades above its peg, you can short-sell it or sell the other asset of a liquidity pair . Say the USDT/USDC pair is imbalanced and 1 USDC buys 1.02 USDT. You can sell your USDC for USDT and pocket the two cents difference once the pair is balanced again.Stablecoin arbitrages are pretty self-explanatory and equivalent to fixed exchange rates in the real economy.Low. The most difficult aspect is assessing the risk concerning the de-peg.
Such a spread is unlikely, though, and differences are most likely to arise across different DeFi and CeFi platforms. You may borrow from a DeFi protocol, but lend on a CeFi custodial platform or vice versa.. Say you borrow ETH for 1% on Aave and lend it on a custodial platform, like BlockFi, for 1.5%. The 0.5% is your profit.This arb is also fairly easy to understand. A real-world example would be having a farm and hiring workers.
In other words, trade batching works like a "fill or kill" order on an exchange or an IF-THEN logic in an Excel sheet. Traders can build profitable risk and reduce the risk of their different legs becoming unprofitable, since the transaction is only triggered if all the conditions are fulfilled. Flash loans add another layer to that and allow traders to execute these arbs without much capital.
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