How Do Stablecoins Mitigate Currency Risk in Cross-Exchange Arbitrage?
Stablecoins are cryptocurrencies pegged to a stable asset, typically the US dollar, minimizing the risk of price volatility. By using stablecoins (e.g.
USDC, USDT) as the base currency for spatial arbitrage, the arbitrageur isolates the risk to the price discrepancy of the volatile asset itself. This eliminates the risk of the base currency fluctuating wildly during the transfer time between exchanges.
Glossar
Currency Risk
Exposure ⎊ Currency risk, or exchange rate risk, represents the potential for financial loss arising from adverse movements in the exchange rate between two different currencies, a primary concern in global derivatives trading.
Currency
Definition ⎊ Currency, in this financial context, represents a medium of exchange, store of value, or unit of account, encompassing both fiat denominations and decentralized digital assets.
Base Currency
Definition ⎊ The Base Currency is the asset being bought or sold in a trading pair, representing the unit against which the price is quoted.