How Do Traders Hedge Their Stablecoin Risk When a Trading Halt Is Imposed? ⎊ Path

How Do Traders Hedge Their Stablecoin Risk When a Trading Halt Is Imposed?

When a trading halt is imposed, traders cannot use the exchange's derivatives market to hedge their stablecoin exposure. They must resort to off-exchange or over-the-counter (OTC) methods.

This includes attempting to sell the depegged stablecoin for fiat or another, more trusted stablecoin on a different, still-active exchange. Alternatively, they may try to use decentralized exchanges (DEXs) to swap the depegged coin, although liquidity may be poor.

The halt severely limits hedging options, forcing traders to accept significant counterparty risk.

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Trading Halt

Interruption ⎊ A trading halt, within cryptocurrency markets and derivative exchanges, represents a temporary suspension of trading in a specific asset, typically triggered by significant price volatility or imbalances in order flow.