How Does High Gas Fee Impact Stablecoin Arbitrage Efficiency?
Gas fees are the transaction costs on a blockchain. High gas fees reduce the net profit of an arbitrage trade.
Since stablecoin arbitrage profits are often small percentages, a sudden spike in gas fees can make the trade unprofitable, causing arbitrageurs to stop trading. This loss of arbitrage activity can allow a de-peg to persist or worsen, as the market mechanism for restoration is stalled.
Glossar
High Gas Fee
Cost ⎊ A High Gas Fee represents an elevated expenditure, denominated in the network's native token, required to compensate validators or miners for the computational resources consumed to process and include a transaction in a block.
Gas Fee Impact
Sensitivity ⎊ Gas Fee Impact quantifies how the cost of network computation directly influences the economic feasibility and execution reliability of on-chain financial operations, especially for options management.
Stablecoin Arbitrage
Exploitation ⎊ Stablecoin Arbitrage involves capitalizing on minor, temporary price discrepancies between a stablecoin’s market price and its intended one-dollar peg across different exchanges or DeFi protocols.
Transaction Costs
Expense ⎊ Transaction costs represent the total expenses incurred when executing a trade or interacting with a financial protocol on a blockchain.
High Gas Fees
Cost ⎊ The prevalence of elevated transaction fees, commonly termed "high gas fees," within blockchain networks, particularly Ethereum, represents a significant impediment to efficient market operation.