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.