How Does High Transaction Latency (Slow Block Times) Hinder Arbitrage Effectiveness?
High transaction latency, or slow block times, hinders arbitrage effectiveness by increasing the risk that the price discrepancy being exploited changes before the arbitrageur's transaction is confirmed on the blockchain. The delay gives other market participants or bots time to front-run the trade or for the market to naturally correct the price.
This "execution risk" reduces the certainty of the arbitrage profit, making it less attractive and thus weakening the constant pressure needed to maintain the stablecoin's peg.
Glossar
Transaction Latency
Execution ⎊ Within cryptocurrency, options trading, and financial derivatives, execution latency represents the temporal delay between the initiation of a transaction and its conclusive settlement.
High Transaction Latency
Latency ⎊ High transaction latency refers to the excessive time delay between the submission of a transaction to a blockchain network and its final, irreversible confirmation within a validated block.
Arbitrage Effectiveness
Efficacy ⎊ Arbitrage effectiveness quantifies the degree to which price discrepancies across related financial instruments are successfully exploited and subsequently eliminated by market participants.