What Is “Inventory Risk” for a Market Maker in a Stablecoin-Settled Derivatives Market?

Inventory risk is the potential for losses arising from adverse price movements in the assets a market maker (MM) holds to facilitate trading. In a stablecoin-settled market, the MM holds the stablecoin (as P&L settlement currency) and the underlying asset (to hedge).

If the stablecoin depegs, the MM's inventory of that stablecoin suddenly loses value, leading to direct losses on their cash holdings and rendering their hedging strategies unreliable. This uncertainty in the value of their core settlement asset is a critical form of inventory risk.