# What Is Stablecoin Arbitrage? Depegs, Redemption and Risks

> Stablecoin arbitrage profits when a stablecoin trades away from $1, buying below the peg to redeem or minting to sell above it. See how it works and its risks.

Updated: 2026-09-24

**Stablecoin arbitrage is trading a stablecoin when its market price moves away from its peg, typically buying below $1 and redeeming or selling at $1, or minting at $1 and selling above it.** A [stablecoin](/learn/what-is-a-stablecoin) is designed to hold a fixed value, but on exchanges it trades freely and can drift. The arbitrage keeps prices near the peg, and the risk is that the peg itself fails.

## Key takeaways

- The trade targets the gap between **market price and peg value**.
- **Primary arbitrage** uses the issuer's mint and redemption at $1; **secondary arbitrage** trades between exchanges or pools.
- Direct redemption is often limited to **verified customers**, with minimums, fees and delays.
- A deep discount usually means the market **doubts the backing**, not that there is free money.
- Buying a depeg without a guaranteed exit is a **bet on recovery**, not arbitrage.
- **USDT/USDC rates** can distort other cross-exchange spreads.

## How stablecoin pegs are maintained

Different designs defend the peg in different ways:

| Type | What backs it | How the peg is defended |
|---|---|---|
| Fiat-backed | Cash, bank deposits, short-term government debt | Issuer mints and redeems at $1 for eligible customers |
| Crypto-collateralized | Other crypto held in smart contracts, usually overcollateralized | Liquidations, interest rates and swap modules |
| Algorithmic or synthetic | Protocol mechanisms, hedged positions or a paired token | Incentives and market mechanisms, not direct cash backing |

For fiat-backed coins, the mint and redeem process is the anchor. If the coin trades at $0.99 and eligible holders can redeem at $1.00, they buy on the market and redeem, which pushes the price back up. If it trades at $1.01, they deposit dollars, mint new coins at $1.00 and sell them.

## Worked example: buying below the peg

Assume a fiat-backed stablecoin trades at **$0.992** on an exchange, and you are an eligible customer of the issuer. Illustrative costs:

- Exchange taker fee: **0.02%**
- Redemption fee: **0.1%**
- Size: **100,000 coins**

| Step | Calculation | Amount |
|---|---|---|
| Buy on exchange | 100,000 × $0.992 | −$99,200.00 |
| Trading fee | $99,200 × 0.02% | −$19.84 |
| Redeem with issuer | 100,000 × $1.00 × (1 − 0.1%) | +$99,900.00 |
| **Net profit** | | **+$680.16** |

That is about **0.69%** on $99,219.84 of capital. The return only arrives when the redemption settles, which may take a business day or more, and if withdrawals from the exchange or redemptions are paused, the capital is stuck at the market price.

With these fees, the break-even market price is about **$0.9988**: redemption returns $0.999 per coin, and the purchase costs the price plus 0.02%, so 0.999 ÷ 1.0002 ≈ 0.9988. Above that, the trade loses money. Issuers also often set minimum redemption sizes, so small holders may not be able to use this route at all, even if they are verified.

The reverse trade works above the peg. If the coin trades at **$1.004**, you mint 100,000 coins for $100,000, sell them for $100,400, pay a $20.08 fee and keep **$379.92**, assuming no minting fee.

## Secondary market arbitrage

Most traders cannot mint or redeem directly. They trade stablecoins against each other instead:

- **Between exchanges.** A USDC/USDT pair may trade at 0.9990 on one venue and 1.0010 on another. Buying on the first and selling on the second works like [spot arbitrage](/learn/spot-arbitrage), with tiny margins that need low fees and large size.
- **Between CEXs and DeFi pools.** Stablecoin swap pools in [DeFi](/learn/what-is-defi) use curves that keep price impact very low near the peg. When a pool becomes unbalanced, one stablecoin trades at a discount until arbitrageurs restore it.
- **Inside cross-exchange spreads.** If a coin trades at 100.00 USDT on one exchange and 100.05 USDC on another, the 0.05% gap may be the USDT/USDC rate, not a mispricing of the coin.

## What a depeg really means

Small deviations of a fraction of a cent are normal and usually reflect temporary supply and demand. Large deviations are different. They tend to happen when the market doubts that the backing is safe or that redemption will work.

Two well-known cases show the range. USDC traded well below $1 in March 2023 after its issuer disclosed that part of its reserves was held at Silicon Valley Bank, which had failed; it returned to its peg once the deposits were secured. TerraUSD (UST), an algorithmic stablecoin, lost its peg in May 2022 and collapsed. A trader who bought each at a discount without a guaranteed exit got very different outcomes.

The lesson: the size of the discount is a measure of perceived risk. Arbitrage profit is only locked in when you can actually complete the exit leg.

## Risks

- **Redemption risk.** The issuer may pause, delay or gate redemptions, and fiat redemptions depend on banks being open.
- **Collateral risk.** Reserves may be impaired, illiquid or not fully disclosed.
- **Liquidity risk.** During stress, order books and pools thin out and [slippage](/learn/what-is-slippage) rises sharply.
- **Exchange risk.** An exchange can suspend deposits or withdrawals of the stablecoin, trapping one leg.
- **Regulatory and freezing risk.** Many fiat-backed issuers can freeze tokens at specific addresses.
- **Opportunity cost.** Margins are thin, so capital locked during slow settlement earns little.

## Common mistakes

- Treating every discount as free money, without checking why the market is pricing in risk.
- Assuming you can redeem with the issuer when you are not an eligible customer or below the minimum size.
- Ignoring how long capital is locked while a redemption settles.
- Comparing prices quoted in different stablecoins as if they were the same currency.

More general arbitrage risks are covered in [arbitrage risks](/learn/arbitrage-risks).

## How ArbTide helps

ArbTide's [live arbitrage scanner](/arbitrage) shows cross-exchange price gaps, and the [methodology](/methodology) page explains which quote currencies are compared directly, which means small stablecoin price differences are part of each spread. To test a stablecoin trade with your own fees and size, use the [arbitrage profit calculator](/tools/arbitrage-profit-calculator).

## Frequently asked questions

### What is stablecoin arbitrage?

Stablecoin arbitrage is trading a stablecoin when its market price moves away from its peg, usually $1. Traders buy below the peg and redeem or sell at $1, or mint at $1 and sell above the peg, keeping the difference after fees.

### What is a stablecoin depeg?

A depeg is when a stablecoin's market price moves meaningfully away from its target value. Small deviations are common in thin markets, while large depegs usually reflect doubt about the reserves, the collateral or the redemption process.

### Can anyone redeem a stablecoin for $1?

Not always. For many fiat-backed stablecoins, direct minting and redemption with the issuer is limited to verified customers and may have minimum sizes, fees and processing times. Most retail traders can only buy and sell on exchanges.

### Is buying a depegged stablecoin arbitrage?

Only if you can lock in the exit, for example by redeeming with the issuer. Buying at $0.95 in the hope that the price returns to $1 is a bet on recovery, and the price can keep falling if the peg fails.

### Why does USDT/USDC matter for arbitrage?

Many coins are quoted in USDT on one exchange and USDC on another. If the two stablecoins are not trading exactly at parity, a price gap between those markets can be partly or fully explained by the stablecoin rate rather than the coin itself.