Sisters, I've recently researched cross-chain arbitrage/trading arbitrage.
Discovering a heartbreaking fact: **Without stablecoins, this job is almost enough to make you question life** 🤯
Today, let's talk about — **why stablecoins are the 'saviors' of cross-chain arbitrage?**
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### 1. Step One: Find the 'local currency' (Gas Token) of the target chain.
Suppose you want to arbitrage on a new chain; the first thing to know is what its 'local currency' is.
For example, on Ethereum it’s ETH, on BSC it’s BNB…
But here’s the problem: **You don’t want these 'local currencies' at all** because you’re not here to be an LP; you’re here to arbitrage!
So you need a way to ensure you do not hold any 'local positions'.
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### 2. Step Two: Find a counterparty for lending.
To avoid holding local currency, you need to find someone willing to lend you.
By collateralizing your assets (like USDT, BTC, etc.), borrow the Gas Token of the target chain.
But there are several pitfalls in this step:
- Over-collateralization: You have to put up more collateral than actually needed; typically, 100 units of collateral can only yield a loan of about 60-70 units.
- Credit issues: Most of your assets may be in your exchange account, making it difficult to find lending platforms on the target chain, which means the money you borrow could be 'offshore currency' that you still need to figure out how to transfer.
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### 3. Step Three: Cross-chain bridge or withdrawal
After much effort to borrow money, the next step is to transfer this 'offshore currency' to the target chain.
Here comes another pile of trouble:
- Transaction fees: Whether it’s a cross-chain bridge or withdrawing from an exchange, you have to pay a significant fee.
- Limitations on transfer amounts: Sometimes cross-chain bridges or exchanges may temporarily limit your transfer amount, causing you to miss the best arbitrage opportunity.
- Risk of lockdown: At times, cross-chain paths may be locked down, causing you to lose opportunity costs.
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### 4. Step Four: Hedging and real-time monitoring
Even if you successfully complete the first three steps, you still have to keep an eye on the market to prevent the target currency from suddenly soaring, causing the hedge to fail.
This means you’ll have to invest extra time and energy to monitor and balance positions, ensuring the safety of funds.
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### How do stablecoins change all this?
Now let’s see, if we have stablecoins (like USDC, USDT),
You will find that the whole process becomes incredibly smooth:
- No need for over-collateralization: Stablecoins themselves are stable-value assets, requiring no complex collateral processes.
- Real-time price difference locking: Stablecoins can flow seamlessly across multiple chains, helping you quickly lock in real-time price differences.
- Lower transaction fees: Compared to cross-chain bridges or exchange withdrawals, the transfer cost of stablecoins can be almost negligible.
- Reducing lockdown risks: The liquidity of stablecoins is widespread, making them less susceptible to the influence of any single chain or platform.
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### Analogous to multinational banks in traditional finance
This mechanism is actually very similar to multinational banks in traditional finance (like HSBC):
They help cross-border trade companies establish hedges for offshore and onshore positions through a broad global credit network.
It reduces the cost and risk of cross-border transactions, while also being able to absorb deposits, further optimizing liquidity pools in various regions.
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### Let’s summarize the advantages of stablecoins:
1. Simplifying the hedging process: No complicated collateral and lending processes are needed.
2. Improving capital utilization: Reducing capital occupation, enhancing overall returns.
3. Reducing operational risks: Avoiding the risk of lockdown on cross-chain bridges or withdrawals.
4. Optimizing liquidity: The existence of stablecoins makes liquidity between chains smoother.
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In the past, doing cross-chain arbitrage felt like swimming in a quagmire.
Now with stablecoins, it's like being on roller skates, unbelievably smooth!
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❤️ If you also think stablecoins make cross-chain arbitrage easier,
✅ Like to support this efficiency-enhancing tool.
📌 Bookmark and don’t miss more cross-chain strategy shares.
🔁 Forward it to that friend who always says 'cross-chain arbitrage is too complicated.'
💬 Leave a message: Which stablecoin have you found to be the most user-friendly?
I’ll go first: **USDC's performance across multiple chains has really saved me a lot of trouble** 😎
#Stablecoins #Cross-chainArbitrage #BlockchainFinance #DeFi #QwenMoneyMakingRecord #ArbitrageStrategy #FinancialFacilities #LiquidityOptimization
