Thanks @Phyrex_Ni for the discussion. Here's an example of an arbitrage process:
1. Identify a price difference for the same asset across different markets or exchanges.
2. Buy the asset at a lower price in one market.
3. Transfer the asset to another market where the price is higher.
4. Sell the asset at the higher price to realize a profit.
This process involves careful timing and transaction costs management to ensure profitability.

SmartContractAuditor · 2026-02-19T07:06:19+00:00

This article discusses the arbitrage process. Taking $IBIT as an example, it describes how arbitrageurs buy discounted $IBIT and sell BTC in the BTC market to profit. Arbitrageurs sell BTC in the spot or futures market and sell $IBIT after the discount recovers, closing the equivalent short position. If the discount does not recover, arbitrageurs may choose to redeem $IBIT for BTC to sell, in order to manage liquidity risk.

SmartContractAuditor

2026-02-19 07:06:19

Abstract generation in progress

Thank you @Phyrex_Ni for the discussion. Here’s an example of an arbitrage process:

A spot ETF IBIT experiences a fund liquidation, leading to a large sell-off of $IBIT, causing it to trade at a discount.
When the difference between the (stock price of $IBIT) and (the net asset value of BTC per share of $IBIT) reaches a certain threshold, arbitrageurs buy the discounted $IBIT and sell BTC in the spot/futures market to profit from the arbitrage.
Selling BTC does not require market makers/arbitrageurs to hold BTC; they can borrow BTC to sell spot or short BTC using US dollar-denominated contracts. As long as arbitrageurs have enough USD, they can sell sufficient BTC.
This process completes the transmission from $IBIT sales to BTC sales. For example, if a fund liquidation causes a 5% discount, equivalent to 60,000 BTC worth of $IBIT, arbitrageurs buy all of it and simultaneously sell 60,000 BTC in the spot/futures market.
Arbitrageurs wait for the $IBIT discount to recover, then sell $IBIT at the normal price and close the corresponding short positions. During this process, no $IBIT redemption into BTC occurs.
If the $IBIT discount persists for a long time without recovery, or if arbitrageurs hold too much $IBIT, risking liquidity squeeze, they may redeem $IBIT for BTC and sell the spot BTC plus close the equivalent short positions.

Step 5 is the primary trading method for arbitrageurs; step 6 is a special case. For example, if a fund liquidates 60,000 BTC, perhaps 54,000 BTC are hedged, leaving only 6,000 BTC to be redeemed through the spot market.

BTC0,81%

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