Why is the exchange rate between different stablecoins not always 1:1? Are there arbitrage opportunities?

Stablecoinexchange rateArbitrageCryptocurrencyfinancial arbitrage
Created At: 8/6/2025Updated At: 8/17/2025
Answer (1)

Hey, why aren't different stablecoins exchanged at exactly 1:1? This is actually quite common, let me break it down for you.

I've been in the crypto space for a few years and have stepped into plenty of potholes with stablecoins. Stablecoins like USDT, USDC, and DAI are all supposed to be pegged 1:1 to the US dollar, right? Meaning one stablecoin equals one dollar. But in reality, their exchange rates sometimes deviate slightly—like 1 USDT for 0.998 USDC, or vice versa. This isn’t a bug; it’s a normal market phenomenon. Let me explain why step by step, and whether there are arbitrage opportunities.

First, why isn’t it strictly 1:1?

  • Supply and demand at play: Each stablecoin has a different issuer—USDT by Tether, USDC by Circle, DAI is decentralized (via Ethereum’s MakerDAO). Market supply and demand aren’t always balanced. For example, if many people suddenly want to buy Bitcoin with USDT, demand for USDT rises, and its price might edge up to $1.001. Conversely, if everyone dumps USDT, it could drop to $0.999. This creates small gaps between stablecoins.
  • Liquidity issues: On exchanges or DeFi platforms, liquidity pools for certain stablecoins (like on Uniswap) might be imbalanced. Smaller pools mean large trades can easily push prices up or down, causing deviations from 1:1.
  • External factors: Regulatory news, market panic, or network congestion (e.g., high Ethereum gas fees) also impact prices. For instance, during Terra’s UST collapse in 2022, other stablecoins fluctuated too—everyone rushed to swap into USDC, temporarily making USDT cheaper.
  • Different pegging mechanisms: USDT and USDC are centralized with reserve backing; DAI is over-collateralized (backed by assets like ETH). These mechanisms allow minor price fluctuations in extreme scenarios but usually revert quickly to 1:1 thanks to arbitrageurs "correcting" the price.

In short, it’s not a design flaw but a result of market dynamics. Deviations are usually tiny—just pennies—but noticeable if you’re paying attention.

Are there arbitrage opportunities? Yes, but don’t get too excited

Absolutely! This is called "stablecoin arbitrage," and I’ve tried it myself. The basic idea: When Stablecoin A is cheaper than B, buy A, swap to B, then sell B elsewhere for a profit.

  • Simple example: Suppose on Binance, 1 USDT = 0.998 USDC (USDT is cheaper). You buy USDT on Binance, transfer to Coinbase (where the rate is 1:1), sell for USDC, then cash out or swap further. Theoretically, you’d profit $0.002 per USDT. But in practice:
    • Fees eat profits: Transfer fees, trading fees, and gas fees (if cross-chain) can swallow that tiny spread. Especially for small amounts, it’s rarely worthwhile.
    • Timing and slippage: Markets move fast—prices may shift while you’re executing. Large orders also cause "slippage," worsening your actual fill price.
    • Don’t ignore risks: Stablecoins aren’t 100% stable—USDT has had black swan events (like reserve controversies). Platform risks exist too, like exchange failures or frozen funds. Last time I tried arbitrage, I made a small profit, but a delayed transfer nearly wiped it out.

If you’re new, start small on DeFi platforms like Uniswap or Curve. They have dedicated stablecoin pools, making arbitrage more efficient. But remember: arbitrage isn’t passive income—it requires monitoring, fee calculations, and tools (e.g., Dune Analytics for data).

Overall, opportunities exist, especially for large players using automated bots. But for most people, it’s more of a learning experience—don’t go all in. Got questions about specific stablecoins? Let me know!

Created At: 08-06 13:21:12Updated At: 08-09 22:32:35