For example, let’s say an LP deposits liquidity into an ETH-BTC pool at a time when 1 BTC equals 10 ETH. A month later, the value of ETH doubled while BTC hasn’t changed. When this disparity occurs, arbitrage traders will jump at the opportunity to buy ETH from that pool and sell it on a DEX at a higher price thereby bringing the pool ratio and token prices back to market rate. This could hurt a depositor or benefit them, depending on which side of the trade they’re on.
Why Institutional Investors are Sizing Up the Cryptocurrency Market
