For instance, let’s say an LP deposits liquidity into an ETH-BTC pool at a time when 1 BTC equals ten ETH. A month later, the worth of ETH doubled when BTC hasn’t changed. When this disparity happens, arbitrage traders will jump at the chance to invest in ETH from that pool and sell it on a DEX at a greater price tag thereby bringing the pool ratio and token rates back to industry price. This could hurt a depositor or advantage them, based on which side of the trade they’re on.
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