If a bStock and its underlying stock can trade at different prices, why doesn't arbitrage immediately close the gap?
I used to think 1:1 backing should make price differences almost impossible to sustain.
But I was mixing two different things.
1:1 backing tells me what's behind the bStock.
It doesn't mean the bStock and the underlying share must trade at exactly the same price at every moment.
And that raised a more interesting question for me:
If a price difference appears, why doesn't arbitrage immediately remove it?
The key distinction is that a price gap and an arbitrage opportunity aren't the same thing.
bStocks can trade 24/7 on Binance Spot, while the underlying stock trades on a traditional market with its own trading hours.
Eligible users can also convert between the stock and bStock at 1:1 with no conversion fee.
So seeing a price difference isn't automatically the same as seeing a risk-free arbitrage opportunity.
If one market is open while the other isn't, or if there isn't enough liquidity to execute both sides at the expected prices, the gap can be harder to trade than it looks.
That's the distinction I find interesting:
price difference ≠ automatically executable arbitrage.
So instead of asking only:
“Why are these two prices different?”
I'd ask:
“Can that difference actually be traded?”
For me, that's a much more useful way to think about price gaps between a tokenized asset and its underlying.
A visible gap is one thing. A tradeable gap is another.
#bstockscis @BinanceCIS
I used to think 1:1 backing should make price differences almost impossible to sustain.
But I was mixing two different things.
1:1 backing tells me what's behind the bStock.
It doesn't mean the bStock and the underlying share must trade at exactly the same price at every moment.
And that raised a more interesting question for me:
If a price difference appears, why doesn't arbitrage immediately remove it?
The key distinction is that a price gap and an arbitrage opportunity aren't the same thing.
bStocks can trade 24/7 on Binance Spot, while the underlying stock trades on a traditional market with its own trading hours.
Eligible users can also convert between the stock and bStock at 1:1 with no conversion fee.
So seeing a price difference isn't automatically the same as seeing a risk-free arbitrage opportunity.
If one market is open while the other isn't, or if there isn't enough liquidity to execute both sides at the expected prices, the gap can be harder to trade than it looks.
That's the distinction I find interesting:
price difference ≠ automatically executable arbitrage.
So instead of asking only:
“Why are these two prices different?”
I'd ask:
“Can that difference actually be traded?”
For me, that's a much more useful way to think about price gaps between a tokenized asset and its underlying.
A visible gap is one thing. A tradeable gap is another.
#bstockscis @BinanceCIS