STOCKS | Erebor Bank’s Stablecoin Perk Backfires Into Losses

Erebor Bank was forced to end a free stablecoin-to-cash service after professional crypto trading firms exploited the policy for arbitrage. According to Sina Finance, the losses were borne entirely by Erebor Bank. The bank had launched the perk when it officially opened earlier this year to attract crypto customers, offering to convert stablecoins into cash at face value with no fee. According to Sina Finance, market prices for stablecoins often trade slightly below $1, creating an arbitrage opportunity for firms that buy discounted tokens and redeem them at Erebor for full value. Wintermute and Galaxy Digital were among the firms that took part in the redemption arbitrage, according to people familiar with the matter. Erebor later notified institutions including Wintermute to stop such trades and ended the free conversion benefit for customers without large deposits. The bank is also preparing to complete a $1.5 billion funding round at an $8 billion post-money valuation. It received a national banking charter from the U.S. Office of the Comptroller of the Currency in February, becoming the first new bank approved during U.S. President Donald Trump's second administration.