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15 Nov 2022
For Beginners

Why Is My Pool Different Than The Market Rate?

Learn about market rates and the effect arbitrage has on them

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Each market is independent of each other, which also extends to the trades that happen in it. If you accidentally seed a pool with an incorrect weighted value or entered one that was seeded wrongly, you will be at risk of arbitrage.

Another common reason for a pool to have an incorrect market rate is because large swaps might have taken place which caused significant price impact on the tokens. There are also instances where a token is unable to be brought into a market due to bridging issues. This lack of liquidity can cause one of the tokens in the pair to be overinflated in price due to little or no supply available for a swap.

To correct the pricing of a pool, arbitrage must happen - essentially a user must buy up the cheaper token and increase its value.


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