Erebor Bank Ends Free Stablecoin Conversions After Arbitrage Trades

Erebor Bank has withdrawn its free stablecoin-to-dollar conversion offer after professional trading firms used it to capture small price gaps. The bank had allowed customers to convert USDT and USDC into dollars at face value without fees. The change came within months of the program’s launch, according to reporting published September 16.

The arbitrage worked because stablecoins can trade slightly below their $1 target in open markets. Traders could buy discounted USDT, transfer it to Erebor, and receive $1 per token. The difference became profit at high volumes, while Erebor absorbed the conversion costs. Wintermute reportedly traded millions of dollars through the arrangement, while Galaxy Digital also used the conversion service.

Erebor later told some firms to stop the activity and removed free conversions for customers without sizable deposits. It also introduced volume-based fees and limits. The bank is preparing a reported $1.5 billion fundraising at an $8 billion pre-money valuation, adding scrutiny to its strategy of serving crypto companies alongside technology and defense businesses.