Market Anomaly: Cross-Pair Parity Manipulation

• 11–13 Mar 2023 – USDC depeg (spot stablecoin, CEX-wide): USDC briefly fell to ~0.87 USD (SVB); BTC/USDC & ETH/USDC visibly drifted away from BTC/USDT & ETH/USDT - classic Δ_tri spikes in CEX order books. USDC normalized after measures by 13 Mar 2023. (Investopedia)
• 12 May 2022 – USDT depeg (CEX-wide, spot): USDT slipped below $1 during the Terra shock; BTC/USDT diverged from BTC/USD & BTC/USDC. Parity gaps persisted intraday until arb/redemptions restored the peg. (Bloomberg)
• 12 Aug 2024 – Fragmentation case study (BTC-EUR vs BTC-USD, Coinbase): Kaiko shows notable BTC-EUR deviations due to shallower EUR depth relative to USD book; Δ_tri (BTC/EUR vs BTC/USDT×USDT/EUR) surged during event phases. (Kaiko Research)

Distinction: Derivative liquidations can pull parities; here only spot order book evidence is considered.

1. Triangulation: For three pairs A/B, A/C and C/B ideally: A/B ≈ A/C × C/B.
   Δ_tri (bps) = |Price(A/B) − Price(A/C) × Price(C/B)| / Mid(A/B) × 10 000.
2. Attack vector: The weakest liquidity leg is chosen (often fiat↔stablecoin or EUR/Stablecoin); temporary impact is created there (market bursts, aggressive re-quoting).
3. Propagation: The synthetic price of the target pair shifts; lead/lag reveals which pair “pulls”. Market-makers/arbitrageurs close the gap if risk/fees allow.
4. Intent vs environment: Δ_tri can also arise legitimately (peg stress, FX moves, fragmented depth). It is anomalous for targeted sequences (OTR↑, aggressor concentration, reversion) absent fundamentals.

• Parity gap (Δ_tri) ↑: Δ_tri jumps above baseline percentiles and persists across several 1-min bins without parallel FX/peg news.
• Lead/lag across pairs: Consistent leading behaviour of the side leg (e.g. USDT/EUR leads BTC/EUR by 0.5–1.0 s) over ≥ 5 consecutive 1-s bins.
• Aggressor asymmetry: Concentrated same-side market flow on the illiquid leg; the target pair passively follows.
• VWAP drift vs mid: On the side leg impact ≫ notional (large VWAP deviation despite tight spreads).
• OTR / quote-fade: Many re-quotes on the side leg, pulling away before fills; round-size / Benford anomalies appear in the sequence.

• Multi-stablecoin ecosystem: Peg risks (USDT/USDC/...) - depegs create measurable Δ_tri along BTC/ETH↔fiat/stablecoin pairs.

• Fragmentation & 24/7: Varying depth, fees, latencies; many venues list pairs with heterogeneous liquidity (e.g. EUR vs USD).
• Lack of CAT transparency: No market-wide audit trail; attributing sequences (Quote→Trade→Cancel across pairs) is harder.
• Maker/taker, VIP rebates: Temporarily nudging a side leg can be cheap if hedges are inexpensive.

FX parity & tri-arb: In classic FX and cross markets triangular deviations are usually arbitraged away quickly; research still documents transient deviations - the measurement methodology is established. (wisostat.uni-koeln.de)

Surveillance & data access: FINRA rules (e.g. 5210) and the CAT (SEC Rule 613) enable reconstructable order lifecycles; crypto spot lacks that level today.

Conclusion: Parity drifts exist in all markets; in regulated segments they are shorter-lived and more provable (audit trails, imbalance monitors).

• MiCA timeline (EU): In force 29 Jun 2023; applicable 30 Jun 2024 (e.g. ART/EMT) & 30 Dec 2024 (CASP duties). Transitional regimes under Art. 143 to 01 Jul 2026 may apply per member state. 2025/26: uneven supervisory paths - surveillance must be parity-sensitive. (ESMA)
• IOSCO / FSB line: IOSCO 2023 addresses market integrity & cross-market risks; FSB warned in 2025 about rule gaps (incl. stablecoins). Δ_tri monitoring is supervisory-relevant. (iosco.org)
• Practical benefit: Δ_tri monitoring reduces miscrossings and slippage; produces audit-ready dossiers for MiCA/MAR contexts.

Baseline: 30-day history, same time of day (UTC), hourly bins, ±15 min tolerance, per symbol×venue×pair-triple (e.g. BTC/EUR, BTC/USDT, USDT/EUR).

Metrics (selection): Δ_tri (bps), lead/lag (1-s bins), aggressor quote per leg, OTR, spread jump (bps), VWAP drift vs mid (bps), depth ratio (Top-5), round-size ratio, Benford distance (L1).

E3 – High (persistent parity breach + sequence)

• Δ_tri ≥ P99 over ≥ 3 consecutive 1-min bins,
• Lead/lag stable: side leg leads 500–900 ms across ≥ 5 1-s bins,
• Aggressor quote (side leg) ≥ P99 and OTR ≥ P99,
• VWAP drift ≥ P99 with spread jump ≤ P50 (impact-heavy without broad spread),
• Cross-venue consensus: ≥ 3 venues trigger E2/E3 within ≤ 3 s.

E2 – Medium (partial signals)

• Δ_tri ≥ P98 or lead/lag leadership > 700 ms over ≥ 3/5 bins,
• Aggressor quote (side leg) ≥ P98 or OTR ≥ P99,
• Depth ratio (side leg Top-5) ≤ P5 or round-size/Benford deviations ≥ P95.

E1 – Low (early warning)

• Δ_tri ≥ P95 in ≥ 2 1-min bins without news/fix event,
• Initial lead/lag clusters + mildly elevated aggressor quote on the side leg.

• Event filters (UTC): Stablecoin depegs (issuer news, banking rails), FX macro (CPI/FOMC, EURUSD jumps), listings/relistings, venue maintenance. Δ_tri during official peg/FX shocks ≠ anomaly.
• Cross-venue / cross-pair checks: Require at least 3 venues and triple coherence (A/B, A/C, C/B). Calibrate USD, EUR, USDT pairs separately (normalize by FX/fees).
• Legitimate alternatives: Arb lags, hedge rebalancing, on-chain mint/redeem (stablecoins) and USD↔EUR rail differences. If post-reversion is absent and notional path is consistent → less likely manipulation.
• Data quality: L2 gaps/errors > 1% → discard window; use ms timestamps, bps measures, UTC stamp and document notional.

• Execution: A Δ_tri radar prevents costly crossings in mispriced pairs, improves routing (execute core pair first, then hedge) and lowers slippage.
• Alpha & risk: Realistically assess arb opportunities (fees/latency/inventory); Don’t chase the side-leg - avoids no-fill/fade risks.
• Best-execution & supervision: E-level dossiers (Δ_tri, lead/lag, aggressor, OTR, VWAP drift) produce audit-ready records - aligned with MiCA/MAR and IOSCO market-integrity expectations.

• Reuters – Circle assures market after USDC breaks dollar peg (11.03.2023).
• Investopedia – SVB Collapse: USDC loses peg (11–12.03.2023).
• Bloomberg – Tether slips below $1, reassures market (12.05.2022).
• Kaiko – Defining Depegs: A New Metric for Stablecoin Stability (31.08.2023).
• Kaiko – How is Crypto Liquidity Fragmentation Impacting Markets? (12.08.2024).
• Makarov & Schoar – Trading and Arbitrage in Cryptocurrency Markets (JFE, 2019/2020).
• Reynolds/Sögner/Wagner/Wied – Deviations from Triangular Arbitrage Parity in FX and Bitcoin (05.11.2018).
• ESMA – Statement on MiCA Transitional Measures (17.12.2024).
• IOSCO – Policy Recommendations for Crypto and Digital Asset Markets (16.11.2023).