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Erebor Bank has pulled back a free stablecoin-to-dollar conversion offer after trading firms used price differences to profit from the service. The bank had allowed customers to convert USDC and USDT into dollars at face value without fees, but later introduced limits and charges for some clients.
Traders Found Arbitrage in Free Conversions
Erebor introduced the service after opening earlier this year as a way to attract crypto businesses. Customers could convert supported stablecoins into U.S. dollars at $1 per token without paying Erebor a conversion fee, according to people familiar with the arrangement.
The fee-free conversions created an arbitrage opportunity when supported stablecoins traded below $1. A firm could buy tokens at a discount and convert them through Erebor at face value, capturing the difference while Erebor absorbed associated conversion costs. For comparison, Tether charges direct customers the greater of $1,000 or 0.1% to redeem USDT, with a $100,000 minimum redemption.
Wintermute and Galaxy Used the Service
Crypto market maker Wintermute profited from converting discounted USDT through Erebor. Galaxy Digital also conducted stablecoin redemption trades with the bank, the report said.
Erebor later told firms including Wintermute to stop high-volume use of the service. The bank reportedly withdrew free conversions for some customers with smaller deposit relationships and introduced volume-based fees and limits.
No public figure has been disclosed for Erebor’s costs or losses. Wintermute said it continues doing business with the bank, while Galaxy declined to discuss its counterparty relationships.
Erebor Targets Crypto and Technology Clients
Erebor began operating on Feb. 6, 2026, after receiving OCC charter approval and FDIC deposit-insurance approval. Its business model focuses on technology, payments, investment and defense companies, including virtual-currency market participants.
Free Offer Gives Way to New Terms
The changes do not mean Erebor has stopped supporting stablecoin transactions. Instead, the reported revisions change the pricing and availability of fee-free conversions for clients generating substantial redemption volume. Erebor has not publicly disclosed how much stablecoin volume passed through the program or the financial impact of the arbitrage activity.
