Thanks to @Phyrex_Ni for the discussion. Here's an example of an arbitrage process: 1. The spot ETF IBIT experienced fund liquidation, leading to a large amount of IBIT being sold at a discount. 2. When there’s a certain price difference between (IBIT stock price) vs (the net value of BTC per IBIT share), arbitrage traders buy the discounted IBIT and sell BTC in the spot/futures market to complete the arbitrage. 3. Selling BTC doesn’t require market makers/arbitrage traders to hold BTC. For example, they can borrow BTC to sell in the spot market or short BTC using USD-margined contracts. As long as arbitrage traders have enough USD, they can sell enough BTC. 4. This completes the transmission from selling IBIT to selling BTC. For example, if a fund liquidates at a 95% discount, dumping the equivalent of 60,000 BTC worth of IBIT, arbitrage traders buy it all and simultaneously sell 60,000 BTC in the spot/futures market. 5. Arbitrage traders then wait for IBIT’s discount to recover, sell IBIT at its normal price, and close out the equivalent short positions. During this process, there’s no redemption of IBIT into BTC. 6. If IBIT’s discount doesn’t recover for a long time, or if arbitrage traders hold too much IBIT, causing liquidity risks, they may redeem IBIT into BTC, sell the spot BTC, and close out the equivalent short positions. Step 5 is the main trading method for arbitrage traders, while step 6 is a special case. For instance, if a fund dumps 60,000 BTC worth of IBIT, about 54,000 BTC might be hedged, and only 6,000 BTC would go through the redemption route for spot BTC.