The "automatic rebalancing mechanism" in stablecoins, designed to maintain peg stability, can have arbitrage blind spots. These mechanisms, like those in USN, use smart contracts to adjust collateral ratios by buying or selling assets. However, blind spots emerge when market volatility outpaces bot execution, or high transaction fees (e.g., $200 on Ethereum) erode profits. Limited liquidity on decentralized exchanges can also hinder timely rebalancing, creating price discrepancies. Additionally, over-reliance on oracles like Chainlink for price feeds risks manipulation or delays, misguiding rebalancing actions. Arbitrageurs may exploit these gaps, but MEV searchers and front-running bots often capture profits first, leaving retail traders at a disadvantage. Fully Homomorphic Encryption (FHE) could mitigate some risks by enabling blind arbitrage, but it’s not yet practical. Robust collateralization and real-time audits are critical to minimize these vulnerabilities.