Glossary · B
Basis Trade
A delta-neutral trading strategy that profits from the difference (basis) between the spot price and futures price of an asset. In DeFi, the Ethena USDe stablecoin implements a basis trade: holding staked ETH (earning staking yield) while shorting ETH perpetual futures (capturing positive funding rates when the market is bullish). The combined yield funds USDe's interest payments.
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How Basis Trade works in practice
A basis trade captures the spread between an asset's spot price and its futures price. Holding spot while shorting the perpetual leaves no directional exposure, so the return comes from funding payments rather than from the asset going up. It is the mechanism behind several delta-neutral stablecoin designs.
Worked example
You hold 1 ETH and short 1 ETH of perpetual futures. If funding pays longs-to-shorts at 0.01% every eight hours, the position earns roughly 11% annualised regardless of ETH's price. The exposure has been converted from price to funding.
Figures are illustrative and chosen to be checkable, not live market data.
The mistake that costs people money
Funding rates go negative in bearish markets, at which point the trade pays out rather than in. It also carries exchange counterparty risk and liquidation risk on the short leg if it is not fully collateralised.
Basis Trade: common questions
- What is Basis Trade?
- A delta-neutral trading strategy that profits from the difference (basis) between the spot price and futures price of an asset. In DeFi, the Ethena USDe stablecoin implements a basis trade: holding staked ETH (earning staking yield) while shorting ETH perpetual futures (capturing positive funding rates when the market is bullish). The combined yield funds USDe's interest payments.
- How does Basis Trade work in practice?
- A basis trade captures the spread between an asset's spot price and its futures price. Holding spot while shorting the perpetual leaves no directional exposure, so the return comes from funding payments rather than from the asset going up. It is the mechanism behind several delta-neutral stablecoin designs.
- Can you give an example of Basis Trade?
- You hold 1 ETH and short 1 ETH of perpetual futures. If funding pays longs-to-shorts at 0.01% every eight hours, the position earns roughly 11% annualised regardless of ETH's price. The exposure has been converted from price to funding.
- What do people get wrong about Basis Trade?
- Funding rates go negative in bearish markets, at which point the trade pays out rather than in. It also carries exchange counterparty risk and liquidation risk on the short leg if it is not fully collateralised.