Welcome to the first in a series of articles introducing basis.markets.
Today, we’ll set the scene with some context on the market and the types of products and strategies that make consistent 100%+ APR returns a reality.
We’re excited to share insights into the opportunities out there and how basis.markets will help you take advantage of them.
Finally, we’ll highlight what’s coming next and how you can get involved and keep updated on our journey.
Let’s get started!
Financial markets have been around for centuries. From prototype banks lending to farmers and traders around 2000 BC, financial markets as we know then started to evolve from the 1300 AD onwards. These fragmented markets have always offered opportunities, but with centralised, regulated, and opaque markets, these have often been reserved for institutions and sophisticated players only.
We all know that cryptocurrency is shaking up the world of finance. And we are lucky to be involved in the early stages of this new market. This is a time of extraordinary innovation, and with this, there are countless opportunities to take advantage of… if you know where to look.
Crypto markets today
In our crypto community, we have a huge variety of people — scalpers, day traders, swing traders, brilliant minds, “gem finders”, influencers, NFT flippers, art collectors, funds, institutional treasuries and DAOs. But there are some things we all have in common — a drive for transparency and openness, and an appreciation of community, opportunity, and innovation.
The markets have evolved hugely over the past few years — there are currently 518 exchanges listed on CoinGecko, offering over 10,000 different cryptocurrencies.
Cryptocurrency is not just for HODLers anymore — and these various groups are demanding new products and services to support their individual journeys, which exchanges are catering for with new markets.
New types of contract
One of the most important changes in the past few years has been the growth in the range of perpetual futures contracts offered by exchanges.
Essentially, “futures” are an agreement to buy or sell an asset at a predetermined price at a specified time in the future. Traditional futures contracts had an expiry date when the asset would change hands or the contract “rolled-over”, but perpetual futures simplify this by leaving the expiry date open, “perpetually” rolling until closed.
Traders use these contracts for a number of reasons, and the popularity of these is growing exponentially for:
- Hedging and risk management: this was the main reason why futures were invented.
- Short exposure: traders can bet against an asset’s performance even if they don’t have it.
- Leverage: traders can enter positions that are larger than their account balance.
There have been opportunities to make money on futures contracts for centuries in traditional markets, but with perpetual futures and the speed and transparency available in crypto markets, a new generation of trade has been born.
Exchanges have learned to cater for derivative product restrictions in certain countries, by offering spot margin trading. This enables traders to long or short any crypto asset but fund this in USD or funded by other investors lending their crypto assets (much the same as a stock lending desk in a bank). This has added yet another layer of opportunity that allows traders to maximise their profitability.
What are funding rates?
You may have heard people talking about funding, contango, backwardation, and other terms. It can give insightful context into the market but what do we actually mean by ‘funding rate’?
First and foremost, it’s a mechanism that exchanges use to manage perpetual futures contracts and keep the ‘perp’ price in line with the underlying ‘index’ price (e.g. the underlying spot price).
Funding rates are periodic payments made between traders who are long or short a particular asset, helping to balance the demand between the buy (long) and sell (short) sides of the market. It essentially acts as a fee/rebate on your trade, encouraging some traders to take the side which pays them funding.
For example, if the BTCUSD perpetual is trading above the spot price of Bitcoin, the funding rate would be positive. This means that long traders would pay short traders (discouraging long positions and incentivising short positions).
This is the same for any market, such as the stock lending desk at major bank — providing a vital function to the industry — but here, we can use it to our advantage.
No matter the market — bullish or bearish, funding is a fact, and there are huge differences across the range of coins and exchanges. This is where the opportunity lies, and why we set up basis.markets.
In the early stages of a market such as crypto, people tend to be fundamentally bullish, therefore want to hold more exposure to such assets than the available capital in the market. As our friend SBF eloquently described:
When you buy any asset on 10x leverage, you didn’t think the money for your 10x position was free, did you? The exchange isn’t providing this liquidity for free, but neither are they taking your fees — they’re paid to market participants taking the other side.
Using strategies such as the classic basis trade and long/short strategies across exchanges, we’ve been able to consistently produce outstanding returns with a number of benefits over other strategies.
It’s common to find consistent 100+% APY strategies with high liquidity and managed risk on respected platforms. Where else can you get this type of return consistently?
- High returns (especially compared to the limited level of risk involved)
- Zero directional risk (unlike directional strategies)
- No impermanent loss (unlike traditional yield farming)
- Light-touch management (no need for frequent hedging)
- Diversified exposure (using trusted CEX & DEX platforms)
- Longer-lasting returns (not having to jump into a new pool every 24h)
Why isn’t everybody doing this?
- Opacity: There is a lack of awareness around non-directional (a.k.a. “delta neutral”) strategies like this. Large players use strategies like this as the bedrock of their returns, but alpha isn’t normally shared with new entrants
- Perceived complexity: whilst the concepts these strategies use are easy to understand, they’re not as simple as ‘buy low sell high’ and some people miss out because they don’t want to learn a new skill
- Impatience: triple digit returns are exceptional by almost any standard. But may seem “slow” compared to leveraged trading, for example.
As an active trader, if you’re following the classic risk management policy of 1–5% per trade, that leaves 90% of portfolio which can be used for these non-directional strategies to make sure you’re maximising your gains and building your portfolio every day.
Imagine your stable portfolio/collateral multiplying by 2 over the course of a year without needing to trade every day…
We came together as a group of experienced traders and developers with a range of skills across traditional finance, defi, market making, machine learning, trading automation, crypto analytics, yield farming, etc.
After a combined, 80+ years in the financial & crypto markets, we are all making returns on these trades on a day-to-day basis, sharing knowledge and developing our own individual strategies.
We all saw the potential in this new type of trade — it’s non-directional, it’s risk free, and the risk:reward payoff is second to none.
The only thing we were missing was a way to automate the time-consuming process of highlighting the best trades across all exchanges, using data directly from the markets and analysing it in real time, 24/7.
We decided to build the tool we were missing…and now we’re excited to share it with a select group of members…
This is the first step on our ambitious roadmap… and an even more ambitious decentralised ownership model
Over the next 2 weeks we’ll be releasing a series of articles introducing our team, ownership model, roadmap, and how you can get involved.
Welcome to basis.markets.