Here’s my take on this, because I think it’s way simpler than this thread makes out. The question is “why do ETHUSD perpetuals on bitmex trade at a premium to spot ETHUSD”?https://twitter.com/SBF_FTX/status/1403832569037135872 …
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That’s a win-win which needs to be paid for somehow — and they way you pay for it is with a higher funding rate. The increase in funding rate will be proportional to the volatility of both BTC and ETH, and proportional to the BTC-ETH correlation.
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All those numbers are high, so the required increase in the funding rate to offset the benefits is also very high — the funding rate is typically around 100% annualised, compared to 10-20% annualised for the non-quanto ETHUSD contract on other exchanges.
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No bread, no houses, no teddy bears required to understand it — just a very basic appreciation of what a quanto is.
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This is obviously going to end with someone shorting this contract, long a normal one and losing their pants on a large move.
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So the gang discovers EM FX triangles???
End of conversation
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