macrocephalopod on Twitter: "4. What ultimately constrains funding rates/premiums on the downside? Is it purely demand coming back, or do some players attempt the reverse funding arb?… https://t.co/e8EegWeG4y"

@macrocephalopod

Paul Allen, Vice President M&A, Pierce & Pierce (Sie/Hir) | Vegan | Silence is Violence | Women’s Rights Are Human Rights | ACAB (Assigned Cephalopod At Birth)

Joined December 2020

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LB ‏ @ALBACapMgmt 26 Dec 2021

LB Retweeted LB

They would be arbed away anyway if this were not the casehttps://twitter.com/ALBACapMgmt/status/1475357374147817477 …

LB added,

LB @ALBACapMgmt

It was suggested to me that perp swap funding rates for crypto are not related to implied vol and they were purely determined by inelastic supply and demand of degenerates. Clearly this isnt true. As implied vol has dropped over the holiday period so have funding rates.

2 replies 2 retweets 10 likes

Robot James ‏ @therobotjames 27 Dec 2021

Replying to @ALBACapMgmt

I still don't get it. There not significant cost of carry for holding crypto inventory. And the short basis arb is only constrained cos it's only capital efficient at ("murky") crypto exchanges. Were it not for the "murky" bit I don't think futures should trade at a premium

1 reply 0 retweets 6 likes

Robot James ‏ @therobotjames 27 Dec 2021

Replying to @therobotjames @ALBACapMgmt

I thought the market might be pricing in a significant premium for the basis risk in the arb (given how quickly things might move against you). But the basis in the perps has also been very large

1 reply 0 retweets 2 likes

Robot James ‏ @therobotjames 27 Dec 2021

Replying to @therobotjames @ALBACapMgmt

The reverse arb is more constrained cos it can be hard to short. And you can see the cos the basis appears to be even less bound on the downside, which makes sense. I reckon basis mostly a function of: - lopsided end user demand - arb "murkiness"

1 reply 0 retweets 8 likes

macrocephalopod‏ @macrocephalopod 27 Dec 2021

Replying to @therobotjames @ALBACapMgmt

Here’s a bunch of questions about basis and funding rates that I’d love to have the answers to. 1. Common sense says that futures premiums should be roughly the same as expected funding rates over the lifetime of the future, but historically they have been much lower (so that

1 reply 0 retweets 19 likes

macrocephalopod‏ @macrocephalopod 27 Dec 2021

Replying to @macrocephalopod @therobotjames @ALBACapMgmt

short perp/long futures has generally been profitable — why?) 2. Funding rates and premiums can be persistently quite different across different exchanges. What are the main drivers of this? 3. How does options hedger demand affect funding rates and futures premiums? (eg

3 replies 0 retweets 11 likes

macrocephalopod‏ @macrocephalopod 27 Dec 2021

Replying to @macrocephalopod @therobotjames @ALBACapMgmt

funding rates for ETH at deribit spiked recently compared to other exchanges — is that because of option hedger activity?)

2 replies 0 retweets 3 likes

macrocephalopod‏ @macrocephalopod 27 Dec 2021

Replying to @macrocephalopod @therobotjames @ALBACapMgmt

4. What ultimately constrains funding rates/premiums on the downside? Is it purely demand coming back, or do some players attempt the reverse funding arb?

1:37 AM - 27 Dec 2021

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2 replies 0 retweets 4 likes

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1. Robot James ‏ @therobotjames 27 Dec 2021
  Replying to @macrocephalopod @ALBACapMgmt
  
  when the the futures are trading at a big discount,the cost to borrow spot tends to look high enough I don't wanna punt on the trade (without a model). How much cos: - people attempting the arb? - lenders blown out? - weird crypto xchange stuff like "borrowing" collateral?
  
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