macrocephalopod

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

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

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

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?

Another thing not clear (to me.) In the case where there are no limits to arbitrage, do we think the futures should trade at a premium or discount? Do we think the market price in a benefit or cost to holding crypto spot?

just extrapolating from what I've seen on the tradfi insti side – instis would rather have a CME futures position than hold spot BTC with a custodian because there is a tonne of funkiness in the weeds of legal contracts with custodians. So I guess futures should be at a premium

Not sure I have an explanation about this on the CME, but if we're looking at expiratory futures on an offshore exchange (let's take BitMEX), the spread between spot and futures theoretically represents the market funding rate for USDT + risk premium for counterparty default.

Moving to perpetuals, @IDrawCharts recently did a good thread on perp funding rates. I think the theory, at least for vanilla perps, is it's determined by punting degenerates. Looking at quantos though, the theory is high rates are compensation to the shorts for covariance risk.