mBASIS
Crypto-denominated arbitrage strategy focused on funding rates.
Last updated
Crypto-denominated arbitrage strategy focused on funding rates.
Last updated
mBASIS seeks to track performance of crypto funding rates. Its reference value is designed to reflect prevailing opportunities in the crypto basis trade and broader yield environment, while adapting to shifts in market structure.
During contango periods, where futures prices trade above spot, positive basis trades have historically generated attractive returns. In contrast, during periods of backwardation or declining markets, short-term interest-bearing instruments - such as U.S. Treasury bills—have often offered more competitive yields. mBASIS is structured to reflect this broader market context through a predefined reference framework.
Basis trading is a long-established strategy in cryptocurrency markets, typically capturing the spread between spot and futures prices during periods of contango. When markets are in contango, futures prices tend to trade above spot, and this difference creates opportunities for non-directional return.
In certain market conditions, basis yields may exceed borrowing costs on decentralized money markets. During such periods, it may be possible to construct capital-efficient positions by using spot holdings (e.g., ETH) as collateral to borrow stablecoins. The resulting position can amplify returns on the funding spread.
mBASIS targets to outperforms the conventional basis-trade by introducing a moderate turn of leverage and thereby increasing the capital efficiency of the strategy. In given market-conditions, a proportion of the spot-leg of the basis trade (e.g. ETH held on OKX) is used as collateral for an over-collateralised loan on DeFi money-markets (e.g. Borrow USDC on Aave).
The key insight is that during contango markets typically the cost of borrowing is below the rate of return of basis – by closing the gap, mBASIS is introducing a more capital efficient exposure to a basis position.
During declining markets, the strategy adjusts to reverse-basis or allocating into U.S. T-Bills via mTBILL. Funding rates in crypto markets are voltile and correlate with the expectations of investors.
As shown based on funding rate data from Binance, during the periods between March 2022 to September 2023 or March 2024 to October 2024, annualised funding rates underperform U.S. T-Bill rates when markets are in contango. In these markets reverse-basis or T-Bills would present more profitable yield opportunities at similar risk profiles.
Risk mandate: Conservative risk mandate with limited leverage across market-conditions.
Liquidity profile: Collateral has a maturity of less than 7-days, which the majority available within 24-hours during normal market conditions. In periods of market stress, liquidity may be affected, and delays in collateral liquidation may occur. Details can be found in Atomic Redemption.
Transparacy: The risk exposure of the collateral is transparently reported on and can be viewed under the Transparencysection.
