mBASIS
Crypto-denominated stablecoin yield strategy
Last updated
Crypto-denominated stablecoin yield strategy
Last updated
mBasis seeks to track performance of crypto funding rates, while employing an adpative design across Contango andBackwardation market conditions. Edge Capital has been mandated as risk manager of collateral of mBASIS.
Edge Capital is a leading market-neutral hedge fund that manages capital for largest fund of funds, institutional investors and leading crypto foundations and treasuries since 2020.
During positive cycles when markets are in contango, mBasis benefits from the positive basis of future and spot prices. During declining markets, the strategy adjusts to reverse-basis or allocating into U.S. T-Bills via mTBILL. When markets are in mixed-term, the best available yield sources are considered by the risk manager.
Basis trading is a common, highly profitable strategy in cryptocurrency markets. It capitalizes on the price differences between spot and futures markets, especially during contango periods, where futures prices exceed spot prices, creating opportunities for arbitrage. This approach has consistently delivered strong returns during bullish market conditions, while not taking directional market exposure.
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 to limit 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 Midas' website and can be viewed under the Transparencysection.
