Our Strategy

Executive Summary

We operate a systematic, non-directional arbitrage strategy focused on the structural inefficiencies of perpetual futures markets. The core of the edge is the funding mechanism: perpetual swaps periodically transfer value between long and short participants to anchor prices to the spot market. These transfers are predictable, quantifiable, and—when sufficiently divergent across venues—exploitable without forecasting price direction.

Our system continuously monitors funding rates, basis spreads, liquidity, and position concentration across Binance, Bybit, and OKX. When dispersion exceeds our execution thresholds, we deploy offsetting positions—typically long spot or futures on one venue while short perpetuals on another—capturing the implied carry while remaining delta-neutral. The portfolio is rebalanced in real time as rates evolve, spreads compress, or execution venues change in quality. The aim is stable, compounding returns with tightly controlled variance and minimal correlation to broad crypto beta.

How Perpetual Funding Creates Opportunity

Perpetual futures do not expire. To keep their prices tethered to spot, exchanges implement a funding payment exchange every funding interval (usually 1–8 hours). When the perp trades above spot, longs pay shorts; when below, shorts pay longs. This funding rate is quoted as an annualized percentage but realized discretely. Importantly, rates can diverge meaningfully across exchanges or symbols due to localized order flow, inventory imbalances, differing risk limits, and market-making constraints. These divergences are the raw material of our edge.

"We monitor funding rates across Binance, Bybit, and OKX. When rates diverge significantly (&gt0.1%), we execute opposing positions to capture the spread risk-free. Our engine evaluates liquidity, slippage, inventory offsets, and expected convergence time to decide if the opportunity clears our hurdle after fees."

System Architecture

• Data Layer: High-frequency ingestion of spot and perp mid-prices, order book depth, funding forecasts, open interest, and borrow costs.
• Signal Layer: Normalized dispersion score combining instantaneous funding differentials, basis mispricings, and liquidity-adjusted impact.
• Execution Layer: Smart order routing across venues with slippage models, partial fills, and retry logic under latency SLAs.
• Risk Engine: Delta/vega/convexity constraints, venue concentration caps, borrow availability checks, and kill-switches on infrastructure anomalies.
• Monitoring: Heartbeats, position reconciliation, PnL attribution, and alerting pipelines.

Visual Diagram: Funding Dispersion Capture

Trade Walkthrough

1. Signal detects BTC-PERP at Exchange A with projected funding +0.18%/8h vs Exchange B at -0.02%/8h.
2. Liquidity check confirms sufficient depth for 500k notional with modeled slippage under 1.5 bps.
3. Engine opens short BTC-PERP at A and an offsetting long (spot or futures) at B, delta-neutral within 0.5%.
4. Positions are monitored; if funding compresses below threshold or basis shifts, system rebalances or exits.
5. PnL is accrued primarily from funding received; price moves are hedged and largely net out.

Risk Management

• Delta neutrality: Automated hedging keeps net exposure near zero; deviation caps trigger re-hedge.
• Venue diversification: Limits per exchange and per asset reduce idiosyncratic risk.
• Liquidity controls: Slippage-aware sizing; no single order exceeds depth tolerance.
• Operational safeguards: Redundant API keys, rate-limit backoff, and cross-venue reconciliation.
• Stress procedures: Exchange downtime playbooks, circuit breakers on data integrity, and human-on-call.

Why This Works in Crypto

Crypto markets operate 24/7 with fragmented liquidity, heterogeneous participant bases, and varying collateral frameworks. Market makers, hedgers, and retail flows create persistent imbalances in perp funding and basis that are larger and more frequent than in mature markets. The absence of a centralized clearing venue means price and funding discrepancies can persist longer, enabling systematic capture for well-instrumented participants.

Additionally, inventory constraints, borrow availability, and platform-specific risk engines cause rate spikes that are predictable around volatility clusters and funding windows. With robust risk controls and execution discipline, these structural frictions can be harvested repeatedly with low directional risk.

Diagram: Basis-Arbitrage Loop

Practical Considerations

• Fees: Maker rebates and VIP tiers are factored into hurdle rates; otherwise, opportunities are discarded.
• Borrow costs: For spot-long hedges, borrow and funding netting are modeled in real-time.
• Latency: Coalesced order submission minimizes API round trips and rejects stale quotes.
• Accounting: PnL attribution distinguishes carry, basis, and execution slippage.
• Scaling: Position sizes adapt to depth and volatility; we avoid crowding.

Performance Expectations

Returns are a function of funding dispersion frequency, borrow/friction, and execution quality. Periods of compressed funding reduce opportunity; volatility clusters typically expand it. We target stable compounding while accepting that realized returns will vary with market structure. Drawdowns primarily arise from temporary basis moves and short-lived hedge slippage, not from market direction.

Summary

Our strategy is built to monetize structural inefficiencies rather than predict price. By staying delta-neutral, diversifying across venues, and enforcing strict risk limits, we focus on repeatable, measurable carry while minimizing tail exposure. This approach is designed for practitioners who value transparency, process, and resilience over narratives.