Definition. This chart compares the annualized rates of return available in a cash-and-carry trade between 3-month expiring futures (3-month rolling basis, blue) and perpetual funding rates (orange columns). Given digital assets have low storage, handling and delivery cost overheads (unlike physical commodities), perpetual futures have become a preferred instrument for market speculation, risk hedging, and capturing funding rate premiums.

Technical. The two yield measures are constructed as follows:

• Annualized Perpetual Funding = 8h Funding Rate x 3 x 365 (orange columns)
• Annualized Rolling Basis (3M) is taken directly from the corresponding metric (blue line)

Both are expressed as annualized percentage returns, making the two carry structures directly comparable.

Interpretation. From this study, we can draw the following conclusions:

• Perpetual futures basis is significantly more volatile than that of expiring futures, which is a result of the demand for leverage in an instrument (perpetual futures) that more closely tracks spot market price indexes.

• Periods where perpetual basis trades lower than 3M basis have historically occurred after downside price action and de-risking, such as during bull market corrections, or during more prolonged bearish trends.

• Conversely, periods where the perpetual basis is significantly higher than 3M basis signal that there is a high demand for leverage in perpetual markets, which in turn creates an oversupply of sell-side contracts, as traders act to arbitrage down the high funding rates.

Notes. This chart was first featured by Glassnode in The Week On-chain (Week 12, 2022). Built from Futures Perpetual Funding Rate and Futures Annualized Rolling Basis (3M).