Funding Arbitrage
Capturing perpetual funding payments while hedging out price risk — the delta-neutral yield trade at scale.
Funding arbitrage harvests perpetual funding rates while staying delta-neutral: when funding is positive (longs paying shorts), a trader holds spot and shorts the perpetual, collecting funding regardless of price direction — a specific form of the basis trade.
It’s a workhorse of crypto’s market-neutral yield, powering some yield-bearing products and much institutional flow. The yield scales with how crowded and leveraged the market is (persistent positive funding = crowded longs). The risks are the un-glamorous kind: funding flipping negative, exchange or counterparty failure, and the operational drag of managing both legs. “Neutral” removes price risk, not all risk.