Basis Trade vs Interest Rate Arbitrage

Vertex plans to introduce spread and basis trading as a simple, one step process. This will bring a greater variety of traders and drive more liquidity to the ecosystem. Allowing one platform where it is possible to trade leveraged spot vs perpetuals allows for natural arbitrage between markets and would allow Vertex to act as a central liquidity hub for professional traders seeking to lay off risk.
The 'basis trade'
Trading spot vs perpetual futures is commonly known in crypto as the ‘basis trade.’ Due to a general demand for leverage and upside exposure in the ecosystem perpetual futures have typically traded at a premium to spot:
i.e.Price(perp)−Price(spot)>0i.e. Price(perp) -Price(spot) > 0
The value between the two represents a daily yield that arbitrageurs can earn by committing dollars to own the spot vs. the under-collateralized perpetual position. Vertex will help make this arbitrage more efficient in two key ways:
Linked Spot-Perp Markets
Vertex will launch native markets for basis trading. Typically exchanges only allow these spreads to trade as two separate markets. This creates costs within an exchange and makes arbitrage much more difficult. Making this more efficient and easier for traders will help strengthen the ties between these two markets and allow traders to offload residual risk with minimal friction.
Embedded Money Market
The Vertex money market will make assets both allowable as collateral and available for borrowing to leverage spot positions. The basis rate then becomes more closely linked to the borrowing rate for stablecoins and tokens. Arbitrage conditions exist when the equation below holds, whereby traders will be able to perform the basis trade with leverage when basis returns exceed borrow costs. This encourages volumes, boosts fees, improves liquidity, and enhances returns. A win-win for all participants.