Perpetual Futures and Lending Drive Returns in Crypto Market

The crypto market offers a range of strategies designed to generate returns that are relevant to professional investors. These strategies can be complex, but they are based on economic principles found in traditional fixed-income and arbitrage markets.

Two main sources of returns exist: perpetual futures and lending and borrowing. Perpetual futures allow for leveraged positions on the price of an underlying asset, similar to traditional futures, but with no expiration date. They have a funding rate that ensures the price closely tracks the spot market.

The funding rate is applied regularly, where long positions pay short positions if the perpetual futures contract price is above the spot price, and vice versa. This mechanism has historically resulted in positive funding rates due to higher demand for leveraged long positions. Investors can capture this premium by buying the underlying asset and shorting the corresponding perpetual future.

Lending and borrowing also generates interest income, with investors providing capital in secured markets and receiving interest payments from borrowers. Borrowers must provide collateral whose value exceeds the loan amount, generating secured, variable-rate returns that depend on market demand for liquidity and leverage.