Basis trades exploit the price gap between spot and futures markets for the same asset, locking in yield without taking directional risk. In theory, the law of one price should keep these gaps small, but when demand for leveraged long exposure overwhelms the supply of financing the basis can stay elevated. In crypto, structural frictions for institutional liquidity providers make the effect even stronger. These “almost risk-free” yields persist because the scarce resource isn’t the asset itself but the balance sheet capacity to finance it.
What is the Basis
U.S. Treasuries are the “risk-free” benchmark, today yielding around 4–5%. But traders can find ways to earn extra yield on top of that without taking on much risk at all. One of the cleanest ways to do this is a basis trade, capturing the spread between a spot price and a futures price. In futures markets, the basis is the difference between the futures price and the spot price of an asset. Because of how futures are priced, this difference often reflects:
Funding costs (the cost to borrow cash or the asset)
Expected dividends or staking yields
Market demand for leverage or hedging
If the futures price is higher than the spot price, you can lock in that difference today:
Buying the spot asset
Selling the futures contract
At expiry, the futures and spot converge to the same price, and you keep the difference you locked in, no guessing about market direction required.
S&P 500 Basis
The law of one price says that two instruments providing the same economic exposure should trade at the same cost. If they don’t, arbitrageurs can step in, buy the cheaper one, sell the more expensive one, and lock in a riskless profit, and in doing so, push prices back into line. Yet for most of 2024 and into 2025, this principle has been violated in one of the world’s most liquid, most closely watched markets: the S&P 500. Futures on the index have been persistently more expensive than equivalent exposure obtained through cash markets, for example, by buying an ETF or replicating the index’s underlying stocks.
One would expect this pricing gap to vanish quickly in such a deep and competitive market. Instead, it widened to historically extreme levels and stayed there. At its peak in December 2024, the S&P 500 financing spread, the implied cost difference between holding the index via futures versus cash, reached more than 1.4%, roughly four times the 2021–2023 average of 0.3%. It has since eased slightly but remains far above historical norms.
On the surface, this looks like an inefficiency ripe for arbitrage. In a frictionless world, an investor could buy the index in cash, short an equivalent futures contract, and lock in the spread as a near-riskless yield, much like clipping a high-grade coupon. Heavy flows into such trades would then drive the spread back to normal levels. But the real world isn’t frictionless, and the persistence of the spread reflects a more subtle reality: it’s not a mispricing in the classic sense, but the market efficiently pricing the scarcity of balance sheet capacity.
Demand for S&P 500 futures financing has surged to record levels, while dealer balance sheets, the main source of that financing, are constrained by capital, regulatory, and risk-concentration limits. The result is a market where the “price” of supplying balance sheet shows up as a persistently elevated futures premium, and where traditional arbitrage is blocked because the financing costs to put it on are roughly equal to the spread you’d hope to earn.
Crypto Basis
While the S&P 500 case shows that even the most mature markets can see persistent basis spreads when financing demand overwhelms supply, the effect can be even more dramatic in crypto. In theory, the basis, the gap between spot and futures prices — should only be wide enough to reflect funding costs and other carry factors. In practice, it can widen sharply when there is intense demand to buy futures and not enough players willing or able to take the other side. This is especially true in markets where institutional liquidity providers face obstacles: custody requirements, risk limits, regulatory uncertainty, or simply the lack of efficient financing channels for spot crypto positions.
As a result, we’ve repeatedly seen crypto futures, including those on regulated venues like the CME, trade at double-digit annualized premiums to spot. For example, it’s not unusual for the ETH or BTC basis on CME to exceed 10% annualized, even after accounting for transaction costs. In a pure cash-and-carry setup, buying spot, shorting futures, that’s an “almost risk-free” yield well above U.S. Treasuries, provided the basis doesn’t swing wildly against you before expiry.
The implications are significant:
Institutional constraint creates retail opportunity – In traditional finance, basis capture is mostly the domain of well-capitalized hedge funds and dealer desks. But in crypto, structural frictions mean even they can’t fully close the gap, leaving an unusually large slice of “free” yield unharvested.
Better-than-Treasuries yield – If 10%+ annualized carry can be locked in with minimal market risk, it represents a yield pickup of 5–6 percentage points over risk-free rates, without taking directional crypto exposure.
Structuring for access – This is where innovation comes in. The mechanics of a crypto basis trade, spot purchase, futures short, can be wrapped into a structured product that automatically manages both legs. Retail investors wouldn’t need to open futures accounts, post margin, or manage collateral, they’d simply buy the product and receive the locked-in yield.
In short, the same forces that made the S&P 500® futures spread “stick” in 2024, excess demand, constrained balance sheet, and friction for arbitrageurs, are even more pronounced in crypto. That means basis spreads can be larger, last longer, and offer higher “almost risk-free” returns than Treasuries. For investors, the challenge isn’t finding these trades, they’re visible on any futures curve, it’s getting the operational access to put them on. A well-designed, regulated structured product could close that gap and democratize an institutional-grade yield source.
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