AXS Arbitrage? AXS Ranges High on Negative Funding RatesOct 4, 2021
Axie has been the star performer in crypto over the weekend due to the release of AXS staking on Friday. AXS is up +117% over the past 7 days.
AXS staking opened up opportunities for yield arbitrage via perpetual futures. This can be done by simultaneously buying spot AXS to stake, while shorting the AXS-perpetual future. The trade is delta-neutral — meaning there’s no price risk — and captures the difference.
However, the yield from this is somewhat muted relative to normal because funding rates for AXS perpetuals have been negative for 5 days now. The 8-hour funding rate is -0.1%, equating to shorts paying longs ~110% APR to keep their position open. With AXS staking yields currently at ~189% APR, a net yield of ~79% APR (or 189% – 110%) is possible but is also subject to risks from AXS staking yields and/or perpetuals funding rates falling.
If many traders take the delta-neutral opportunity, it could cause funding rates to go further negative as shorts pile up. As funding rates decline, the profitability of the opportunity dampens as it becomes more expensive to keep a short position open.