Basis Spread

What is a Basis Trade?

A basis trade involves simultaneously purchasing (or selling) the underlying asset in the spot market while taking the opposite position in the futures market. Since spot and futures markets are independently priced, their prices often diverge, creating a basis — the price difference between the two. This differential can be either positive or negative, depending on whether the futures price is higher or lower than the spot price.

As the futures contract nears its expiration, its price tends to converge with the underlying asset’s spot price. Because futures contracts require settlement at a predetermined price, the basis typically narrows to zero as expiration approaches. This creates a profit opportunity for traders.

Basis Spread and Its Impact on Rewards for sDUSD

In Delta Money, the basis spread is an essential tool for generating rewards for sDUSD (staked DUSD). By exploiting the difference between spot and futures prices, the protocol offers sDUSD holders rewards derived from price convergence.

When the futures market trades at a premium to the spot price, Delta Money initiates a short position in futures contracts while holding an equivalent long position in the spot market. As the basis narrows, the protocol captures this spread as profit, which is distributed as rewards to sDUSD holders.

This market-neutral arbitrage strategy is central to sDUSD’s ability to earn yield through price discrepancies between spot and futures markets.

The Mechanics of Basis Trading and Reward Generation

In a typical basis trade, Delta Money:

• Buys or holds an asset in the spot market

• Simultaneously sells or shorts the same asset in the futures market

When there is a positive basis (i.e. futures price > spot price), the spot long is paired with a short futures position.

The reward generation for sDUSD comes into play when Delta closes the futures position, realizing a profit from the narrowing basis. These proceeds are then distributed to sDUSD holders as staking rewards, allowing them to benefit from Delta’s arbitrage execution.

Example: Basis Spread and Reward Generation

Let’s consider a simplified BTC trade:

• Spot Price (BTC/USD): $85,000

• Futures Price (March 28th Expiry): $85,250

• Basis: $250

In this case, Delta Money shorts BTC futures at $85,250 while holding BTC spot at $85,000. As expiration nears and prices converge, the $250 basis narrows, generating a realized profit. This profit is then allocated to sDUSD holders.

The basis trade here acts as a low-risk arbitrage opportunity, capturing the spread between futures and spot prices.

Basis Spread as a Source of Yield for sDUSD

The basis spread is a primary mechanism for yield generation for sDUSD holders. Through systematic basis trades, Delta Money:

• Captures the price differential between futures and spot markets

• Produces returns that are distributed as rewards

• Enables yield accrual without excessive price exposure

This allows sDUSD holders to earn passive income while remaining market-neutral. The returns are contingent on the size of the basis, market conditions, and execution performance.

Strategic Use of Basis Spread for Long-Term Yield Generation

Delta Money continuously monitors markets for profitable basis opportunities, adapting its positions to capitalize on spot-futures price movements. This allows the protocol to:

• Enhance rewards for sDUSD holders

• Leverage price divergence to its advantage

• Maximize capital efficiency

By actively executing basis trades, Delta Money supports sustainable yield generation, positioning sDUSD as a yield-earning, market-resilient staking asset.