The Lab

Where it comes from

• Futures and the "cost of carry". A future is a deal to buy or sell later at a price fixed now. Its price should sit near today's price plus the cost of holding the thing until then: interest, storage, less anything it pays out. Buying the thing and selling the future locks in that gap. Traders call it cash-and-carry, or the basis trade.
• Who explained the gap. John Maynard Keynes (A Treatise on Money, 1930) argued that futures often sit below the expected price, paying speculators for taking risk off producers ("normal backwardation"). Nicholas Kaldor (1939) and Holbrook Working (1949) explained the price of storage, and why the gap moves with supply.
• The perpetual future. Robert Shiller (1993) proposed a future that never expires. Crypto exchanges built it, starting with BitMEX in 2016. With no expiry date to pull its price back to spot, a perpetual uses funding: every few hours, whichever side is ahead pays the other. If the perpetual trades above spot, longs pay shorts.
• Carry in general. Ralph Koijen, Tobias Moskowitz, Lasse Pedersen and Evert Vrugt (2018) found that "carry" (what an asset pays you to hold it if prices don't move) predicts returns across many markets.

The maths, step by step

1. A dated future. Spot is 100 and the 3-month future is 102. Buy spot, sell the future, and in three months the gap is yours: 2% for three months, or 1.02⁴ − 1 = 8.24% a year.

2. Funding on a perpetual. A typical 0.01% every 8 hours is paid three times a day:

0.01% × 3 × 365 = 10.95% a year to the short.

When it turns negative, the short pays: −0.01% for 30 days costs 0.9%.

3. The hedge. The price rises 10%. The coin gains 10% of its value and the short loses 10%: the book's price result is 0.

4. The money it ties up. One coin at 60,000, and a short of one coin.

• The coin costs 60,000. The short needs money set aside too: 60,000 at 1×, or 12,000 at 5×.
• Funding of 10.95% on 60,000 is 6,570 a year. On 120,000 of money that's 5.5%; on 72,000 it's 9.1%.

5. The limit. A short at 5× is closed by force (liquidated) after a rise of about 1/5 − 0.5% = 19.5%, unless more money is added in time. At 10×, after only 9.5%. The hedge doesn't protect the short's own account: the coin's gain sits elsewhere.

What others found

This section is other people's work, not ours.

• Crypto carry is large and swings a lot. Maik Schmeling, Andreas Schrimpf and Karamfil Todorov (Bank for International Settlements, 2023) found it averaged above 10% a year and sometimes passed 40%, varying a great deal over time. They linked it to demand from smaller, trend-chasing buyers of leverage, and to limits on how much money arbitrageurs can bring.
• The gaps are shrinking. Songrun He, Asaf Manela, Omri Ross and Victor von Wachter (2022) found perpetual prices strayed from their no-arbitrage values far more than currency markets do, and that the gaps shrank as markets matured.
• Carry trades crash. Markus Brunnermeier, Stefan Nagel and Lasse Pedersen (2008) showed that currency carry trades earn steadily and then lose suddenly, when traders all unwind at once.
• Big operators publish their risks. Ethena, which runs this trade at scale, lists funding, liquidation, custody and exchange failure, and keeps a reserve for stretches of negative funding.

What we tested and found

This section is ours.

• It pays a few percent a year, and only on the biggest coins. On Bitcoin with a 1× short, the yearly return on the money used was +2.0%, +4.3% and +1.1% across three periods from 2022 to 2026. Only Bitcoin, and Bitcoin with Ether, earned in every period. Chasing the coins with the highest funding lost in two of three periods: high funding doesn't last, and switching costs more than it pays.
• More leverage on the short helped, up to a point. Bitcoin at 5×: +3.3%, +7.2% and +1.9% a year with no liquidation on hourly prices. At 10× it was liquidated 15 times and lost.
• Funding turns. In June 2022 to May 2023 the shorts paid funding, 10.2% in all, and the hedged basket lost about that much.
• One account, not two. Replaying crashes from 2020 to 2025, books holding both legs in one account survived every one at Bybit's collateral rates. In separate accounts only 1 of 20 set-ups survived.
• Between two exchanges there was a steady funding gap, +3.2% to +4.0% a year over 13 months, positive every month. It is small, and it needs two pots of collateral.

These agree with the published work: the carry is real but small for us, swings with the market's mood, and its risks sit in the plumbing (liquidation, collateral, exchanges) more than in the price.

The catch

• The short's account can be liquidated even though the book as a whole is hedged (step 5), unless both legs share one account or the short has a big cushion.
• The two legs have to open together. If one side fills and the other is refused, for lack of margin or a moving price, the book is left holding a plain bet on the price until the second side is done.
• Funding goes negative in sour markets, and then the trade pays to stay open.
• The exchange is a risk. The coins and the short sit with an exchange. If it fails, the hedge doesn't help.
• Small coins look best and are worst. Their funding is highest when they're being squeezed, and their prices can jump past any cushion.
• The money is tied up. A few percent a year on the money is less than it sounds once fees, cushions and idle cash are counted.

Update, 16 October 2026: two corrections

Added after this page was published. The text above is left as it was.

• The first two findings under "What we tested and found" came from a test we have since withdrawn. That test, of which coins to carry and at what leverage, was never published. Its coins were only those still trading in 2026. With the dead coins put back, the rules that chased the highest funding lost 29% to 42% a year in the last year (our page "Survivorship: how the coins were picked, and what it does"). Don't rely on its figures: +2.0%, +4.3% and +1.1% a year at 1×, +3.3%, +7.2% and +1.9% at 5×, and 15 liquidations at 10×. Our published tests show this instead:
  • Bitcoin, Ether and Solana, each hedged ("Funding carry and the hedged basket"): ×1.13 over two years, October 2024 to October 2026, about 6% a year, with a worst fall of 1%. Borrowing to run it at 3.4 times, at a 3.9% loan, made about 8% a year, with a worst fall of 8.8%.
  • Bitcoin or Ether, hedged in one account, the coins paid for ("The carry trade in one account: does it survive the crashes?"): about 6% a year in months with no crash (Bitcoin +5.9%, Ether +6.2%).
  • The lesson is the same, and stronger: a few percent a year on the biggest coins, and chasing the highest funding loses.
• "Survived every one" was too broad. It held for Bitcoin and Ether: in one account, at Bybit's rates, no book was liquidated in any of 42 periods from 2020 to 2026. On smaller coins, books with 2 times or more on the coins were liquidated: Dogecoin, Solana, BNB and Cardano. With the coins paid for, none was, on any coin.

Credits

• John Maynard Keynes, A Treatise on Money, Macmillan, 1930.
• Nicholas Kaldor, "Speculation and Economic Stability", Review of Economic Studies, 1939.
• Holbrook Working, "The Theory of Price of Storage", American Economic Review, 1949.
• Robert J. Shiller, "Measuring Asset Values for Cash Settlement in Derivative Markets: Hedonic Repeated Measures Indices and Perpetual Futures", Journal of Finance, 1993.
• Ralph S. J. Koijen, Tobias J. Moskowitz, Lasse Heje Pedersen and Evert B. Vrugt, "Carry", Journal of Financial Economics, 2018.
• Maik Schmeling, Andreas Schrimpf and Karamfil Todorov, "Crypto Carry", BIS Working Paper 1087, Bank for International Settlements, 2023 (revised 2025).
• Songrun He, Asaf Manela, Omri Ross and Victor von Wachter, "Fundamentals of Perpetual Futures", working paper, 2022.
• Markus K. Brunnermeier, Stefan Nagel and Lasse H. Pedersen, "Carry Trades and Currency Crashes", NBER Macroeconomics Annual, 2008.
• Ethena's public documentation on risks.
• Our tests: "Funding carry and the hedged basket", "The carry trade in one account: does it survive the crashes?", "The same long, held two ways: plain coins, or coins plus a hedge that earns funding" and "Survivorship: how the coins were picked, and what it does". An earlier test of which coins to carry is withdrawn (see the update).
• PerpGremlin and Claude, Funding carry: getting paid to hold a hedged coin, TerminalGremlin, 2026: the tests, the code and the words.