Rates: The Most Exciting New Asset Class in Crypto
Interest rate derivatives play a critical role in the global financial ecosystem, with a total value of open contracts exceeding $500 trillion. In crypto, the volume of rates trading has not yet reached anywhere near this level, yet they capture a significant portion of the 'hidden' value behind trading mechanics in this sector.
Whether you’re a trader, a long-term investor, or a yield farmer, understanding rates is crucial—they dictate the cost of leverage, the return on lending, and the rewards for staking, ultimately defining the efficiency of your capital.
Crypto markets operate on different types of rates, each influencing how capital flows and profits are made. Here’s the main rates in crypto
Funding Rates
Perpetual futures dominate crypto trading, and funding rates are a core force shaping their dynamics. With $1B+ in monthly payments between longs and shorts, they drive positioning and liquidity. These rates are highly volatile—spiking above 100% APY or turning negative—directly impacting trader performance. More than just a cost, funding rates reveal market sentiment and leverage imbalances, making them essential for any skilled trader.
In the following chart you can see the funding rate volatility of ETH funding rate on Binance, grey line, against our fixed rate, chart candles:
Borrowing and Lending Rates
Common in onchain lending platforms like Aave, Compound, and MakerDAO, where users can lend assets to earn interest or borrow by providing collateral. These platforms facilitate billions in total value locked (TVL) and play a crucial role in crypto’s liquidity ecosystem.
Staking Rates
Staking allows crypto holders to earn yield while securing networks like Ethereum or Solana. Platforms like Lido, Rocket Pool, and Coinbase manage billions in staked assets, with rates fluctuating based on network conditions and provider efficiency. However, staking yields are not risk-free. They can be affected by slashing (penalties for validator misbehavior), liquidity constraints (lock-up periods and withdrawal delays), and governance changes that may alter reward structures. As demand for passive income grows, staking plays a key role in capital allocation across crypto markets. Being able to manage staking rates with futures products elevates portfolio efficiency and profitability, allowing traders to hedge risk and optimize returns.
Example of Highly Profitable Rate Trade
Short on Spiking Rates
Market hype can cause funding rates to spike temporarily, even on major assets like BTC and exchanges like Binance. A clear example occurred during the Trump election, when BTC funding rates hit a weekly average of 31% on OKX and 27% on Bybit, with some rates briefly touching 100% before normalizing. Rate future markets on Rho Protocol followed suit: ETH funding futures expiring in Dec-24% priced in 23% APY increasing 16 percentage points after a few days. See our Pulse on X when Trump was elected here. Such spikes are often unsustainable, creating prime shorting opportunities for traders.
Profiting from Rate Normalization
Traders who identified excessive pricing in funding rate futures, had the opportunity to short them, profiting as rates inevitably normalized. Basis traders also used this strategy to lock in 20+% funding rates. Following the election surge, funding rates declined to 10-15% by December, delivering 80% returns for those using leverage efficiently. Rates continued to normalize in the following months, reinforcing rates trading as one of the most profitable crypto strategies.
Visualizing the Market Movements
The chart below illustrates these market fluctuations, highlighting the significant spikes in funding rates post-election and their subsequent decline. This visual representation underscores how traders could have leveraged these fluctuations to optimize their positions.
Below a chart from Coinank that reports the funding rate on OKX every 8H from 26th of September 2024 to 24th of March 2025. It reached an ATH of almost 0,12% in 8H, which is more than 130% annualised!
