> ## Documentation Index
> Fetch the complete documentation index at: https://docs.nexio.xyz/llms.txt
> Use this file to discover all available pages before exploring further.

# Strategy 2: Delta-Neutral Funding

> Explains delta-neutral funding strategies using spot and perpetual futures positions to earn funding spreads while managing market, exchange, liquidity, and operational risks.

Borrowers in this Series execute the **Delta-Neutral Funding** strategy: a market-neutral approach that earns yield from the funding-rate differential between long and short perpetual futures across exchanges.

**A perpetual future** is a type of futures contract with no expiry date. Traders pay or receive a small funding fee every few hours to keep the contract price aligned with Bitcoin’s real spot price.

This strategy captures those periodic funding payments (not price movements) to generate a steady BTC-denominated yield from market imbalances.

## How the Strategy Works

The strategy captures periodic funding payments that flow between long and short traders on perpetual futures exchanges. These payments occur every few hours and are calculated as a percentage of the contract’s notional value.

<Expandable title="Funding Rates Explained">
  Funding payments are periodic transfers between traders on perpetual futures exchanges. They exist to keep the perpetual contract’s price aligned with the real Bitcoin spot price.

  If the perpetual price is **above spot**, long traders pay shorts a small fee (a positive funding rate) to discourage excessive long positions.

  If the perpetual price is **below spot**, shorts pay longs (a negative funding rate) to reduce selling pressure.

  These payments occur periodically and are calculated as a percentage of the contract’s notional value. These transfers are enforced by the exchange’s matching engine, ensuring they occur automatically and reliably.

  The realized spread flows back into the borrower’s Series vault, increasing its NAV and the uBTC value held by lenders.
</Expandable>

For those borrowing BTC on Nexio, this might look as follows:

1. **Borrow BTC & Buy BTC on Spot Market:** The borrower borrows BTC on Nexio and holds it as their spot position, forming the base of the trade.
2. **Short Perpetual Futures:** The borrower simultaneously opens a short position in a BTC perpetual futures contract on an exchange with favorable funding rates, meaning longs pay shorts.
3. **Hold the Hedge:** As BTC’s price moves, gains and losses on the spot and futures positions cancel out. The trade remains delta-neutral, meaning immune to directional price swings.
4. **Collect Funding Payments:** The borrower earns recurring funding payments from long traders on that exchange, which accumulate as BTC yield over time.

### **Example: 0.03% funding rate**

Assume BTC trades at **\$100,000**, and a perpetual futures contract on **Exchange A** pays a **+0.03% hourly funding rate** to short positions.

The borrower:

* Buys **1 BTC** on the spot market.
* Sells **1 BTC** perpetual futures on Exchange A.

If BTC’s price rises to \$105,000, the spot position gains \$5,000 while the short futures loses \$5,000, resulting in no net directional profit or loss.\
Meanwhile, the borrower continuously earns the 0.03% hourly funding from long traders on Exchange A.

For lenders, the Delta-Neutral Funding Series provides predictable, BTC-denominated coupons backed by this funding-rate spread.\
Borrowers are high-credit trading firms with exchange access, proven hedging systems, and strict collateralization, ensuring BTC-backed coupons remain verifiable and transparent on-chain throughout the Series term.