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The Two-Tiered Structure of Cryptocurrency Funding Rate Markets

Author

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  • Petar Zhivkov

    (Institute of Information and Communication Technologies, Bulgarian Academy of Sciences, Acad. G. Bonchev Str. Bl. 25A, 1113 Sofia, Bulgaria
    Scientific Group 3.1.6, “Angel Kanchev” University of Ruse, 8 Studentska Str., 7017 Ruse, Bulgaria
    Centre of Excellence in Informatics and Information and Communication Technologies, Acad. G. Bonchev Str. Bl. 25A, 1113 Sofia, Bulgaria)

Abstract

Perpetual futures account for approximately 93% of cryptocurrency futures trading volume, yet funding rate dynamics across fragmented markets remain understudied. We construct a high-frequency panel dataset comprising 35.7 million one-minute observations across 26 cryptocurrency exchanges (11 centralized, 15 decentralized) spanning 749 symbols over eight consecutive days. Using time-series econometrics, correlation analysis, and Granger causality tests, we characterize funding rate dynamics, market integration, and information flow. We find evidence of a two-tiered market structure: centralized exchanges (CEX) dominate price discovery with 61% higher integration than decentralized exchanges (DEX), and all significant information flow runs CEX-to-DEX with zero reverse causality. While 17% of observations exhibit economically significant arbitrage spreads (≥20 basis points), only 40% of top opportunities generate positive returns after transaction costs and spread reversals. Delta-neutral portfolio simulations reveal that successful arbitrage requires both high spreads and sufficient duration before inevitable reversals, with forced exits occurring in 95% of opportunities. The findings show that cryptocurrency derivatives markets exhibit a persistent two-tiered structure in which centralized platforms dominate price discovery while transaction costs and spread reversal risks prevent arbitrage from eliminating large mispricings between platforms, resolving the apparent paradox of substantial price fragmentation coexisting with market efficiency.

Suggested Citation

  • Petar Zhivkov, 2026. "The Two-Tiered Structure of Cryptocurrency Funding Rate Markets," Mathematics, MDPI, vol. 14(2), pages 1-20, January.
  • Handle: RePEc:gam:jmathe:v:14:y:2026:i:2:p:346-:d:1844705
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    Cited by:

    1. Anatoly Krestenko & Mikhail Butov & Rostislav Berezovskiy & Danila Bolotin, 2026. "Dynamic Collateral Control for Permissionless Spot Perpetual Basis Trading," Papers 2605.05089, arXiv.org.

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