2/12 Key insight #1: Early in Hyperliquid's life (pre-March 2024), carry returns were DOUBLE those on Binance! New exchanges often offer exploitable inefficiencies that change as they mature. Scott has an excellent thread about this https://x.com/ScottPh77711570/...

3/12 Key insight #2: Since early 2024, the same carry strategy has gone nowhere on Hyperliquid while returning ~50% on Binance. I assumed carry on HL would outperform… after all, funding rates are generally higher. When something clashes with your assumptions, it’s time to

4/12 What the data says: On Binance, price changes tend to work in your favour with carry trades. You get paid twice - from funding rates AND favourable price moves. On Hyperliquid, price changes tend to move AGAINST carry traders, wiping out funding gains. This accelerated in

5/12 What would explain this? Pet theory part 1: Binance funding marginally driven by uninformed lumpy flow that’s more likely to revert, benefiting carry traders who would take positions in line with that price reversion.

6/12 Pet theory part 2: Hyperliquid's extreme funding rates sometimes come from informed traders with genuine conviction - prime suspects are insiders seeking exit liquidity for worthless assets

7/12 Of course, people are trading for all sorts of reasons on both venues, and this only explains a very noisy effect that plays out on average.

9/12 That suggests that when the perp is being sold off hard on HL (triggers high funding to longs), it’s more likely to continue going down on. Carry traders risk being used as exit liquidity

10/12 I suspect that, rather than being an inherent property of “shorts pay longs” carry on Hyperliquid, those negative returns on the right-hand side of the carry factor plot are driven by the subset of perps subject to this “exit liquidity” effect. It’s almost certainly

11/12 Actionable ideas: More details in the full article, but there are a few: - Use Binance carry signals even when trading on Hyperliquid (or account for the “exit liquidity” effect when trading carry) - Pile in with people in the know - but be careful, these things are

12/12 @krislongmore/note/c-156097318 class="text-blue-500 hover:underline" target="_blank" rel="noopener noreferrer">https://substack.com/@krislong...

@Robot_Wealth have you tried using the mean of the premium from both Binance and HL (or some weighted version) as a signal?

@min_residuals No, but that's a cool idea. Unravel publishes carry signals from aggregated data - and they look very good.

@Robot_Wealth What if we only trade the say top 30-40 most liquid symbols on HL, would that make it closer to the Binance performance? Did you try to select the symbols that have very negative funding on HL and short them on say Binance, expecting price to fall (while not paying funding)?

@Robot_Wealth @threadreaderapp unroll

@Robot_Wealth rly good article Kris! gonna have to try use HL funding as a trend following feature :)