What Is Basis Risk When a DAO Uses a Perpetual Future to Hedge Its Spot Asset Holdings? ▴ Learn

What Is Basis Risk When a DAO Uses a Perpetual Future to Hedge Its Spot Asset Holdings?

Basis risk is the risk that the price of the asset being hedged (the DAO's spot token holdings) and the price of the hedging instrument (the perpetual future contract) do not move perfectly in sync. This divergence, or "basis," can cause the hedge to be imperfect, resulting in a loss even if the spot price movement was fully anticipated.

A DAO must manage this risk by choosing highly correlated perpetual contracts and monitoring the basis closely.

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