What Is “Basis Trading” in the Context of Funding Rates?

Basis trading, in this context, refers to a strategy where a trader simultaneously takes an opposite position in the perpetual future and the underlying spot asset to profit from the funding rate. The "basis" is the price difference between the two.

For example, a trader might short the future and long the spot asset when the funding rate is highly positive, collecting the periodic funding payments while being hedged against price movement.