What Is the Concept of Basis in Relation to the Funding Rate?

Basis is the difference between the price of the perpetual futures contract and the spot price of the underlying asset. A positive basis, or premium, means the futures price is higher than spot.

A negative basis, or discount, means it is lower. The funding rate is directly linked to the basis; it is the mechanism designed to drive the basis toward zero, ensuring the perpetual contract price closely mirrors the spot price.