Where Are the Arbitrage Opportunities in On-Chain Stock Perpetual Contracts?

Author: Zhou, ChainCatcher

Recently, a recap about SK Hynix's cross-market arbitrage has been circulating on X. A trader recounted making over $600,000 in profits from cross-market price differences since June. While the positions and profits mentioned in the recap cannot be verified from public data, the market structure and mechanisms he described appear fundamentally sound.

Meanwhile, Changxin Technology is set to list on the A-shares STAR Market next Monday, and the on-chain Pre-IPO perpetual contracts have already emerged. This is the largest IPO project in the capital market recently, following the Hynix ADR, and many investors are discussing whether they can replicate Hynix's strategy with Changxin.

He Profited from Rule Differences

Today, SK Hynix has at least five price points running simultaneously—Korean common stock, Nasdaq ADR, Hong Kong leveraged ETF, perpetual contracts on centralized exchanges, and the HIP-3 contract on Hyperliquid. Their anchoring objects, settlement currencies, and trading hours differ, and GodpanSen capitalized on the price discrepancies between them.

Let's take a look at how he did it. According to his post, he really started focusing on Hynix after Binance launched its contracts in June. Before that, there was only one contract curve on Hyperliquid, and after Binance entered, there were two prices to compare.

First, he mentioned discovering over a weekend that the Hynix contract on Binance was $30 more expensive than on Hyperliquid. He judged that the price difference stemmed from the different rules regarding funding fees charged by each platform; as long as the funding fee paid before closing was less than $30, he would profit. He built a position of 1,000 shares, and when the common stock opened on Monday, the price difference converged, netting him $15,000 after deducting the funding fee.

Next was his main position. Users in the crypto space generally find it difficult to buy Korean common stocks, and retail investors can only go long on the contract side. He claimed that at times, the single-stock premium reached over $40. Therefore, he bought Korean spot shares using an IB account while shorting the high-premium contracts, offsetting the positions without betting on the stock price. He waited for the price difference to revert while collecting the funding fees paid by the long position to the short position, earning over $120,000 in profit during this period.

The third point was leveraging the different mechanisms for collecting funding fees. He noted that prices on three platforms consistently showed Binance higher than OKX, and OKX higher than Hyperliquid. After backtesting, he found that except for the periods of extreme price movements before and after trading hours, OKX's weekly funding fees were nearly 1 percentage point higher than Binance's. Thus, when the prices were close, he moved his position to OKX, earning $170,000 in funding fees, estimating that the same position left on Binance would only yield around $100,000.

He attributed this to OKX not using its own algorithms but directly taking a proportion from the indices of Hyperliquid and Binance. This point was not explained in OKX's official documentation, which only states that the index is composed of multiple price sources, with some components smoothed using EMA.

The fourth point was betting on changes in rules, essentially exploiting a rule bug. During the days when Hynix's common stock plummeted, the Binance contract was over $40 higher than the common stock. According to normal calculations, the 8-hour funding fee rate should have been above 1%, but Binance set a cap that locked the rate at 0.5%, while Hyperliquid settles every hour, causing the price difference to widen to $30.

GodpanSen judged that this state wouldn't last long, shorting Binance and going long on Hyperliquid with nearly $10 million in positions, averaging a price difference of about $25 per share. He claimed that Binance adjusted the funding fee to be collected every 4 hours that afternoon, causing the price difference to fall, and he closed his positions in two transactions, bringing in over $150,000.

However, this segment seems inconsistent with Binance's public announcement. According to Binance's announcement on June 1, the funding fee rates for these three perpetual contracts were set at ±2% at launch, and only narrowed to ±0.50% at 00:15 on July 15, while also changing the settlement frequency from 8 hours to 4 hours. He described a scenario where the rate was locked at 0.5% before the rule change, which contradicts the announcement; what he encountered was more likely an actual cap rather than the announced limit.

Finally, regarding the leveraged ETF, he mentioned that on the Friday when the Korean stock market was closed while the Hong Kong market was open, the 2x leveraged ETF for Hynix listed in Hong Kong dropped over 20 points in a single day, equivalent to a drop of more than 10% in the common stock, while the crypto contracts only fell by 5% during the same period. He bought the discounted ETF while shorting the Hynix contract on Binance, waiting for the Korean stock market to open on Monday.

He calculated the hedging ratio as 100 shares of ETF to 1.19 shares of common stock, but actually hedged at a 1:1 ratio, intentionally leaving about 20% of his position unhedged. Ultimately, he bought 480,000 shares of ETF and shorted 5,000 contracts. On Monday, the common stock only dropped 5% before rising, allowing him to close his position with over $200,000 in profit.

Finally, he mentioned that when buying Korean spot shares through IB, he borrowed Korean won for convenience, while the underlying crypto contracts are pegged to the dollar value of the common stock, effectively exposing him to the USD/KRW exchange rate. He opened his position at a recent low for the won, and over the past month, the won appreciated significantly, resulting in a loss of $60,000 when settling the position due to foreign exchange alone.

The Mechanism is Perfect, but the Operation is Difficult

In summary, his operations mainly involve three techniques.

First, moving price differences between two contracts. The same underlying asset exists at different exchanges with price differences, primarily due to the different rules for funding fees charged by the two platforms. As long as the funding fees paid during the holding period are less than the price difference, one can profit. These positions are both contracts, and the trader is essentially hedging time rather than assets.

Second, buying spot and shorting contracts, holding neutrally to collect funding fees. However, being directionally neutral does not equate to being risk-neutral. Funding fees are variable; being positive long-term is merely a result of retail investors currently going long. If the short side gains dominance, the rate can turn negative, and the shorts will switch from being the recipients of funding fees to the payers.

Third, capturing mismatches during market closures. Hynix has Korean common stock, Hong Kong leveraged ETFs, Nasdaq ADRs, and 24-hour trading crypto contracts, each with non-overlapping opening and closing times. The premise for this type of operation is that prices indeed revert rather than continue moving in the same direction. Additionally, leveraged ETFs incur daily rebalancing losses, and the longer the holding period, the greater the tracking error, making it suitable only for short windows like crossing a weekend.

This mechanism seems perfect, but in practice, it is extremely difficult to execute.

To run this operation, one needs to navigate various trading channels; accounts for Korean stocks, foreign exchange channels, broker quotas, and margin accounts at multiple exchanges are all essential. Moreover, one must be sufficiently sensitive to the differences in rules, including the funding fee settlement cycles, fee caps, index compilation methods, and when these differences will be amplified.

Furthermore, his last two points have already departed from pure price difference capture; one bet on whether Binance would change the funding fee cap, and the other bet on whether the Hong Kong ETF discount would revert on Monday, both requiring directional judgments on price movements and platform behaviors.

GodpanSen stated that arbitrage can only be done with 20-30% of the position size, and the capital scale needed to support this entire operation is itself a filter.

Many users expressed that even if they follow along, it is still challenging to capture the full profits. Moreover, the actual risk differences between different arbitrage methods are significant, especially when rule changes and directional judgments are involved, which adds a strong game-theoretic nature.

The High Premium is the Same, But What’s Different About Changxin?

However, the market is always profit-seeking, and many investors are starting to turn their attention to the upcoming listing of Changxin Technology.

Currently, Hyperliquid has launched the Changxin perpetual contract CXMT-USDC, which, as of the time of writing, is reported at $6.3896, equivalent to about ¥43.26, having fallen about 25% from its peak, yet still around five times the issue price. Based on a total share capital of 66.881 billion shares post-issue, the implied market value is approximately ¥2.94 trillion.

The premium is an order of magnitude higher than that of Hynix at the time, but the arbitrage space may not necessarily be the same.

Hynix exists simultaneously in Korean common stock, Nasdaq ADRs, Hong Kong leveraged ETFs, and contracts across multiple exchanges. Each of GodpanSen's three techniques requires at least two curves; moving price differences needs two contracts, neutral charging requires both spot and contracts, and capturing mismatches requires both ETFs and contracts.

In contrast, Changxin only has one curve on Hyperliquid before its listing, and multiple on-chain positions have already begun establishing short positions. These positions lack a spot leg to hedge against, betting instead on the price converging downwards after listing, rather than arbitraging between two prices.

After listing, the A-shares STAR Market's asset threshold of ¥500,000 combined with QFII quota restrictions will block most overseas investors from accessing the common stock, creating a barrier similar to that faced by crypto users who cannot buy Korean common stock.

The real difference lies in the price fluctuation limits. According to the Shanghai Stock Exchange rules, new stocks on the STAR Market do not have price fluctuation limits for the first five trading days, and from the sixth trading day onwards, the limit is ±20%. Once the common stock hits the price limit, the convergence mechanism will be directly cut off.

Another point is that in the arbitrage mechanism of going long on common stock and shorting contracts, Changxin's side involves the RMB against the USD and USDC, with the RMB not being freely convertible, and there are onshore-offshore price differences, along with quota and remittance restrictions for QFII funds.

As for the price differences between contracts across exchanges, this layer can be replicated, provided that after listing, various exchanges gradually launch Changxin's perpetual contracts, leading to the emergence of the second and third curves. The mismatch in trading hours is the same.

However, this strategy has now become public knowledge and is widely circulated, which means that the information gap has narrowed, and the speed at which price differences are compressed has also increased.

Are Market Opportunities Increasing?

With the diversification and fragmentation of the market, these seemingly easily accessible arbitrage opportunities appear to be increasing, but in reality, they place a heavier burden on traders' understanding and execution capabilities.

When the same asset is split into common stock, depositary receipts, leveraged ETFs, and contracts across multiple platforms, the differences in index algorithms, settlement cycles, fee caps, and trading hours will continuously create price differences.

The gap between seeing a price difference and capturing it involves cross-market accounts, channels, margin dispatch, and risk control execution; any missing link can distort the action.

It is worth considering that these types of trades seem to earn certain money, but the risks are almost all hidden outside of the price.

Arbitrage in the early stages was largely about betting on the rules themselves. When a new market is opened, the rules are often not yet refined, and price differences arise from the roughness of the mechanism rather than pricing errors. Discussions about Polymarket arbitrage over the past two years belong to the same category.

These opportunities have a clear half-life; as mechanisms are completed, market depth increases, and more participants join, the price differences that can be captured will become thinner. For professional traders, differences in rules may signify arbitrage opportunities. For ordinary retail investors, the same differences may become sources of risk.

On the other hand, leverage is an invisible killer. Yesterday, economist Fu Peng from New Fire Technology also mentioned that capital market pricing reflects expectations and will significantly lead real fundamentals. Factors like production shortages and full orders cannot derive sustained stock price increases because stock prices trade on the future.

He noted that many young traders in the Korean market made substantial profits one day and then faced significant losses the next, with the issue not lying in business operations or supply-demand in the industry, but rather in excessive leverage accumulation within the market.

This point also applies to arbitrageurs.

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