Spot control combined with funding rate arbitrage

This pattern is more common in contract trading pairs with small market capitalization and insufficient liquidity, and is also a way for market makers to profit using market structure.

First, market makers will continuously accumulate positions in the spot market in advance, holding a large amount of circulating supply, even controlling most of the available float. When the market's circulating supply becomes very thin, only a relatively limited amount of funds is needed to significantly drive up the spot price.

Since the mark price of many exchanges' contracts is calculated based on the spot index, as long as the spot price continues to rise, the mark price will also increase synchronously. This greatly improves the safety of the market maker's long contract positions, making it difficult to trigger liquidation even if the contract price fluctuates.

At the same time, a rapid increase in the spot price often attracts a large number of investors to go short, believing the price has risen too high. As the number of short positions increases, the funding rate may turn into a highly negative value, meaning shorts need to continuously pay funding fees to longs. If the market maker holds a large number of long positions at the same time, they can continuously earn funding rate income while maintaining a relatively strong spot price, achieving additional profit beyond the price increase.

The entire process essentially uses the influence of the spot market to affect contract market pricing, combined with the funding rate mechanism to enhance overall returns, making it more likely to occur in market environments with poor liquidity.
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