A basis point (bps) is a standard finance unit used to express small percentage changes clearly. One basis point equals one-hundredth of a percentage point, or 0.01%. In other words, 100 bps equals 1.00%. Using bps reduces confusion when discussing changes in interest rates, yields, fees, and spreads.
How basis points work
Because bps are based on percentage points, they describe changes, not multipliers. For example, if a borrowing rate moves from 5.00% to 5.25%, that is an increase of 25 bps. If it falls from 3.50% to 3.20%, that is a decrease of 30 bps. This precision matters whenever small differences have meaningful financial impact, such as comparing two lending products or tracking incremental shifts in yields.
Basis points in crypto: lending, fees, and trading
Basis points show up throughout crypto markets, especially where rates and fees are quoted. In crypto lending and borrowing, platforms may advertise annual percentage rates and describe changes in those rates in bps as market conditions shift. In derivatives and structured products, funding rates, yield spreads, and performance fees are often communicated in basis points for clarity.
Bps are also common for fees quoted as a percentage of notional value. For instance, a 25 bps fee means 0.25% of the transaction or position size. Traders comparing venues may look at fee schedules, maker and taker fees, or spread differences using bps to understand which option is more cost-effective.
Why it matters in the crypto ecosystem
Crypto markets can be highly competitive, and small differences in rates and fees can compound over time. Basis points provide a precise, widely understood way to compare products, communicate changes, and evaluate costs and yields across platforms.