Basis Points (bps)
A unit equal to one-hundredth of one percent, commonly used to express small differences in interest rates, fees, or yields with precision.
A basis point, abbreviated "bps" and often pronounced "bips," is a unit of measurement equal to one one-hundredth of a percentage point (0.01%). Basis points are used specifically because they let small percentage differences be expressed precisely and unambiguously — stating that a rate rose "50 basis points" is less prone to confusion than stating it rose "0.5%," which could be misread as a 0.5 percentage-point move or a 0.5% relative change depending on context.
In crypto, basis points are commonly used to express trading fees, funding rates, lending and interest rate model (see Kaavon's "Interest Rate Model" glossary definition) parameters, and maker-taker fee model (see Kaavon's "Maker-Taker Fee Model" glossary definition) tiers, where the actual percentages involved are often quite small and benefit from the added precision basis points provide. One percentage point equals 100 basis points, so converting between the two units is a simple matter of multiplying or dividing by 100.
Examples
- An exchange charging a 10 basis point trading fee is charging 0.10% of the trade's value, a precise way of expressing a small percentage.
- A lending protocol's interest rate rising from 300 basis points to 350 basis points is equivalent to the rate rising from 3.00% to 3.50%.