Funding rates

The new funding rate system will go into effect July 3rd after the release window

Perpetual futures contracts employ a funding rate mechanism to ensure the mark price stays close to the index price. Please see Mark, Index, and Quoted Prices for an overview of the different prices. In summary, the index price is computed by aggregating the spot prices across different exchanges. The mark price is the fair value of the perpetual futures contract and is not used in the computations to derive the funding rate.

A positive funding rate means longs pay shorts; a negative funding rate means shorts pay longs.

There is a funding payment every hour.

Formulas

Funding Rate (F) = Average Premium Index (P) + clamp (interest rate - Premium Index (P), -0.0005, 0.0005)

The premium is computed every 60s and then averaged over the calculation window using the weighting scheme described below.

premium = impact_price_difference / index_price

impact_price_difference = max(impact_bid_px - index_price, 0) - max(index_price - impact_ask_px, 0)

The impact_bid_px is the bid price returned for a RFQ of size $10,000.

The impact_ask_px is the ask price obtained for a RFQ of size $10,000.

The interest rate is fixed at 0.001% / hour, and the funding rate is capped at 2% per hour.

Weighting scheme

We sample the premium P every 60s, leading to samples P_1, P_2, ... P_i, ...P_N. Then each sample P_i has weight $\frac{2i}{N(N+1)}$

Numerical example

Let's take

index_price = $10,000
impact_bid_px = $10,100
impact_ask_px = $10,200

Step 1: compute the impact_price_difference

impact_price_difference = max($10,100 - $10,000, 0) - max($10,000 - $10,200, 0)
                        = max($100, 0) - max(-$200, 0)
                        = $100 - $0
                        = $100

Step 2: compute the premium

premium = $100 / $10,000
        = 0.01

Step 3: compute the funding rate

Funding Rate (F) = 0.01 + clamp(0.00001 - 0.01, -0.0005, 0.0005)
                 = 0.01 + clamp(-0.00999, -0.0005, 0.0005)
                 = 0.01 - 0.0005
                 = 0.0095