EQUATION
Search
K

# Funding Rate

Funding rate is the key to maintain the perpetual contract price in balance with the spot price. The underlying principle is: when the contract price is higher than the index price, long position holders compensate short position holders; conversely, when the contract price is lower than the index price, short position holders compensate long position holders.
Based on the pricing mechanism in the previous section, in BRMM model: when the LPs hold short position, long position holders compensate short position holders; conversely, when the LPs hold long position, short position holders compensate long position holders.
The Funding Rate is calculated and charged/paid hourly, and the specific calculation formula is:
Funding Rate = [APR + clamp(IR - APR, 0.05%, -0.05%)] / 8
Where:
1. 1.
Interest Rate (IR) is a constant and can be adjusted by DAO.
2. 2.
PR is calculated every 5 seconds. Average Premium Rate (APR) = (1*PR_1 + 2*PR_2 + 3*PR_3 +…+ n*PR_n) / (1+2+3+…+n)