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 the BRMM model: when the LPs hold short positions, long position holders compensate short position holders; conversely, when the LPs hold long positions, short position holders compensate long position holders.
The Funding Rate is calculated and charged/paid hourly, and the specific calculation formula is:
Funding Rate = [Avg. PR + 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 (Avg. PR) = (1*PR_1 + 2*PR_2 + 3*PR_3 +…+ n*PR_n) / (1+2+3+…+n)