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Funding Rates
Funding rates are a mechanism used in perpetual futures markets to help the price of the futures contract stay close to the underlying asset's spot price. Perpetual futures contracts, unlike traditional futures, do not have an expiration date, so these funding rates serve as a way to balance the market.
When the funding rate is positive, the perp trades at a higher price than its underlying asset. Conversely, a negative funding rate indicates the perp trading lower than its underlying asset.
Funding payments are determined by the funding rate. Longs pay shorts when the funding rate is positive, and shorts pay longs when the funding rate is negative. The result is a rubber-band effect that enforces a degree of parity between the price of a perp and spot price.
Funding payments on Zeta are extrapolated from a 24hr realization period:
Zeta does not pay or collect funding payments; rather they are exchanged directly between traders — pro rata to the size of their positions.
That is, the expected payment traders could expect to be credited or debited on a daily basis.
Chad goes long 100 SOL-PERP contracts and keeps his position open for 24hrs. Over that time, the impact midpoint is $11.76, and the SOL oracle price is $12. The resulting funding rate would be -2% and Chad would receive $24/day.
Last modified 4mo ago