5. Funding Rates
In dated futures markets, contract prices converge with spot prices as expiries draw closer. Before maturity, futures positions can be rolled, closed out (via offsetting), or held until settlement.Unlike dated futures, perps do not expire and have no settlement or delivery date, so an alternative mechanism must exist to incentivize the tracking of the underlying asset.
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.
Zeta does not pay or collect funding payments; rather they are exchanged directly between traders — pro rata to the size of their positions. Think of the exchange as Switzerland when it comes to funding payments)
Funding payments on Zeta are extrapolated from a 24hr realization period.
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 2mo ago