Funding Rates
What are funding rates?
Funding rates are payments exchanged between long and short position holders. If the mark price is at a premium to index, then long positions will pay short positions (and vice versa). On Rage Trade, funding payments are exchanged each second using the TWAP of perp and spot prices. We use the following formulas:
fundingRate (per second) = (TWAP_PERP - TWAP_SPOT) / TWAP_SPOT * (1 / 86400)
fundingPayment = PositionSize x fundingRate x timeElapsed
How are funding rates kept inline with CEXs?
On-chain perp swap exchanges suffer from mismatched funding rates against centralized exchanges. This is due to a combination of low liquidity and arbitrage driven trade volume. Rage trade controls for this by offering three methods to update funding rates:
- On-chain Traditional Calculation (using mark-index price)
- Chainlink Oracle that feeds rates from Binance
- (Worst-case scenario) Manually Update Funding via a Governance Vote
What is forward guidance?
When CEX funding rates and Rage funding rates diverge, Rage’s governance module can toggle between the above 3 methods, to keep funding rates close to fair value. Collectively, these 3 are known as forward guidance.
Generally, funding rate will be calculated on-chain using the % difference between mark & index prices. But when CEX funding rates and Rage funding rates diverge, the protocol switches to a governance minimised way of updating funding rates via a Chainlink Oracle that feeds rates from Binance. In worst-case scenarios, when the mark & index prices deviate, Rage adopts a graceful approach to update the funding rate manually via a Multisig Governance Vote, to reflect prevalent CEX funding rates.
Each time funding rate is updated by governance, it takes 1 day for the change to take effect. This gives traders time to respond accordingly.
How can I calculate my cumulative funding payments?
A trader can calculate their cumulative funding payments by adding their realized funding payments and unrealized funding payments. The realized funding payments can be retrieved from the Account History section. And the unrealized funding payment can be retrieved from the main trading interface.
