> For the complete documentation index, see [llms.txt](https://hyperliquid-co.gitbook.io/wiki/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://hyperliquid-co.gitbook.io/wiki/architecture/hypercore/dex/clearinghouse/funding.md). # Funding Funding rates are a critical mechanism in crypto perpetual contracts, ensuring that the perpetual contract price remains closely aligned with the underlying asset's spot price. On Hyperliquid, funding is designed to be **peer-to-peer**, transparent, and reflective of real market conditions. *** ### **Overview of Funding** 📈 * **Peer-to-Peer Payments:** Funding involves direct payments between traders—**longs pay shorts** or vice versa. The platform does not collect any fees from these payments. * **Hourly Settlements:** Funding is accrued and paid **every hour**, providing consistent adjustments to the market. * **Base Interest Rate + Premium:** The funding rate is computed as the sum of: 1. A **fixed interest** **rate** of **0.01% every 8 hours** applies, representing the cost difference between borrowing USD or cryptocurrencies. This corresponds to approximately **0.00125% per hour** and an **APR (Annual Percentage Rate) of \~11.6%**. 2. A **premium/discount component**, which reflects the difference between the perpetual contract price and the **oracle-derived spot price** of the asset. *** ### **Funding Rate Calculation** 🧮 The funding rate formula is: ```lua F = Average Premium Index (P) + clamp(Interest Rate - Premium Index (P), -0.0005, 0.0005) ``` * **Premium Index (P):** Reflects the difference between the **impact price** (calculated using order book depth) and the **oracle price**. * **Sampling:** The premium is sampled every **5 seconds** and averaged over the hour * **Clamp:** Limits extreme differences between the interest rate and the premium index. #### **Impact Price Calculation:** ```lua impact_price = max(impact_bid_px - oracle_px, 0) - max(oracle_px - impact_ask_px, 0) ``` Where: * **impact\_bid\_px / impact\_ask\_px** = Average execution prices to trade a specified notional amount on the bid and ask sides. * **oracle\_px** = Weighted median of prices submitted by validators, ensuring accuracy and robustness. *** ### **Key Points** 💡 * **Oracle-Driven Calculations:**\ The **spot oracle price**, derived from a weighted median of validator submissions, is fundamental in calculating the funding rate. Validators’ weights depend on their stake and the liquidity of the CEX they monitor. * **Funding Impact Notional:**\ The impact notional used for funding calculations depends on the asset: * **20,000 USDC** for BTC and ETH. * **6,000 USDC** for all other assets. For example, a **50,000 USDC** BTC position pays funding only on the first **20,000 USDC**. * **Caps on Funding Rates:**\ Funding on Hyperliquid is capped at **4% per hour**, a much less aggressive cap than many centralized exchanges. * **Payments Formula:**\ Funding payments are settled as: ```lua Payment = position_size × oracle_price × funding_rate ``` The oracle price, not the mark price, is used to calculate the notional value for funding payments. *** ### **Example Calculation** 📝 1. **Scenario:** * Interest Rate = 0.01% * Impact Bid Price = $10,100 * Spot Oracle Price = $10,000 * Position Size = 10 contracts (each representing 1 BTC) 2. **Step 1: Calculate Premium Index (P):** ```lua Premium = (Impact Bid Price - Spot Oracle Price) / Spot Oracle Price Premium = ($10,100 - $10,000) / $10,000 Premium = 0.01 (1%) ``` 3. **Step 2: Clamp the Difference:** ```lua Clamped Difference = min(max(Interest Rate - Premium, -0.05%), 0.05%) Clamped Difference = min(max(0.01% - 1%, -0.05%), 0.05%) Clamped Difference = -0.05% ``` 4. **Step 3: Calculate Funding Rate (F):** ```lua Funding Rate = Premium + Clamped Difference Funding Rate = 1% + (-0.05%) Funding Rate = 0.95% ``` 5. **Step 4: Compute Payment:** ```lua Payment = Position Size × Oracle Price × Funding Rate Payment = 10 × $10,000 × 0.0095 Payment = $950 ``` *** ### **Market Dynamics & Trading Insights** 🔗 **Open Interest** - Total number of contracts held by all market participants—indicates market sentiment and trading activity intensity. There's always a long for every short. **Premiums & Discounts:** * **Premium** (perp > spot): Perpetual trading above spot price - longs pay shorts * **Discount** (perp < spot): Perpetual trading below spot price - shorts pay longs * The **funding rate** translates these premium/discount observations into actual payment amounts * Creates **arbitrage opportunities** for yield-seeking traders (cash and carry strategies) **Advanced Interpretation:** * **Positive funding** ≠ always bullish sentiment - could indicate spot selling faster than perps * **Negative funding** ≠ always bearish sentiment - could indicate spot buying leading perps * **Funding dislocations** between funding rates and price action often signal significant moves * **OI flushes** tend to happen when OI rises while prices grind down - shows leveraged buying over spot Funding incentivizes traders to take positions that align the perpetual price with the spot price, maintaining a **stable and fair trading environment** through economic incentives rather than forced settlement. --- # Agent Instructions This documentation is published with GitBook. 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