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:
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%.
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:
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:
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:
The oracle price, not the mark price, is used to calculate the notional value for funding payments.
Example Calculation 📝
Scenario:
Interest Rate = 0.01%
Impact Bid Price = $10,100
Spot Oracle Price = $10,000
Position Size = 10 contracts (each representing 1 BTC)
Step 1: Calculate Premium Index (P):
Step 2: Clamp the Difference:
Step 3: Calculate Funding Rate (F):
Step 4: Compute Payment:
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.
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