Funding Rate

Funding Fees are cash flows that are periodically exchanged between traders holding long positions and traders holding short positions. Those cash flows are based on a Funding Rate. This aims to ensure the Futures price closely follows the underlying asset price (ie the Index Price). Usually, in Orderly, Funding payments with a settlement frequency of every eight hours start at 00:00 (UTC), 08:00 (UTC), and 16:00 (UTC). Funding payments with a settlement frequency of every four hours start at 00:00 (UTC), 04:00 (UTC), 08:00 (UTC), 12:00 (UTC), 16:00 (UTC), and 20:00 (UTC). In the event of extreme market volatility, Orderly reserves the right to update the Funding Rate Floor and Cap, as well as the funding interval of a perpetual contract that differs from the default 8-hour funding interval. In some cases, such as new listing or extreme volatility on a specific symbol, Orderly reserves the right to update the funding rate interval to a shorter time frame 4h, 2h or 1h.

The Funding rate is determined by two components: the Premium and the Interest Rate.

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Premium calculation

The Funding Rate is determined mainly by the Premium, which measures the deviation between the Futures price and the Index Price (ie the Basis). In order to avoid manipulation, Orderly uses Impact Bid and Ask prices, rather than the highest bid and lowest ask only.

• The Impact Bid Price represents the average fill price to execute a sell order with the size of the Impact Margin Notional.

• The Impact Ask Price represents the average fill price to execute a buy order with the size of the Impact Margin Notional.

• The Impact Margin Notional is the notional available to trade with 1,000 USDC of collateral at the maximum leverage of the specific market. For example, for NEAR-USDC, the maximum leverage is 10x, so Impact Margin Notional is 10,000 USDC.

Every 15 seconds, Orderly computes the Premium index according to the following formula:

Premium = [Max(0, Impact Bid Price - I) - Max(0, I - Impact Ask Price)] / I

I = Index Price

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Piecewise linear funding rate function

For each funding period of 8 hours, Orderly calculates the Premium every 15 seconds. The number of Premium points is therefore N = 1,920 points. An Average Premium is then computed:

Average Premium = (Premium_1 + Premium_2 + ... + Premium_N) / N

Once the Average Premium for the funding period has been computed, a funding piecewise linear function with three regions is applied to the Average Premium

The Funding Function is defined as follows to allow for faster convergence in case the prices deviate significantly:

Funding Function(x) =
  x , if |x| < 0.5%
  0.5%  * sign(x) + (x - 0.5% * sign(x)) * 2, if 0.5% < |x| < 1.5%
  [0.5% + (1.5% - 0.5%) * 2] * sign(x) + (x - 1.5% * sign(x)) * 4, if |x| > 1.5%

NB: x refers here to the Average Premium

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Interest Rate

To this funding function, we add the second component of the funding rate which is the Interest Rate. By definition, it is equal to:

Interest Rate = (USDC Interest - Underlying Base Asset interest) / Funding Interval

The Interest Rate is fixed to be 0.01% for all Perpetual Markets (assuming USDC interest of 0.06%, Asset interest rate equal to 0.03%). Orderly reserves the right to adjust the Interest Rate depending on market conditions.

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Final Funding Rate

The final Funding Rate is then a combination of the Average Premium and the Interest Rate.

Funding Rate = clamp[Funding Function(Average Premium) + clamp(Interest Rate - Funding Function(Average Premium) , Cap IR, Floor IR), Cap Funding, Floor Funding]

The funding rate is also capped and floored respectively by a Cap Funding and a Floor Funding. The specific values depend on each perpetual market. In the event of extreme market conditions, Orderly may change these parameters, which will enable the funding rate model’s higher slope to kick in.

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Funding Period

The Funding Period for Orderly is dt = 8 hours. The Funding Rate is expressed on an 8-hour basis.

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Accrued Funding

Every 8 hours, a position on a Perpetual Futures contract will accrue the following funding:

Accrued Funding(dt) = Position Size * Mark Price * Funding Rate

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Funding settlement

The accrued funding of an account’s position is settled when a PNL settlement is being called on that account (see PNL settlement).