Funding rates

What is funding?

Funding is a crucial aspect of perpetual swaps. Normally, the funding rate is exchanged between long and short positions periodically to anchor the market price of the perpetual swap to the spot price of the underlying asset. When the funding rate is positive, longs pay shorts, and vice versa. This mechanism ensures that the price of the perpetual swap does not stray too far from the underlying asset’s market price.

What are the advantages of the funding mechanism?

Funding mechanism enables various benefits ranging from simple funding payments to the directional traders or sophisticated strategies based on funding/basis arbitrage where when executed - traders are able to capture the difference in funding/basis between two different exchanges.

How does funding work on CyberDEX?

On Synthetix, and consequently - CyberDEX, the funding mechanism is unique as it is not directionally proportional to skew, but rather skew is used to calculate the velocity at which the funding grows or decreases.

That being said, while the skew is long, the funding consistently goes up, and when the skew is short, the funding goes down. This takes time and doesn’t happen as fast as on the more traditional exchanges where skew moves rapidly due to large positions being opened and closed within short time frames.

This in turn may lead to the funding being consistently positive or negative for a long duration, even if the skew is neutral. This is a more resilient solution for those who seek stable funding not affected by cases when, for example, large traders performing moves during the times of low volatility and liquidity could lead to erratic and “unfair” funding pricing for certain assets.

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