Funding Rates

Funding rates are a core element of any perpetual swap product – also known as perpetual contracts. Since perpetuals have no fixed expiration date, perpetual contracts can be held indefinitely.

As a result, the typical convergence of a traditional futures price with the underlying asset price as expiration approaches don’t apply to perpetuals.

Instead, perpetuals tether the price of the perpetual contract to the underlying asset’s spot price via funding rates. Funding rates modulate the incentive to trade a given perpetual contract, either long or short, by assigning a positive or negative value to a specific perpetual market.

• Positive Funding Rate = Perpetual Mark Price > Spot Index Price

• Negative Funding Rate = Perpetual Mark Price < Spot Index Price

Metering incentives via the funding rate prevents the mark price of a perpetual from deviating significantly from the underlying index spot price over time.

If the perpetual price is too high relative to the spot index price, longs pay shorts to swing incentives to shorts – pushing the price back down. If the perpetual price is too low relative to the spot index price, shorts pay longs to swing incentives to longs – pushing the price back up.

The funding rate is analogous to an interest rate paid by open long or short perpetual positions based on the current market conditions and how the funding rate is calculated. Funding rates can render open long or short positions more costly or advantageous to maintain over time, depending on their assigned value.

Funding rates are paid or received proportional to an open market position’s size.

Consequently, funding rates replicate the expiration-based convergence of traditional futures and spot prices without expiration. Payments on open positions invoked by funding rates are paid or received only between traders on each side (e.g., long/short) of an individual perpetual market.

Funding Fees

Based on the difference in spot prices on NAVAIX and other DEX pools, funding will be exchanged directly between those who hold long and short positions. When the funding rate is positive, long position holders pay the AMM. When the funding rate is negative, short positions holders pay long holders, and the differences between short and long positions will be replenished by the AMM.

Asset Class	Open - Close Fee %	Leverage
Crypto	0.05	50
Forex	0.005	500
Commodity	0.05	250