# Funding Rate

## 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). In Sharpe Perp, the funding fee is accrued every 8 hours at 00:00 UTC, 08:00 UTC, and 16:00 UTC for all Sharpe Perp perpetual contracts.

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

### 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, Sharpe Perp 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, Sharpe Perp computes the Premium index according to the following formula:

### Piecewise linear funding rate function

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

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:

### 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:

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%). Sharpe Perp reserves the right to adjust the Interest Rate depending on market conditions.

### Final Funding Rate

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

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, Sharpe Perp may change these parameters, which will enable the funding rate model’s higher slope to kick in.

### Funding Period

The Funding Period for Sharpe Perp is `dt = 8 hours`

. The Funding Rate is expressed on an 8-hour basis.

### Accrued Funding

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

### 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).

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