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Funding Rate

Funding incentivizes balanced open interest between longs and shorts. The dominant side (more open interest) continuously pays the minority side, peer-to-peer with no protocol cut.

A market runs two funding rates side-by-side. The pay rate is what the dominant side pays per hour. It is recomputed once per hour by apply_funding and stored on the market as fund_rate, where it stays fixed until the next hourly update. The receive rate is what the minority side earns per hour. It equals the pay rate scaled by dominant_notional / minority_notional against the current notional balances, so it is recomputed on every accrue and tracks imbalance changes between the hourly pay-rate updates. By construction, the total paid by the dominant side equals the total received by the minority side at every accrue.

Pay Rate​

apply_funding recomputes the pay rate from the current open-interest imbalance:

pay_rate=r_funding×∣long_notional−short_notional∣long_notional+short_notional\text{pay\_rate} = \text{r\_funding} \times \frac{|\text{long\_notional} - \text{short\_notional}|}{\text{long\_notional} + \text{short\_notional}}

Sign follows dominance: positive when longs dominate (longs pay), negative when shorts dominate (shorts pay), zero when balanced. The magnitude is bounded in [0, r_funding]. r_funding is a global SCALAR_18 parameter in TradingConfig shared across all markets; per-market variation comes from each market's own imbalance.

apply_funding is permissionless, runs across every market in one call, and enforces a 1-hour minimum interval (ONE_HOUR_SECONDS). Every-action accrue paths advance indices using whatever fund_rate the market last stored; they do not recompute the rate.

Index Accrual​

Both funding indices advance on every market-touching operation (data.accrue is called from open, close, modify, execute). The time component is shared:

hours_elapsed=seconds_elapsed×SCALAR_183600\text{hours\_elapsed} = \frac{\text{seconds\_elapsed} \times \text{SCALAR\_18}}{\text{3600}} pay_delta=∣pay_rate∣×hours_elapsedSCALAR_18\text{pay\_delta} = \frac{|\text{pay\_rate}| \times \text{hours\_elapsed}}{\text{SCALAR\_18}}

The dominant side's index advances by pay_delta. The minority side's index advances by pay_delta * dominant_notional / minority_notional, evaluated at the moment of accrual. If longs have 2× the notional of shorts, each short receives 2× the per-unit rate.

Edge Cases​

  • Empty market (l_notional == 0 && s_notional == 0): rate is zero, accrual is a no-op.
  • One-sided market (exactly one side is zero): pay rate equals ±r_funding, but accrual is skipped because there is no counterparty. Indices only advance once both sides hold open interest.

Per-Position Settlement​

When a position is closed, its funding cost or credit is computed as:

funding=notional×current_index−entry_indexSCALAR_18\text{funding} = \text{notional} \times \frac{\text{current\_index} - \text{entry\_index}}{\text{SCALAR\_18}}

Positive means the position paid funding during its lifetime; negative means it received funding.

Design Rationale​

Continuous accrual prevents manipulation of the exact payment timestamp. Splitting pay and receive rates keeps the mechanism self-balancing without recomputing the pay rate on every action. LP compensation comes from the separate borrowing fee, which accrues to the vault via protocol fees.