Funding Curve

More markets, more robustness

Funding fees are risk-management measures that are applied to open positions on the Derivio platform. The rate is calculated based on the imbalance of open positions and aims to incentivize market participants to maintain a balanced and ordered market, prevent market manipulation and abuse, and help to ensure that the platform remains stable and sustainable while offering a wide list of tradable & robust markets.

Fees are only charged when the long-short ratio is extreme, to avoid imposing unnecessary costs on market participants. They are collected from the side with more filled positions to the side with fewer filled positions, according to the following formula:

$$\textbf{Raw funding rate} = \text{borrow rate} \times \text{position adjustment} \times \text{base rate per hour}$$

where borrow rate = asset borrowed / total asset available, and position adjustment =

$$\begin{cases} \text{Long position \% - } t_{up} ,& \text{if Long position \%} > t_{up} \\ 0,& \text{if } t_{down} < \text{ Long position \%} < t_{up} \\ \text{Long position \% - }t_{down} ,& \text{if Long position \%} < t_{down} \end{cases}$$

The parameters are set as follows:

Note that the same rate can imply different total fees for different directions, so the funding rate above is only for the paying side. We will distribute any over-collected funding fees to the other side, so the actual funding rate for the side with fewer filled positions should be:

$$\textbf{Live funding rate} = \text{Raw funding rate} \times max(1, \frac{\text{open interest of opposite side}}{\text{open interest of this side}})$$

The live funding fee will be calculated per block and added to the total to-be-collected funding fee. Note that the integration here will be implemented by Riemann Sum*:

$$\textbf{Funding fee} = \int_0^{\text{now}} \text{traders\_position\_value(t) * funding\_rate(t) dt}$$

$$\text{ }= \int_0^{\text{now}} \text{traders\_position * index\_price(t) * funding\_rate(t) dt}$$

This is to prevent instantaneous spikes in trading activity at a pre-defined time of funding rate collection. Derivio collects funding fees once only when closing position, which helps to smooth out any sudden fluctuations in the market.

The two extreme cases would be: if you set all parameters to zero, no control is in place; and if you set all parameters to max, every action that moves the long short ratio away from 50:50 will instantly be corrected through redistribution.

Because of the risk measurements here, Derivio could fine tune risk parameters to create different tiers of pools and list different types of tokens (e.g., Main DLP pool for mainstream tokens like ETH/BTC, Blue-chip DLP pool for smaller mcap tokens like UNI/AAVE/CRV/APE/LDO). We adjust the risk profile dynamically and review it on a per coin basis, by controlling the parameters tightly; combined with the universal margin system, Derivio is able to list exotic markets like LDO/ETH, UNI/CRV with its Global Funding Rate Design.

Current Parameters

Pool	DLP-M	DLP-B
Upper threshold t_up	0.8	0.6
Lower threshold t_down	0.2	0.4
Base rate per hour	0.6	0.75