The Mathematics of Perpetual Funding Rate Arbitrage
The concept of funding rate arbitrage is simple; take a position on a perpetual exchange that receives funding and an offsetting position elsewhere. The analysis below shows how this is a lot more complex to actually implement and not riskless. On closer analysis it should be clear that a key element of the arbitrage is […]
Perpetual Futures: Comparison of Exchange Funding Rate Implementations
Having gone through each element used to determine the funding rate of perpetual futures, it’s time to see how current exchanges have implemented them. Order Book Exchanges There is not much difference between the different exchange implementations. The most important factor, the interest rate component is identical amongst exchanges that have even bothered to include […]
Perpetual Futures: Turning the Inputs into a Funding Rate
Previous posts in this series have covered what makes perpetual contracts converge to their underlying indices, how to measure prices to avoid unwanted side effects, the role of the interest rate component, and removing the effect of the expected funding rates. Now it’s time to put this all together into a formula that outputs the […]
Perpetual Futures: Removing Bias and Oscillation of Prices due to Intra Period Differences
Funding periods are typically one to eight hours. Over that period the difference between the perpetual price and the underlying index price is measured every few seconds to a minute. Over the funding period previously sampled differentials imply an accrued funding. To correct for this exchanges can either pay out funding every time it is […]
Perpetual Futures: Interest Rate Component
It is a slight oversimplification, but directionally correct to say: Funding Rate (F) = Interest Rate (I) + Premium (P) Where the premium is the amount a perpetual market differs from its underlying index. This means that the funding rate is not exactly equal to the price discrepancy between the perp market and the underlying […]
Perpetual Futures: Measuring Prices to Avoid Manipulation and Bias
Perpetual futures are synthetic instruments that track the price of an underlying index such as the Dollar price of ETH. To incentivise market participants to keep perp prices in line with their index prices a perp exchange first needs to track these underlying index prices. In the context of perpetual exchanges the index price is […]
Convergence of Perpetual Futures
We recommend those not familiar with perpetual futures and funding rates start with this article to gain an intuitive overview of how they work. This piece answers the question of why perpetual futures prices track their underlying indices. Readers will see that the funding rate is an incentive mechanism the encourages convergence in many ways […]
Introducing: Everything You Need to Know About Perpetual Futures Funding Rates
Like all great products perpetual futures (perps from here on) are a simple concept. Perps are instruments tracking the price of something. In this context token prices in USD. Under the surface, perps rely on a complex incentive mechanism to keep their prices in line with their underlying token prices. This mechanism has been called […]
User Origination on Uniswap
All data used in this analysis is maintained in this realtime dashboard for future reference. Tl;dr Introduction Uniswap needs no introduction. Over 95% of Ethereum DEX traders over the past 6 months have traded on Uniswap. This post is all about getting to know their behavior a little better. In particular the focus is […]
