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: 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 […]

Understanding Perpetual Futures Funding Rates

This post has no math. Funding rates are explained intuitively with diagrams to aid visualization. This post is a simple high level overview for traders considering using perpetuals and the curious. We’ll leave the details and formulas for a future post aimed at anyone wanting to incorporate advanced trading strategies or build their own perpetuals […]