Rightsizing the Maximum Funding Rate of Perpetual Futures

Funded by dYdX Grants.

There have been a number of occasions in dYdX v3 where the maximum funding rate has been insufficient to incentivize convergence between a perpetual market and its underlying.

This has led to interventions such as increased initialMarginFraction and use of ‘close-only’ mode which hamper trader user experience.

The proposal is to increase the maximum funding rate for all markets at the protocol level from 0.75% to 4%, while recommending a limit in the application of 2%.

This simultaneously caps the funding rate at an acceptable level so traders don’t suffer from temporary dislocations that naturally converge while allowing the room for quick action in extreme cases.

The reasoning is to reduce the need for manual interventions to allowable trading in the future and reduce tail risks to the exchange.

This research led to a successful DIP to increase the funding rate bounds on dYdX.
Download the Full Report.