Risk Management
Funding
Information about funding rates and payments on GTE
We are considering two different approaches for our funding rate mechanism. The V1 that was audited in November included interval-based funding, where funding is settled every hour. However, we’ve developed a continuous funding rate mechanism where funding is settled every second - the smallest unit of time available on Solidity. In both approaches, funding rates have a cap that is admin configurable.
This second version is the one that we plan on releasing on mainnet, as we are quite excited by the idea of removing artificial cliffs in funding payments. This should reduce volatility around funding events, provide more efficient position management to traders, and enable transparent, real-time rate discovery. We’d love to hear your thoughts on both approaches, which are outlined more in depth in the sections below.
Interval-based Funding
The interval we use here to settle funding is every hour. Funding is calculated as follows:
Where:
premium = mark 1 hour twap - index 1 hour twap maxPremium = max rate / index 1 hour twap
86400 = the number of seconds in a day
Funding is accumulated in storage as cumulativeFunding and compared to a position’s last cached cumulativeFunding to return a user’s funding payment. In other words:
Where:
side = 1 for long positions and -1 for short positions
We define a positive funding payment as a scenario where capital is owed to protocol and a negative funding payment as a scenario where capital is owed to the trader.
Continuous Funding
The funding payment is calculated the same as above, but with funding effectively settled every second:
Where, for makers:
premium = limit price - index price
And for takers:
premium = average fill price - index price