Funding Rate Structure

1. Conceptual Framework:

• Objective: To ensure the mark price of OPZ-DEX perpetual contracts meticulously mirrors the underlying asset's spot price.

• Core Mechanism: Implement a funding exchange system where long and short position holders periodically settle payments, thereby aligning the perpetual contract price with the spot market price, exclusively tailored for OPZ-DEX users.

2. Funding Rate Components:

• Premium Index (P): Reflects the difference between the perpetual contract price and the spot price.

• Interest Rate Differential (I): Accounts for the cost of capital considering different interest rates for base and quote currencies.

3. Premium Index Calculation (P):

• Formula:$P = \frac{\text{Mark Price} - \text{Spot Price}}{\text{Spot Price}}$

• Frequency: Calculated every minute to ensure up-to-date data.

• Mark Price Determination: Use a Time-Weighted Average Price (TWAP) over the past 3 minutes to mitigate price manipulation.

4. Interest Rate Differential (I):

• Base: Interest rate paid by open long or short perpetual positions based on the current market conditions.

• Formula: $I=Base Rate−Quote Rate$

5. Final Funding Rate Calculation (F):

• Formula: $F=P+I$

• Rate Limits: Implement a strategic cap and floor for the funding rate to safeguard against extreme market volatility, ensuring a balanced trading environment.

6. Funding Interval:

• Interval Duration: Payments are exchanged every 8 hours to align with industry standards and ensure predictability for traders.

7. Oracle and Price Data Feeds:

• Decentralized Oracle network for robust and tamper-proof market data.

• Prices are aggregated from multiple reputable exchanges to calculate the Spot Price.

• The data feed mechanism is transparent and resistant to single points of failure.

8. Monitoring and Adjustment:

• Continuously monitor the funding rate mechanism's performance and the market's response.