Funding
Palmswap Protocol calculates funding payments every hour.
While futures expire quarterly for price settlement, perpetual futures have hourly funding payments. Periodic funding payments are the most common mechanism used by exchanges for perpetual swaps. Financing payments cause the mark price (the price on the Palmswap Protocol) and the index price (the average price of major exchanges) to converge.
Palmswap follows FTX's method of calculating financing payments, which is based on the following formula:
FundingPayment=positionsizeβˆ—fundingrateFundingPayment = positionsize * fundingrate
The Funding Rate in the formula above is calculated by first subtracting the hourly time weighted average price (TWAP) of the index price from the hourly TWAP of the market price and second dividing the result from the previous step by 24. ( Note: FTX's formula results in funding in position size, while our calculation expresses funding in quote assets , i.e. USDT).
FundingRate=TWAPpβˆ’TWAPi24FundingRate=\frac{TW AP_p - TW AP_i}{24}
If the funding rate is positive, long position holders must pay the funding payment while short position holders receive the payment, and vice versa if the rate is negative. If the funding rate is positive, long position holders must pay the funding payment while short position holders receive the payment, and vice versa if the rate is negative.
The funding payment is made at the end of each hour of the Palmswap Protocol.
We use Chainlink's price feed as the data source for the index price, as it is currently the most widely used Oracle solution on the market.
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