Funding Mechanism (v2)

Paradex uses a continuous funding mechanism. The Impact Premium is a weighted median of impact-based premiums measured across multiple venues (Paradex, Binance, Bybit, OKX, Lighter, Hyperliquid). Sampling several venues and taking a weighted median makes the funding rate robust to any single venue being thin, stale, or dislocated.

Funding calculation flow

1. Per-venue impact premium: calculate bid and ask impact premium on each venue’s book.
2. Aggregation: calculate a weighted median impact premium across venues and divide by spot to get the Premium Rate.
3. Raw Funding Rate: apply the standard clamping formula to pull the Premium Rate toward the Baseline Interest Rate (0.01%). Scale by the Funding Multiplier (0.5x for TradFi, 1x for all other markets) and clamp by $\pm$ the Maximum Funding Rate.
4. Smoothed Funding Rate: EWMA over the raw rate; this is the published rate.
5. Funding Premium: convert the published rate into the per-period payment (USDC per unit of notional).
6. Funding Index: time-weighted accrual of the Funding Premium since launch.
7. Accrued Funding: per-position settlement from the change in the Funding Index.

1. Per-venue impact premium

For each venue $V$, a fixed impact notional is walked into the order book on both sides:

$$\begin{aligned} & \text{Impact Notional}_V = \text{base\_impact\_notional} \times \text{notional\_multiplier}[V] \\[6pt] & \text{impact\_bid}_V = \text{VWAP of selling Impact Notional}_V \text{ into } V\text{'s bids} \\ & \text{impact\_ask}_V = \text{VWAP of buying Impact Notional}_V \text{ into } V\text{'s asks} \end{aligned}$$

base_impact_notional is 5,000 for BTC and ETH and 1,000 for all other assets. notional_multiplier scales it per venue:

The premium on each venue is calculated from the impact prices:

$$\text{premium}[V] = \max(\text{impact\_bid}_V - \text{spot\_price}_V,\; 0) - \max(\text{spot\_price}_V - \text{impact\_ask}_V,\; 0)$$

spot_price_V is the index price published by venue $V$; each venue’s premium is evaluated against its own index.

Insufficient depth. If a side’s book cannot absorb the full impact notional, that side’s term is set to 0 (e.g., if bid depth is short, $\max(\text{impact\_bid}_V - \text{spot\_price}_V,\; 0) = 0$, while the ask side is unaffected). A venue with no available market is excluded entirely.

2. Aggregation

The Premium Rate is the weighted median of $\text{premium}[V]$ over the venues with an available market, divided by spot:

$$\begin{aligned} & \text{Impact Premium} = \text{weighted\_median}\big\{(\text{premium}[V],\; \text{weight}[V])\big\} \\ & \text{Premium Rate} = \frac{\text{Impact Premium}}{\text{Spot Price}} \end{aligned}$$

Each venue carries a global score, funding_premium_score, used in every market:

Scores are normalized to weights across the available venues (after exclusions) so they sum to 1:

$$\text{weight}[V] = \frac{\text{funding\_premium\_score}[V]}{\sum \text{funding\_premium\_score}[\text{available venues}]}$$

The aggregated Premium Rate is an input to the funding rate.

3. Raw Funding Rate

The Raw Funding Rate pulls the Premium Rate toward the Baseline Interest Rate (0.01%), applies a Funding Multiplier (0.5x for TradFi, 1x for all other markets), and clamps the result by $\pm$ the Maximum Funding Rate (2% for BTC/ETH/SOL, 0.5% for TradFi, 5% for all other perpetual markets):

$$\begin{aligned} & \Delta = \text{clip}\big(\text{Baseline Rate} - \text{Premium Rate},\; \pm\text{Clamp Rate}\big) \\ & \text{Raw Rate} = \text{clip}\big(\text{Funding Multiplier} \times (\text{Premium Rate} + \Delta),\; \pm\text{Max Rate}\big) \end{aligned}$$

Defaults (individual markets may override):

4. Smoothed Funding Rate

The published Funding Rate is an EWMA over the Raw Rate:

$$\text{Funding Rate}_t = (1 - \alpha) \cdot \text{Funding Rate}_{t-1} + \alpha \cdot \text{Raw Rate}_t$$

Smoothing is specified by half-life: the time for a step change in the Raw Rate to be half-absorbed into the published rate. With a 1-second tick, $\alpha = 1 - 2^{-1/H}$, where $H$ is the half-life in seconds.

5. Funding Premium

At time $t$, the Funding Premium is the amount paid by longs to shorts per funding period (8h by default), expressed in the settlement asset (USDC) per unit of notional:

$$\text{Funding Premium} = \text{Funding Rate} \times \frac{\text{Spot Oracle Price}}{\text{USDC Oracle Price}}$$

Although funding is continuous, the Funding Premium is quoted per period and represents the funding paid on 1 unit of long position over the 8h funding period assuming market data does not change.

6. Funding Index

A global Funding Index tracks accrued funding for one unit of the asset since launch as the time-weighted sum of the Funding Premium, updated each 1-second tick:

$$\text{Index}_t = \text{Index}_{t-1} + \text{Premium}_{t-1} \times \frac{\Delta t}{\text{Funding Period Seconds}}$$

If the gap since the previous tick exceeds 30 seconds (outage, oracle maintenance, market pause), $\Delta t$ is treated as zero so the index does not jump.

7. Accrued Funding

The Accrued (Unrealized) Funding of an open position depends on the change in the Funding Index since its last cached value:

$$\text{Accrued Funding PnL} = -\text{Position Size} \times (\text{Current Index} - \text{Cached Index}) \times \text{USDC Oracle Price}$$

where Position Size is signed (positive long, negative short).

Sign conventions. A positive Index delta is positive funding (rich perp); the leading minus sign makes the PnL negative for longs (they pay) and positive for shorts (they receive). Negative funding flips this: shorts pay, longs receive.

Accrued funding realizes into PnL whenever the position is modified (trade, liquidation, transfer, or withdrawal):

$$\text{Funding Realized PnL} = -\text{Previous Position Size} \times (\text{Current Index} - \text{Cached Index})$$

Funding updates

• The funding rate is recomputed every 1 second.
• It is published on the funding_data WebSocket channel and embedded in every price tick.
• History is available via the account funding-history REST endpoint.
• Funding is paused when the oracle is in maintenance, the USDC price is invalid, or the market is halted.

Example

Assume BTC-USD-PERP with the default 8h funding period, over a 1-minute holding window, with Spot Price, USDC Price, Premium Rate, and the smoothed Funding Rate held constant (steady state). In production all four update each second; this just keeps the arithmetic tractable.

Raw rate:

$$\begin{aligned} & \Delta = \text{clip}(0.0001 - 0.0008,\; \pm 0.0005) = -0.0005 \\ & \text{Raw Rate} = \text{clip}(1 \times (0.0008 + (-0.0005)),\; \pm 0.02) = 0.0003 \end{aligned}$$

Smoothed rate: at steady state, $\text{Funding Rate} = \text{Raw Rate} = 0.0003$.

Premium (per 8h, per unit of notional):

$$\text{Premium} = 0.0003 \times \frac{60{,}000}{1.00} = 18\ \text{USDC per BTC per 8h}$$

Index advance over 60 s (8h = 28,800 s):

$$\Delta\text{Index} = 18 \times \frac{60}{28{,}800} = 0.0375\ \text{USDC per BTC}$$

Accrued PnL on +0.5 BTC over the minute:

$$\text{PnL} = -0.5 \times 0.0375 \times 1.00 = -0.01875\ \text{USDC}$$

The long pays about 1.9 cents over the minute. Extrapolated to a full 8h, the long pays roughly $0.5 \times 18 = 9$ USDC, which is 0.03% of a 30,000 USD notional (a useful sanity check).