#Funding Rates

Funding rates are periodic payments between long and short traders. Exolane's funding system is designed to be predictable and capped.

#What is Funding?

Funding is a mechanism that:

• Balances long and short positions in the market
• Anchors perpetual prices to spot prices
• Transfers value between traders (not to the protocol)

#How Funding Works

#The Basic Mechanism

When more traders are LONG:
  → Longs pay Shorts
  → Incentivizes shorts, discourages longs
  → Brings balance

When more traders are SHORT:
  → Shorts pay Longs
  → Incentivizes longs, discourages shorts
  → Brings balance

#Payment Direction

#Exolane's Funding Cap

#The Funding Cap: ±15% Per Year

Exolane enforces a maximum funding rate of ±15% per year per market.

This cap is set as an on-chain risk parameter (maxFunding / minFunding in the market's riskParameter). It is bounded by the protocol-level maxRate (currently set to 100% APR). The cap is enforced on-chain at every settlement.

#Why Cap Funding?

#Real-World Comparison

Traditional Exchange (No Cap):
  Normal: 10% APR
  Volatile: 100-500% APR
  Extreme: 1000%+ APR

Exolane:
  Maximum: 15% APR (always)

#Funding Rate Calculation

#The Formula

Funding rate is calculated using a P-Controller based on market skew:

Skew = (Long Open Interest - Short Open Interest) / Total Open Interest

Funding Rate = Skew × k (proportional constant)

Where:

• k is a market-specific sensitivity parameter
• Result is clamped to ±15% APR maximum

#Example:

Long OI: 1000 BTC
Short OI: 800 BTC
Skew: (1000 - 800) / 1800 = 11.1%

If k = 1.0:
  Uncapped Rate = 11.1% APR
  (Within cap, so applied as-is)

If skew were 50%:
  Uncapped Rate = 50% APR
  Capped Rate = 15% APR ← Cap applied

#Funding Payment Calculation

#For Your Position

Funding Payment = Position Size × Funding Rate × Time Held

#Example:

Position: 1 BTC long
Funding Rate: +10% APR (longs pay shorts)
Time Held: 1 day

Daily Rate: 10% / 365 = 0.0274% per day
Payment: 1 BTC × $100,000 × 0.000274 = $27.40

You pay $27.40 per day to shorts

#Annualized Perspective:

#Funding Accrual

#Continuous vs. Periodic

Exolane funding is:

• Calculated continuously
• Applied at settlement events
• Accumulated over time

#When Funding is Applied

• When you open a position (from that point forward)
• When you close a position (settled at close)
• At each oracle update (position PnL updated)

#Checking Current Funding

The current funding rate is displayed on each market page:

#Funding Rate History

Historical funding rates help you:

• Predict future funding trends
• Time entries and exits
• Understand market sentiment

#Strategies Around Funding

#Earning Funding (Receiving)

Take the less popular side:

• If longs are paying → Go short (receive funding)
• If shorts are paying → Go long (receive funding)

#Minimizing Funding Costs

1. Trade shorter timeframes — Less time = less funding
2. Choose balanced markets — Lower rates
3. Monitor funding before entry — Avoid high-rate entries
4. Use the cap to your advantage — Even at max, 15% APR is manageable

#Funding vs. Other Exchanges

#Key Takeaways

1. Funding is capped at ±15% per year — Bounded by a per-market risk parameter
2. 100% of funding flows between traders — The protocol takes no share of funding payments
3. Direction depends on market balance — Longs vs shorts
4. Funding costs are usually small — But compound over time; factor them into longer holds
5. The cap limits worst-case cost — No 100%+ APR funding spikes

#Next Steps