Funding Payments
Funding payments are the mechanism that keeps perpetual futures contract prices aligned with the underlying spot market. They are periodic transfers between long and short position holders, designed to incentivize traders to correct price deviations.
Why Funding Payments Exist
Perpetual futures contracts trade independently of the spot price of their underlying asset. Each market on Katana Perps has its own order book, and the order book price can diverge from spot — particularly in the presence of leverage. Funding payments create a financial incentive for traders to close this gap by making it expensive to hold the popular side when prices diverge.
How Funding Payments Work
Funding payments are exchanged directly between long and short positions every 8 hours at:
00:00 UTC
08:00 UTC
16:00 UTC
The payment for each position is calculated as:
Funding Payment = −1 × Funding Rate × Position Quantity × Index PricePositive funding rates mean long positions pay short positions.
Negative funding rates mean short positions pay long positions.
Funding payments are applied to and reflected in each position's realized PnL.
Funding Rate Calculation
The funding rate is composed of two parts: the premium index and the interest rate.
Premium indexes within 0.05% of the interest rate are clamped to just the interest rate. Funding rates are then clamped to 75% of a market's maintenance margin fraction to prevent extreme payments.
Interest Rate
The interest rate represents the daily yield on the quote asset (USDC), set at 0.03% per day, clamped at 0.05%. Because funding payments occur 3 times per day, the effective interest rate per payment is 0.01%.
Premium Index
The premium index measures the difference between the Katana Perps order book price and the index price:
The division by 3 reflects the 24-hour realization period: the full difference between impact price and index price is paid across three 8-hour funding periods.
Impact Prices
The impact bid price and impact ask price represent the average execution price of a predetermined notional value through the Katana Perps order book. They measure what it would actually cost to execute a trade of meaningful size, capturing both the mid-price and available depth.
Impact notional value is calculated as 250 USDC divided by the market's initial margin fraction. For example, a market with an initial margin fraction of 0.1 (10x leverage) uses an impact notional of 2,500 USDC.
The order book is sampled once per minute at a random point within each minute.
Impact prices are linearly time-weighted averaged over the trailing 8 hours to smooth out short-term volatility.
Practical Examples
Scenario: Longs pay shorts
If the BTC-USD perpetual is trading at a premium to the spot index (e.g., order book price $101,000 vs. index price $100,000), the funding rate will be positive. Traders holding long positions will pay a funding fee to short position holders every 8 hours. This creates an incentive for new short positions and for existing longs to close, pulling the perpetual price back toward spot.
Scenario: Shorts pay longs
If the perpetual is trading at a discount (e.g., order book price $99,000 vs. index $100,000), the funding rate will be negative. Short positions pay long positions, incentivizing new longs and encouraging shorts to close.
Monitoring Funding Rates
Current and historical funding rates for all markets are available through the Katana Perps trading interface and the API's Get Funding Rates endpoint. The predicted funding rate for the next period is also available via the API, allowing traders to factor upcoming payments into their strategy.
Last updated