Unlike conventional futures contracts, perpetual contracts never expire, eliminating the need to rollover for perpetual contract holders.
BIT uses funding rate to encourage risk free arbitrage between spot and perpetual markets so that the perpetual prices and index prices converge on a regular basis. Funding Fees are periodic payments made to or by opposite position holders based on the funding rate.
BIT employs a 10-second interval mechanism instead of an 8-hour mechanism for the funding of perpetual contracts. The funding rate will be generated 5 seconds before the start of every 10-second funding interval. For example, the funding rate, which is used to charge the funding fee for the interval between 15:20:40 and 15:20:50, is calculated from the market data as of 15:20:35.
Funding Rate Calculation
Step 1: Calculate Premium Index (P) component
Premium Index (P) = (Mark Price - Index Price) / Index Price
In order to generate the Premium Index (P) that is consistent with the timing of the Funding Rate (F), Mark Price and Index Price are valued 5 seconds before the start of the funding interval.
Step 2: Specify Interest Rate Differential (I) component
Interest Rate Differential (I) = Quote Currency Interest Rate − Base Currency Interest Rate
Currently BIT fixes the Interest Rate Differential (I) at 0.03% daily (0.01% per 8 hours or 0.01%*(10/(8*3600)) per funding interval), with the assumption that holding USD cash equivalent (quote currency) returns a higher interest than coin equivalent (base currency). This fixed interest rate differential may be changed by BIT risk team according to market conditions.
Step 3: Calculate Funding Rate (F)
Funding Rate (F) = Premium Index (P) + Clamp [Interest Rate Differential (I) − Premium Index (P), dampener , −dampener] = Premium Index (P) + Clamp [0.01% − Premium Index (P), 0.05%, −0.05%]
The function Clamp [x, max, min] means that if (x < min), then x = min; if (x > max), then x = max; if max ≥ x ≥ min, then return x.
The dampener is specified to be +/-0.05%. The way the dampener works is illustrated in the following diagram.