Funding Rate

Funding rate represents the difference between the mark price of the perpetual contract market and the index price, established to align the futures market price with the index price. The collection of funding rates depends on the size and deviation of open positions. The basic principle is that when long positions exceed short positions, funding is collected from holders of long positions; conversely, when short positions exceed long positions, funding is collected from holders of short positions. The collected funding fees remain in the pool and serve as income for liquidity providers (LPs).

Borabora, taking into account the characteristics of the on-chain environment, collects funding rates towards the direction of naked positions at the minimum interval of every block.

The Rebase mechanism

The Rebase funding rate mechanism is a concentrated settlement of all funding payments between traders and their counterparts every 8 hours. The specific formula for calculating the funding fee is as follows: Funding Fee = Margin * Leverage * Funding Rate Funding Rate = Rebase increment If D < I,Rebase increment = 0 If D >= I and L>S,Rebase increment = (|L-S| - LP * I) / (N * S) If D >= I and L<S,Rebase increment = (|L-S| - LP * I) / (N * L) D = (|L-S|)/LP The relevant calculation parameters are as follows:

• L is the long position

• S is the short position

• LP is the number of liquidity pool assets

• D is the deviation between long and short positions

• I is the long-to-short ratio threshold, set at 5% (rebase operations are not performed when D<I)

• N is the rebase period

Calculation example: If the current liquidity pool asset is Token A, with 100,000 units of Token A in the pool, the long position is 5,000, and the short position is 11,000. The rebase period is 90 days. At this moment, D=6%, which means D>I, and the Funding Rate is not zero. After calculation, the Funding Rate for 8 hours is 0.101%.

Rebase Advantages

• Zero Rate under Specific Conditions

Within a certain deviation range of long and short positions, holders of positions are not required to pay any funding fee. Compared to other protocols where holding a position incurs a funding fee regardless, this significantly reduces the cost of holding positions.

• Reasonable Dynamic Changes

According to the funding rate formula, the larger the deviation between long and short positions, the higher the funding rate; conversely, the smaller the deviation, the lower the funding rate, dropping to zero if below the threshold. This design can more effectively balance the market's naked position risk and accommodate more held positions.

• Flexible Adjustments

In the calculation of the funding rate, the deviation threshold and the rebase period are parameters that directly affect the collection of funding rates. The current settings have been validated and compared, ensuring their accuracy. In the future, these can be adjusted based on the activity level of the trading market through governance voting.