How Does the Funding Rate Differ from a Traditional Interest Rate on Borrowed Capital?

A traditional interest rate is a fee paid to a lender for the use of borrowed capital, usually fixed or tied to a benchmark rate, and is a one-way payment. The funding rate, however, is a two-way, dynamic payment exchanged between long and short traders, not the exchange or a lender.

Its purpose is not to finance a loan, but to incentivize market participants to keep the perpetual contract price aligned with the spot price.