How Does the Funding Rate Mechanism on Perpetual Swaps Relate to the Insurance Fund?

The funding rate mechanism is separate from the insurance fund, but both are crucial for perpetual swap stability. The funding rate ensures the contract price stays anchored to the spot price.

It is a peer-to-peer payment between long and short traders. The insurance fund, however, deals with covering negative balances from liquidations.

While the funding rate can affect a position's profitability, it does not directly contribute to or draw from the insurance fund.