How Is the Interest Rate Component Factored into the Funding Rate?

The interest rate component is a fixed or variable rate that is added to the Premium Index to form the complete Funding Rate. It represents the cost of borrowing the underlying asset versus the quote currency.

For many crypto exchanges, this component is often a fixed, small percentage (e.g. 0.01% per 8 hours) and acts as a baseline to ensure there is always a minimal cost or incentive to hold a position, even when the contract price perfectly matches the index price.