What Happens If an Exchange’s Mark Price Deviates Significantly from the Index Price?

A significant deviation means the contract is trading at a large premium or discount to the spot market, indicating a strong imbalance between long and short positions. The funding rate mechanism is designed to correct this.

If the deviation persists, the funding rate will become extremely high (positive or negative), incentivizing arbitrageurs to bring the Mark Price back in line with the Index Price.