# What Is the 'Funding Rate' in a Perpetual Swap Contract and Why Is It Necessary? ▴ Learn

**Published:** 2025-11-06
**Categories:** Learn

---

## What Is the ‘Funding Rate’ in a Perpetual Swap Contract and Why Is It Necessary?

The funding rate is a small periodic payment exchanged between the long and short sides of a perpetual swap contract. It is necessary because perpetual swaps, unlike futures, have no expiration date, which can cause their price to drift away from the underlying spot price.

The funding rate acts as a mechanism to incentivize traders to push the contract price back toward the spot price, keeping the derivative anchored to the underlying asset.

Explain the Function of the “Funding Rate” in Perpetual Futures

How Do Perpetual Swaps Maintain a Price Close to the Underlying Spot Price without an Expiration Date?

What Is the Funding Rate Mechanism in Perpetual Swaps?

Explain the ‘Funding Rate’ Mechanism in Perpetual Futures

## Discover More

- 
### [How Do Perpetual Swaps Maintain a Price Close to the Underlying Spot Price without an Expiration Date?](https://crypto.greeks.live/learn/how-do-perpetual-swaps-maintain-a-price-close-to-the-underlying-spot-price-without-an-expiration-date/)
![This visualization suggests a complex interplay reminiscent of Black Scholes model calibration within a decentralized finance framework. The high-gloss metallic sphere, pierced by a fine rod, symbolizes a pinpointed asset price movement or a specific strike price observation on the volatility surface skew. The smooth, concentric bands of muted blue and off-white suggest nested levels of option stratagems or collateralized debt positions, perhaps representing nested tranches in a structured yield product. This aesthetic hints at the precision required in calculating implied volatility premiums and managing gamma exposure across perpetual futures contracts. The overall composition evokes the delicate equilibrium of algorithmic market making within low-latency decentralized exchange environments, focusing on subtle hedging ratios inherent in derivative pricing models.](https://crypto.greeks.live/wp-content/uploads/2025/10/Abstract-Digital-Modeling-Depicting-Volatility-Surface-Mechanics-Through-Spherical-Representation.jpg)

Perpetual swaps use a funding rate, a periodic payment between long and short traders, to keep the swap price near the spot price.

- 
### [Could a Token Allowance Be Used to Automate Margin Calls in a Decentralized Perpetual Futures Contract?](https://crypto.greeks.live/learn/could-a-token-allowance-be-used-to-automate-margin-calls-in-a-decentralized-perpetual-futures-contract/)
![The oblique layering suggests modularity in decentralized finance infrastructure or perhaps the separation of digital asset custody layers. Visible components include striated cyan banding perhaps representing immutable ledger segmentation or cross-chain atomic swaps execution paths. A polished, cream-colored sphere resembles a control token or a key asset nucleus within a proprietary liquidity pool mechanism. The dark, recessed areas signify potential slippage thresholds or dark pool liquidity reservoirs. This configuration evokes the structural complexity of layered zero-knowledge proofs interacting with on-chain governance mechanisms and structured credit default swap analogs within DeFi yield farming strategies. The interaction of surfaces implies constrained movement pathways analogous to options contract expiration mechanics.](https://crypto.greeks.live/wp-content/uploads/2025/10/Layered-Interstitial-Gaps-Revealing-Off-White-Spherical-Object-Within-Console-Architecture.jpg)

Yes, a pre-set allowance lets a protocol automatically pull more margin from your wallet to prevent liquidation.

- 
### [What Is the Typical Unit Used to Measure Bitcoin’s Hash Rate (E.g. Terahash, Petahash)?](https://crypto.greeks.live/learn/what-is-the-typical-unit-used-to-measure-bitcoins-hash-rate-e-g-terahash-petahash/)
![A high-contrast, macro photograph captures a polished, multifaceted optic sphere exhibiting a faint cyan luminescence, mounted atop dark gray, modular housing segmented by sleek blue and teal rings. This configuration conceptually models a sophisticated volatility surface estimator analyzing complex options structures underpinning perpetual futures contracts. The convex lens symbolizes an oracle providing real-time data feeds necessary for accurate collateralization ratios in decentralized autonomous organizations. Precise calculation of implied volatility skew across various strike prices in DeFi yield aggregation demands such rigorous optical fidelity, mirroring the cryptographic integrity required for secure smart contract execution and effective risk parity portfolio management against systemic counterparty exposure in exotic crypto derivatives issuance. This device visualizes precise hedging strategies against exogenous market shocks impacting synthetic asset liquidity pools.](https://crypto.greeks.live/wp-content/uploads/2025/10/Quantum-Entanglement-Lens-Reflecting-Impermanent-Loss-Dynamics-in-Decentralized-Finance-Yield-Farming.jpg)

The hash rate is measured in Exahashes per second (EH/s) or Zettahashes per second (ZH/s) to represent trillions of hashes.

- 
### [What Is ‘Hash Rate’ in the Context of Cryptocurrency Mining?](https://crypto.greeks.live/learn/what-is-hash-rate-in-the-context-of-cryptocurrency-mining/)
![Symmetrical structure featuring a central axis connecting two spherical terminations against a backdrop segmented into distinct color quadrants perhaps symbolizing stochastic volatility surface mapping across different strike prices. This visual schematic suggests a balanced ledger architecture or perhaps the equilibrium point in a perpetual futures contract settlement mechanism. The dualistic presentation evokes concepts of synthetic asset pairing or delta hedging exposures within high-frequency crypto arbitrage strategies. Analyzing the radial symmetry mirrors exploration of risk parity allocation across uncorrelated digital asset baskets or the geometric representation of implied volatility skew in exotic options structures like digital straddles or risk reversals where non-linear payoffs converge at the nominal rate. Ten expert keywords are Stochastic Volatility Surface Implied Volatility Skew Perpetual Futures Contract Delta Hedging Synthetic Asset Pairing Risk Parity Allocation Exotic Options Digital Straddle Equilibrium Point.](https://crypto.greeks.live/wp-content/uploads/2025/10/Hypergeometric-Probability-Distribution-Modeling-Decentralized-Autonomous-Organization-Governance-Mechanism-Symmetry.jpg)

Hash rate is the measure of a miner's computational power used to solve block puzzles; higher rate means higher probability of reward.

- 
### [What Are the Key Differences between a Smart Contract and a Traditional Legal Contract in Finance?](https://crypto.greeks.live/learn/what-are-the-key-differences-between-a-smart-contract-and-a-traditional-legal-contract-in-finance/)
![This macro perspective reveals the intricate metallic infrastructure resembling a complex decentralized ledger execution environment where precision engineering dictates transactional integrity. The cool cyan light reflecting off the polished rails suggests active data throughput across cross-chain bridges or layered settlement architecture, reminiscent of secured interbank clearing mechanisms. Visualizing this as a representation of DeFi primitive operations, the structure implies the precise mechanical interaction required for efficient options repricing, collateral management, and the maintenance of dynamic AMM pool reserves. The focused depth of field isolates critical mechanical stress points essential for mitigating slippage during high-volume settlement events impacting synthetic asset valuation models. This machinery symbolizes the reliability demanded by non-custodial yield farming strategies and secure token lock-ups ensuring capital efficiency within decentralized finance protocols.](https://crypto.greeks.live/wp-content/uploads/2025/10/Internal-Mechanics-of-Automated-Market-Maker-Liquidity-Provision-Mechanism-Synchronization.jpg)

A smart contract is automated, self-enforcing code on a blockchain; a traditional contract relies on the legal system for enforcement.

- 
### [What Is the Risk of “Time Lock Expiration” in an Atomic Swap?](https://crypto.greeks.live/learn/what-is-the-risk-of-time-lock-expiration-in-an-atomic-swap/)
![A highly polished planar glass element, exhibiting clear greenish edge refraction, rests upon a small, perfectly spherical glass bearing which acts as a central fulcrum point. This structure suggests a delicate equilibrium reminiscent of asset valuation methodologies within decentralized finance DeFi. The glass is supported on one end by a beige, curved substratum contrasting sharply with the dark, textured background field, possibly representing stable asset foundations or underlying collateral. On the opposite side, two glossy white spheres imply systemic counterparty exposure or liquidity pools. The composition evokes concepts of imperfect hedging precision a volatile option exposure versus the calculated risk inherent in managing synthetic assets, requiring constant delta adjustments and managing basis risk across perpetual futures markets.](https://crypto.greeks.live/wp-content/uploads/2025/10/Glass-Fulcrum-Balancing-Digital-Asset-Volatility-Against-Option-Contract-Strike-Price-Delta-Hedging.jpg)

Time lock expiration causes the swap to fail and funds to be returned, risking only a lost opportunity and time.

- 
### [What Is the Difference between an Options Contract and a Smart Contract Option?](https://crypto.greeks.live/learn/what-is-the-difference-between-an-options-contract-and-a-smart-contract-option/)
![This abstract visualization depicts internal infrastructure signifying complex system interlinkages crucial for decentralized exchange operations. Tangled, silvery conduits suggest robust data transmission pathways underpinning synthetic asset creation and perpetual swap mechanisms. The clean, angular housing contrasts with the chaotic central nexus illustrating the delicate balance between structured market architecture and volatile on-chain execution flow inherent in DeFi yield strategies. Specific metallic tubing symbolizes secure private key management interfacing with smart contract deployment via Layer 2 scaling solutions. The dark, recessed area implies deep liquidity pools and potential slippage risks encountered during large notional volume execution across aggregated order books, reflecting the need for efficient cross-chain bridging protocols.](https://crypto.greeks.live/wp-content/uploads/2025/10/Interconnected-High-Frequency-Trading-Infrastructure-Revealing-Decentralized-Finance-Protocol-Mechanics.jpg)

Smart contract options are self-executing, decentralized code agreements; traditional options are legal agreements requiring intermediaries.

- 
### [How Does a Fixed versus Variable Staking Reward Rate Impact Supply Predictability?](https://crypto.greeks.live/learn/how-does-a-fixed-versus-variable-staking-reward-rate-impact-supply-predictability/)
![The composition illustrates distinct structural elements representing complex financial modeling over a stark black void, reminiscent of off-exchange dark pool activity. A translucent, dark blue planar reflection suggests obscured market data or shielded order flow execution. The central structure features matte, pale disks supporting a smooth, aquamarine hemispherical asset, symbolizing aggregated collateral or a stablecoin vault mechanism. This visual architecture mirrors the construction of exotic options payoffs or the multi-layered risk parameters within decentralized autonomous organizations managing perpetual futures contracts. The interplay of curved surfaces and sharp edges evokes the precise mathematical boundaries governing implied volatility skew in digital asset derivatives markets, far removed from simplistic spot trading paradigms and indicative of advanced structured product architecture like synthetic asset replication protocols.](https://crypto.greeks.live/wp-content/uploads/2025/10/Decentralized-Finance-Volatility-Surface-Topology-Featuring-Atomic-Swap-Derivative-Primitives.jpg)

Fixed rates offer predictable supply growth; variable rates introduce supply uncertainty.

- 
### [What Is the Risk of Liquidation in a Leveraged Perpetual Swap?](https://crypto.greeks.live/learn/what-is-the-risk-of-liquidation-in-a-leveraged-perpetual-swap/)
![A macro perspective reveals a sharply pointed crystalline structure emerging from a metallic flange bolted onto a matte black, curved surface. Translucent cyan elements suggest cooled liquid or hardened resin interfaces. This symbolizes the sharp execution risk inherent in high-frequency crypto arbitrage and structured product settlement. The spire represents the precise strike price vector in a digital asset options contract, possibly referencing perpetual swaps or futures rolling. The underlying dark sphere suggests the volatility surface geometry or deep liquidity pool management in decentralized finance DeFi collateralization schemas, emphasizing capital efficiency, gamma exposure risk, and slippage minimization within complex derivative strategies like volatility selling or directional delta hedging for synthetic asset issuance against secured stablecoin reserves.](https://crypto.greeks.live/wp-content/uploads/2025/10/High-Precision-Cryogenic-Spire-Mechanism-on-Dark-Spherical-Substrate-Reflecting-Collateralized-Debt-Positions.jpg)

The forced closure of a leveraged position by the exchange when losses deplete the margin below the required maintenance level.

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