What Is the “Funding Rate” in Perpetual Futures and How Does an AMM Manage It?

The funding rate is a small, periodic payment exchanged between long and short position holders to keep the perpetual contract's price anchored to the underlying asset's spot price. An AMM smart contract automatically calculates and executes this payment.

If the contract price is too high, longs pay shorts (negative rate), and vice versa. The contract uses oracle data to determine the divergence.