What Is the Role of the “Funding Rate” in Perpetual Cryptocurrency Futures Contracts?

The funding rate is a periodic payment exchanged between the long and short parties of a perpetual futures contract. Its primary role is to keep the perpetual contract's price anchored to the underlying spot price, mimicking convergence without an expiration date.

If the contract trades at a premium (above spot), longs pay shorts; if at a discount (below spot), shorts pay longs. This mechanism controls the basis.