Why Do Exchanges Use a Multi-Exchange Average for the Index Price?
A multi-exchange average is used to create a robust and reliable benchmark for the underlying asset's spot price. Averaging prices across several major, high-liquidity exchanges minimizes the risk of price manipulation on a single exchange.
This integrity is critical because the Index Price is the foundation for the funding rate calculation and, indirectly, the Mark Price, which is used for liquidation.
Glossar
Multi-Exchange
Connectivity ⎊ Multi-Exchange architectures, within cryptocurrency and derivatives, represent a paradigm shift from siloed trading environments to interconnected networks facilitating cross-platform order flow.
Index Price
Derivation ⎊ Index price construction for crypto derivatives requires selecting a representative basket of underlying assets and calculating a weighted average based on established market capitalization or volume metrics.