Why Do Perpetual Futures Contracts Need a Funding Rate Component in Their Mark Price?

Perpetual futures contracts do not have an expiry date, so they need a mechanism to keep their price closely tied to the underlying spot asset price. The funding rate component, which reflects the difference between the perpetual contract price and the Index Price, is added to the Index Price to create the Mark Price.

This ensures that the Mark Price accurately reflects both the spot market and the contract's premium/discount, making liquidations fairer.