Funding

Funding is the mechanism that keeps a perpetual's traded price tethered to the price of the asset it tracks. It is a periodic payment that flows directly between the longs and shorts in a market — never to or from the exchange — and it nudges the market back toward the underlying whenever the order book drifts away from it.

This page explains what funding is, why perpetuals need it, how Proof measures the premium that drives it, how and when the payment is applied, and a short worked example. One thing to fix up front: funding applies to perpetuals only — the conditional legs of a conditional market never pay or receive funding. The last section says why.

What funding is and why perpetuals need it

A standard futures contract has an expiry. At expiry it converges to the spot price of the underlying by definition, so its price can't wander far without an arbitrage closing the gap. A perpetual has no expiry. Nothing forces it to converge, so on its own a perpetual's order book can sit persistently above or below the underlying for as long as demand pushes it there.

Funding is the force that replaces expiry. At a regular cadence, the exchange measures how far the perpetual's own traded price sits from the underlying — the premium — and turns that premium into a payment between the two sides of the market:

• When the perpetual trades above the underlying, longs pay shorts. Holding a long now costs you a little each period, and being short pays you. That penalizes the crowded (long) side and rewards the side that pushes the price back down.
• When the perpetual trades below the underlying, shorts pay longs. The incentive reverses.

The payment is zero-sum at the market level: every dollar a long pays is a dollar a short receives. The exchange takes no cut. What the payment buys is a continuous economic pressure that makes it expensive to hold the side that is stretching the price away from the underlying — which is exactly what keeps a no-expiry contract anchored.

The further the perpetual drifts, the larger the premium, and the larger the per-period payment — so the pressure scales with the size of the dislocation.

The premium: book mark vs oracle

To compute funding, Proof uses two distinct reference prices, and it is important to keep them apart because they answer different questions.

• The oracle is an external, manipulation-resistant feed of the underlying asset's price. It is the anchor — the price funding is trying to pull the perpetual toward. The same oracle drives the perpetual's risk mark (the price used for margin, equity, and liquidation).
• The funding mark is the perpetual's own recent traded price — a moving average of the prices at which the book has actually been filling. This is the price funding is measuring from.

Proof maintains two separate marks per market by design — a risk mark (oracle-based) for margin and liquidation, and a funding mark (the book's own moving average) for funding — and they can and do diverge. That divergence is the whole point: it is what the premium captures.

The funding mark is a moving average of the book's fills. Each new fill pulls it toward that fill's price; when the flow quiets down, it is gently pulled back toward the oracle each cycle so it can't stay stuck far from the underlying on stale data. The net effect is a mark that tracks where the market is actually trading right now, while reverting toward the oracle in the absence of fresh activity. Before any trade has happened in a market, the funding mark simply equals the oracle, so the premium is exactly zero.

The premium is the gap between those two prices, expressed in basis points (one basis point = 1/10,000):

premium = (funding mark − oracle) / oracle, in basis points

If the funding mark sits above the oracle, the premium is positive (longs will pay). If it sits below, the premium is negative (shorts will pay). The premium is the raw gap between the book mark and the oracle — it is not a blend of the two, and it is not halved or smoothed before use.

To prevent a single runaway period, each market caps the premium at a configured maximum, symmetric in both directions. If the raw premium exceeds the cap, the rate for that period is the cap; otherwise it is the raw premium. That capped value is the funding rate for the period.

How and when funding is applied

Funding is settled on a fixed cadence per market — a funding interval. Once per interval, for each perpetual the exchange:

1. Reads the current funding mark (the book's moving average) and the current oracle.
2. Computes the premium from the gap between them, and clamps it to the market's cap to get the period's funding rate.
3. Advances a running cumulative funding index for that market by the rate applied to the mark — a value that accumulates every period and represents "total funding owed per unit of position, since the market began."
4. Settles every open position against that index, paying or charging each account.

Using a cumulative index is what makes the per-account math exact regardless of when you opened. Every position remembers the value of the index at the moment funding was last settled for it. Your payment for a period is:

payment = (current index − your last-settled index) × your position size

with the sign set by your side: when the index has risen (positive funding, perpetual above oracle) a long is debited and a short is credited; when it has fallen, the reverse. Because the mark is already baked into the index, the payment automatically scales with the notional value of your position — a bigger or more valuable position pays or receives proportionally more. After settlement, your position's last-settled index is updated to the current value, so the next period starts clean.

A few properties worth knowing:

• Funding settles to free cash. The payment lands in (or comes out of) your collateral balance. It is never folded into your entry price or your position size — your cost basis is untouched, so funding shows up as a clean cash flow rather than silently moving your liquidation level around.
• The receiving side is always paid in full. The counterparty on the other side of a funding payment always receives the full amount — funding is never reduced for the side that is owed it. The market's insurance fund stands behind these payments so the credited side is made whole.
• No trades, no premium. If a market hasn't traded since the oracle moved, its funding mark falls back to the oracle and the premium for that period is zero. Funding charges what the book is actually doing, not a stale guess.

A short worked example

All numbers here are illustrative, chosen for round arithmetic — they are not live or canonical values.

Suppose an asset's oracle (the external underlying price) reads $100.00. Over the last several fills, the perpetual has been trading rich — buyers have been lifting offers — and its funding mark (the book's moving average) sits at $100.20.

Step 1 — the premium. The perpetual is $0.20 above the oracle on a $100 base:

premium = ($100.20 − $100.00) / $100.00 = 0.0020 = +20 basis points

It's positive, so for this period longs will pay shorts. Assume the market's cap is wider than 20 bps, so the funding rate for the period is the full +20 bps.

Step 2 — your payment. Say you are long 10 contracts. Funding charges that 20 bps against the value of your position for the period:

payment ≈ 20 bps × $100.20 × 10 ≈ 0.0020 × $100.20 × 10 ≈ −$2.00

You are long while the perpetual trades above the underlying, so you are on the side stretching the price up — you pay about $2.00 this period. A trader who is short 10 contracts is on the other side of that payment and receives about $2.00. The market nets to zero; the exchange takes nothing.

Step 3 — the incentive. Holding the long now has a small running cost, and being short earns a small running yield. That tilts the marginal trader toward selling the perpetual (or away from buying it), which pushes its price back down toward the $100 oracle. As the gap closes, the premium shrinks, and so does next period's payment — the pressure eases exactly as the dislocation does. If buyers keep pushing the price up anyway, the premium stays positive and longs keep paying period after period for the privilege.

Had the perpetual instead been trading below the oracle — say a funding mark of $99.80 — the premium would be −20 bps, the signs would flip, and shorts would pay longs by the same logic.

Funding applies to perpetuals only

Funding exists to anchor a no-expiry contract to its underlying. The conditional legs of a conditional market don't need that mechanism and don't use it.

In a conditional market, the conditional perpetuals (the YES and NO legs) and the prediction binaries all resolve at a known event, and their economics are handled at resolution and through trading, not through periodic funding. Concretely:

• Funding does not apply to the conditional-market family. None of the conditional legs — the two conditional perpetuals or the two prediction binaries — ever accrue funding. This is a property of the instrument kind itself, not a configurable setting.
• A conditional perpetual realizes its profit-and-loss at resolution, when its branch wins and it cash-settles to the underlying, or voids if its branch loses (profit-and-loss zero, margin returned). It does not need a continuous funding payment to stay anchored — the event itself is the anchor.
• A prediction binary is a $0–$1 instrument whose price is the market-implied probability of its outcome; it pays $1 if it wins and $0 if it loses. There is nothing for funding to tether, so it carries none.

So the rule is simple: only the underlying perpetuals carry funding. Everything event-conditioned in a conditional market settles at resolution instead. If you want to understand how the conditional legs are priced, marked, and settled, see the conditional-markets pages; this page is about the funding that keeps the plain perpetuals honest.