Improving Funding Rates on OraiDEX Futures: A Closer Look at the Recent Updates
Since its launch, OraiDEX Futures has rapidly gained traction in the trading community, attracting a large user base. This surge in activity has not only tested the platform’s capabilities but also provided valuable feedback for improvement. One of the key areas of focus has been the Funding Rates mechanism, vital for ensuring market balance and aligning with spot prices. In this post, we’ll explore the recent updates to Funding Rates and their significance in maintaining a healthy trading environment on OraiDEX.
What Are Funding Rates?
Funding rates play a pivotal role in futures trading. They act as a balancing force, aligning the futures market prices with the spot market prices. To understand how the funding rate is calculated, lets look at a couple of key definitions:
- TWAP: Time Weighted Average Price
- Oracle Price: Asset price from Price Feed contract
- Index Price: TWAP for each interval
- Fraction: This is a multiplier that adjusts the size of the funding rate. It is set based on time intervals for funding rate payments (hourly). In our case, Fraction = 1/24.
Funding Rate: This is calculated for every interval (hourly), determining the tax on open positions. A positive funding rate implies that long positions pay shorts, as the index price is higher than the oracle price. Conversely, a negative rate means shorts pay longs, reflecting a lower index price.
Why are Funding Rates Important?
Though the calculations might appear complex, their underlying principle is straightforward: when the market price on OraiDEX Futures strays from the oracle price, the party at fault incurs a “tax” through funding rates, discouraging them from keeping their orders active. Conversely, funding rates serve as a tangible motivation for users to place orders on the opposing side, thereby restoring equilibrium to the market. The correlation between futures and spot prices directly influences the magnitude of the funding rate, ensuring that the futures market remains in tune with the actual market values.
How OraiDEX Futures Manages Funding Rates
At OraiDEX Futures, funding rates are recalculated and settled every hour. This frequent recalibration helps will help in maintaining a close correlation between the index and oracle prices. Payments related to funding rates are directly handled through the user’s initial margin. If a user owes a funding rate payment, it’s deducted from their margin. Conversely, if they’re on the receiving end, it’s added to their margin. This dynamic has a direct impact on the liquidation price, making it essential for users to keep a close eye on how funding rate payments affect their overall position and risk management.
UI/UX Enhancements for Better Understanding of Funding Rates
- Displaying Both Oracle and Index Prices: In our commitment to transparency, we now display both oracle and index prices. This allows users to better understand and track the correlation between these two key price points.
- Clear Display of Funding Rate and Timer: We’ve introduced a clear display for the current funding rate and a countdown timer for the next settlement. This addition ensures that users are always aware of when and how the funding rates will affect their positions.
- Realized PnL Feature: To provide a clearer picture of how funding rates impact user positions, we’ve added a Realized PnL section in the Position Details Screen. This differentiates between the profit or loss accrued due to funding rate payments (Realized PnL) and the market fluctuations (Unrealized PnL).
Conclusion
The journey of OraiDEX Futures since its launch has been exhilarating. The feedback from our growing community has been invaluable, driving us to make these significant updates. These enhancements are just the beginning, as we continue to evolve and expand our platform to new markets. A heartfelt thank you to our community — your insights and engagement are what make OraiDEX Futures a continually improving and thriving platform. Stay tuned for more updates as we journey together in this exciting world of futures trading!
