1.Functions:
By charging Funding rates, Price spread between spot trading and AMM Futures will be reduced.
2.How does AMM Futurescharge funding rates?
Judging by the above definition, the fund rate needs to enter the pool after deduction so that the price index can be affected.. When the funding rate is positive, the long positions pay the funding rates to the liquidity pool of the relevant trading pair; when the funding rate is negative, the short positions pay the funding rates to the liquidity pool of the relevant trading pair. The time to charge the funding rate is set as same as the traditional futures trading: Charged Per 8 Hours; every 00:00, 08:00 and 16:00, funding rate will be charged.
How is funding rate calculated?
When the funding rate is positive, the funding rate that the longs should pay would be the long position * funding rate.
When the funding rate is negative, the funding rate that the shorts should pay would be the short position * funding rate.
When the funding rate is positive, since the long position is priced in the relevant token, funding rates should also be priced in the relevant token, in order to reduce the premium of the token price in the AMM futures by increasing the token amounts of "Token/USDT" in the liquidity pool, so as to achieve the price retracement.
When the funding rate is negative, since the shorts position is priced in USDT, the funding rates to be paid need to be priced in USDT also, to eliminate the negative premium of the token price in the AMM futures market by increasing the USDT amounts of ‘Token/USDT ’ in the liquidity pool, so as to achieve the price retracement.
To meet the above-mentioned setting, the deduction of funding rates is different from traditional futures: The funding rates should be deducted from the open interest.
The deducted part will be input into the leveraged liquidity pool and can be reused for new transactions.
Take the positive funding rate as an example:
The funding rate is positive, and the long positions need to be deducted ‘the long position * funding rate’ as the funding cost.
After deduction
The changes in the 10x liquidity pool are:
The amount of tokens in liquidity pool + the amount of the long positions * Funding rate: the amount of USDT in liquidity pool.
The change of the 1x liquidity pool is:
(The amount of tokens in liquidity pool + the amount of the long positions)/10: the amount of USDT in liquidity pool /10
After the fund rates are input into the pool, due to that the amount of tokens increased but the amount of USDT remains, the price decreased as the price retracement completes.