[DRC] Update Default Funding Rate for Isolated Markets

Proposals
1

Simple Summary

This proposal seeks to set the default funding rate of isolated markets to 0.125 basis points per hour (equivalent to 0.00125% per hour), to align with the standard used by major exchanges like Binance and ByBit.

Abstract

On the dYdX Chain, the funding rate is primarily determined by the premium component, which reflects the difference between the perpetual market price and its underlying oracle price. This premium is calculated using the impact bid and ask prices, which consider the average execution prices for specific market orders. The funding rate is then calculated as follows:

Funding Rate = (Premium Component / 8) + Interest Rate Component

In the default settings of the dYdX Chain’s v4 open-source software, the default funding rate is currently set to 0.

We propose to set the default funding rate of isolated markets to 0.125 bps per hour, this aligns with the standard used by major exchanges like Binance and ByBit. Implementing this rate can help standardize trading costs and make dYdX’s funding rates more competitive.

Motivation & Rationale

The proposed change aims to align dYdX Chain’s default funding rate with major perpetual trading platforms such as Binance and ByBit, both of which use a default funding rate of 0.125 bps per hour. Standardizing this parameter across exchanges can help improve competitiveness, provide a more familiar trading environment for market participants, and ensure consistency in funding rate expectations.

From a technical perspective, the rationale for increasing the default funding rate is based on Covered Interest Rate Parity (CIRP). The theoretical fair funding rate is determined as:

Fair Funding Rate = Dollar Interest Rate - Coin Interest Rate

Since most coin interest rates are effectively zero, the funding rate primarily reflects the dollar interest rate, adjusted for on-chain risk. Binance and ByBit serve as strong market proxies for the implied dollar funding rate on perpetual contract venues, making their default rate a relevant benchmark for dYdX Chain’s open-source software.

Specification

We propose to change the default_funding_ppm of the following markets to 100, which is equal to 1 basis point per 8 hours or 0.125 basis points per hour, divided into two proposals:

First Proposal

Second Proposal (Remaining Markets)

Next Steps

In the absence of strong dissent, we are planning to submit the proposal on February 20, 2025.

1 Like
2

Hello dYdX Community,

We have submitted a proposal—don’t miss your chance to vote!
proposals/216

Thank you.

2 Likes
3

Hello dYdX Community,

We have submitted another proposal for lest of the markets —don’t miss your chance to vote!
proposals/220

Thank you.

2 Likes