Curriculum·R401 Derivatives Foundations·about 43 min
The funding rate
By the end of this lesson you can
- →State what funding is, who pays whom, and why the instrument requires it
- →Annualize any quoted funding rate, and do it before opening a position
- →Compute the cost of funding against your margin rather than against notional
- →Read an extreme funding rate as information about positioning
Senior · enrolled learners
This lesson opens with Ether funding before the Merge, September 2022.
- What happened
- Ahead of the Ethereum Merge in September 2022, one trade K33 Research described was to hold ether in spot and short the perpetual against it, so as to receive the airdrop of a proof-of-work fork token with no price exposure; K33 named it as one of three motives for the shorts, alongside hedging against a failed Merge and outright bearish bets. With the short side crowded, funding turned deeply negative, meaning shorts paid longs. CoinDesk reported that the average funding rate across major exchanges fell to record lows, and K33 reported that accumulated funding on FTX's ether perpetual had reached about negative 0.94 percent in a day. At FTX's prevailing hourly rate of about negative 0.06 percent, K33 estimated on 13 September that shorts would pay about 2.4 percent to longs before the Merge, for an airdrop token it said was then valued at 1 percent of ether's market capitalization.
- The decision point
- The lesson's reading: on K33's figures the hedge was mechanically sound and still priced to lose. It would neutralize the spot exposure and carry no directional risk, and it was set to cost about 2.4 percent to collect something then valued at about 1 percent, because funding is the price the market charges for standing on the crowded side. The thesis could be right about the mechanics and the trade still be wrong about the price. That price was published continuously, in the funding rate.
What you will be able to answer
- →What is funding and who receives it?
- →How do you annualize it?
- →What does leverage do to funding?
- →What did the Merge hedge cost?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://www.coindesk.com/markets/2022/09/14/merge-focused-hedging-makes-ether-shorts-most-expensive-in-16-months
- https://k33.com/research/archive/articles/eth-perps-seeing-massively-negative-funding-rates
- https://www.coindesk.com/markets/2022/09/15/market-wrap-markets-trade-lower-despite-success-of-ethereum-merge
- https://marketing.kaiko.com/derivatives-dominate-eth-markets-ahead-of-merge
Confidence medium·Volatility high·Reviewed 2026-10-22·Owner unassigned
Contested
Funding figures around the Merge differ by venue, by hour and by whether an eight-hourly or hourly convention is quoted. The negative 0.94 percent daily accumulation, the negative 0.06 percent hourly rate and the estimate of about 2.4 percent to hold to the event are all K33 Research's figures for FTX's ether perpetual (Vetle Lunde, 13 September 2022), and the airdrop token's value near 1 percent of ether's market capitalization is from the same note, which states it without showing how it was derived, so it was an estimate rather than a settled figure. The 2.4 percent is a forward estimate at the rate then prevailing, not a measured realized cost, and this lesson does not report what the hedge actually cost or what the token was worth after the fork. CoinDesk's 14 September report says the average funding rate across major exchanges fell to record lows and that Binance's ether funding was at its most negative since May 2021. K33 gave three possible motives for the shorts, the airdrop hedge, a hedge against a failed Merge and outright bearish bets, so not all of the crowding was the airdrop trade. The argument depends on the estimated cost exceeding the estimated payoff by roughly a factor of two.
Funding intervals, caps, clamps and the interest component vary by venue and change. Eight-hourly settlement is the common convention used here and hourly settlement is increasingly used. Re-derive from the venue's published formula rather than assuming the convention in part one.
R402 owns margin and liquidation. This lesson owns funding as a carrying cost and as a positioning signal. Keep the split and do not compute a liquidation price here.