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Strike implements a skew-based funding rate mechanism designed to maintain market balance and incentivizes traders to take the minority side.

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How Funding Rates Work

The funding rate is calculated based on market skew: 
skew = (long_oi - short_oi) / total_oi
premium = multiplier * skew
8_hour_rate = premium + clamp(base_rate - premium, -0.05, 0.05)
Where the multiplier is 0.5 and helps smooth out the rate. The base_rate is 0.01, it corresponds to ~11.6% APR - the difference in borrowing rates between USD and spot crypto. The clamp function ensures the rate stays within ±5 basis points. For example, if the skew is 10%, the funding rate will be 5 basis points. Funding is applied hourly to positions that are at least 8 hours old. 
funding_increment = position_size * hourly_rate
accumulated_funding = previous_funding + funding_increment

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Impact on Positions

Funding payments directly affect your position’s economics based on the calculated rate:
  • When you receive funding: The payment is added to your position’s PnL
  • When you pay funding: The payment is deducted from your position’s margin
The funding direction depends on the final calculated rate, not simply whether you’re on the majority or minority side. Due to the base rate of 0.01 (~11.6% APR), shorts are generally favored - meaning even in perfectly balanced markets (50/50), longs typically pay funding to shorts.

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Asymmetric Distribution

Strike Protocol’s funding system creates asymmetric rates to ensure balanced settlements:
  • Majority side pays: The side with more open interest pays the calculated funding rate
  • Minority side receives more: The side with less open interest receives proportionally more per position
  • Balanced totals: Total payments always equal total receipts across all positions

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Example Scenarios

  • Skewed Market (60% Long)
  • Balanced Market (50/50)
When the market is 60% long, 40% short:
  • Long positions pay the funding rate
  • Short positions receive 1.5x the rate per position
  • Total paid by longs equals total received by shorts
This incentivizes traders to take short positions, helping rebalance the market.