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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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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.