The pool uses the price in external exchanges (fed by oracle) as the marked price to calculate position PnL. Since the pool will always apply a funding fee to the majority side. Therefore a very simple arbitrage strategy is to take the minority side of the pool. This involves the following steps:
Read the current funding rate of the pool. when it's positive(negative), enter a short(long) position.
Accordingly, hedge your short/long position outside (e.g. hold a spot position or take a position on a CeFi exchange as you wish).
Sit back and enjoy collecting the funding earning (i.e. negative funding fee) as long as the sign of the funding rate does not flip.
Funding Fee of Perpetual Futures
To balance the two sides of long and short positions, the pool will always apply a funding fee to the majority side
For each ETH block, assuming the total number of contracts in a long position is L while that in a short position is S. Then every single long contract will pay a funding fee = FundingRate*ContractValue, per the following formula. Whereas every single short contract will receive a funding fee = FundingRate*ContractValue.
FundingRate = r*NetPositionContractValue/PoolLiquidity
where r is the funding rate coefficient, and ContractValue is
ContractValue = CurrentPrice * Multiplier
Please note that when L>S, FundingRate is positive (meaning long positions pay short positions), whereas when L<S, FundingRate is negative (short positions pay long positions).
Funding Fee of Everlasting Options
For each second, assuming the total number of contracts in a long position is L while that in a short position is S. Then every single long contract will pay a funding fee per the following formula:
Funding Fee for 1 Day = Option Mark Price - Payoff,
Payoff = max(spot - strike, 0) for call
Payoff = max(strike - spot, 0) for put
Please note: 1. the Funding Fee is accrued on a per-second basis. That is, a funding fee of (Funding Fee for 1 Day)/86400 is accrued every second.
2. Unlike Perpetual Futures, the funding fee for everlasting options is always positive (i.e. long positions always pay short positions).
Trading Margins & Contracts on Deri Protocol includes but is not limited to - a high level of risk, and may not be suitable for all kinds of investors. The enormous degree of leverage can work in favor of you as well as against you. Before making the decision to invest using Deri Protocol, you should carefully consider your level of experience, investment objectives and risk appetite. There is a possibility that you may lose part of your investment or all of your initial investment. You should be aware of all the risks associated with trading contracts and margin. Deri Protocol will not be responsible for any losses, damages or claims arising from events falling within the scope of the events mentioned above. We urgently advise you not to invest money that you cannot afford to lose and we also recommend you to seek advice from an independent financial adviser, If you have any questions or doubts!