# Funding Rate Perpetuals
## 🧩 BasisX Funding Rate Perpetuals Specification
### **1. Overview**
**BasisX Tokenised Yield Perpetuals (YPs)** are on-chain contracts that let traders **hedge or speculate directly on yield movements** across both **crypto-native** and **real-world yield markets** — including perpetual funding rates, staking APYs (e.g. stETH, kHYPE), and tokenised bond yields (e.g. TLT, BND).
They are **linear, USDC-settled, and quanto in USD**, meaning all P\&L is denominated in USD but settled in USDC.
YPs **tokenise the carry exposure of yield-producing assets** into a perpetual, composable instrument that can be traded independently of the underlying.
All YPs are currently **isolated-margin only** (cross-margin support to be added later).
YPs are listed on the **BasisX HIP-3 deployment**. For the context of **Funding Rate Perpetuals**, they will be called **FRPs** wherever applicable.\
Matching, funding, liquidations, and order logic are handled by **HyperCore**, while the **oracle and mark price** are bespoke **BasisX** components.\
The **BasisX relayer** transmits oracle and mark price updates approximately **every 3 seconds**.
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### **2. Mark Price**
The **mark price** — used for margining, liquidations, stop/limit triggers, and unrealized P\&L — is the median of three components:
1. The **Yield Index Oracle Price** (see Section 3).
2. The sum of the oracle price and a **150-second exponentially weighted moving average (EWMA)** of the difference between the YP’s mid-price and the oracle price.
3. The median of **best bid, best ask, and last trade prices**.
At each tick, the BasisX relayer publishes (1) and (2).\
The Hyperliquid protocol computes (3) and takes the **median of all three** to form the final mark.
**This mechanism ensures:**
* Mark stability
* Resistance to manipulation
* Smooth convergence between oracle and market-based valuation
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### **3. Oracle Price — The Yield Index**
The **oracle** provides the pricing reference for both yield tracking and mark price calculation.
For FRPs, it represents the **Funding Rate Perpetual Index**, a direct exponential mapping of the current annualised yield (`r_apy`) into an index level.
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#### **3.1 Definition**
The **Funding Rate Perpetual** Index represents the **instantaneous exponential transformation** of the current annualised yield rate:
**P****t****=e****r\_apy**
Where:
* Pt: Yield Index at time *t*
* **r\_apy** : Annualised yield rate (APY) at time *t*
This formulation maps every APY into a **positive, smooth price space**, ensuring continuity across rate regimes.
**Key Properties:**
* Always strictly positive (`P_t > 0`)
* Symmetrical handling of positive and negative yields
* Exponential sensitivity to rate changes (higher convexity)
* No need for cumulative or time-weighted compounding
* Fully compatible with HIP-3’s ±1% per-tick limit
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#### **3.2 Interpretation**
* When **yields rise**, e**r\_apy** increases non-linearly, representing higher carry or yield potential.
* When **yields fall** or turn negative, e**r\_apy**​ decays below 1.0, representing yield compression or carry loss.
* The rate of change in **P****t**​ directly corresponds to the **change in exponential yield** — producing a smooth, convex price response across different APY regimes.
This approach creates a **continuous, compounding-equivalent index** that represents the yield curve’s instantaneous state without needing a rolling accumulation window.
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#### **3.3 Examples**
| Scenario | r\_apy | Formula | Yield Index (P) | Interpretation |
| ------------------- | ------ | --------- | --------------- | ------------------------- |
| Stable yield | 0% | e^(0) | **1.0000** | Neutral baseline |
| Positive yield | +10% | e^(0.10) | **1.1052** | Yields up → Index above 1 |
| High yield | +50% | e^(0.50) | **1.6487** | Strong upward drift |
| Negative yield | −10% | e^(−0.10) | **0.9048** | Mild downward decay |
| Deep negative yield | −50% | e^(−0.50) | **0.6065** | Sharp contraction |
**Interpretation:**
* **Long YP** benefits from rising yields or tightening carry regimes.
* **Short YP** benefits from falling or negative yields.
* The non-linear mapping ensures proportional P\&L even at extreme rates.
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### **4. Internal Pricing Continuity**
The oracle updates **continuously** based on the latest yield observations (`r_apy`).
Each update recalculates:
**P****t****=e****r\_apy**
and applies HIP-3’s **±1% guardrail** to prevent abrupt market distortions.
If external yield feeds (Pyth, HL funding APIs, or RWA sources) are temporarily unavailable, the oracle holds the last known rate and applies an **EMA smoothing** until live data resumes:
**r****t****=β****t**** r****t−1**** + ( 1 − β****t**** )  r****lastKnown**
where **β****t****=e****−Δt/τ**** τ=8 hours**
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### **5. Economic Exposure & Use Cases**
#### **5.1 Hedging**
**Example:**\
A trader holds a $1,000 long BTC-PERP on a CEX, paying +10% annualised funding.
They hedge this exposure by **going long FRP-BTC** on BasisX.
If funding rises from +10% → +15% APY:
* CEX position pays more funding (loss)
* FRP price rises (from 1.105 → 1.162) as **e****r\_apy** increases (gain)\
→ **Funding exposure neutralised**
If funding turns negative (e.g., −10% APY):
* CEX position earns funding
* FRP price falls (from 1.105 → 0.905), offsetting the gain
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#### **5.2 Speculation**
Traders can use YPs to **speculate on yield direction or volatility**:
* **Long YP:** bet yields or funding will increase (bullish leverage demand, tightening cycles).
* **Short YP:** bet yields will fall or turn negative (bearish or risk-off regime).
The exponential mapping makes YPs more responsive to large shifts in yield sentiment — creating a **convex exposure** to yield curve changes.
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### **6. Notes**
The **e****(r\_apy)** formulation ensures:
* Positive-only oracle and mark prices
* HIP-3 compatibility (±1% per-tick bound)
* Continuous, compounding-equivalent price mapping
* Linear P\&L across small rate changes and convexity across large ones
PnL is computed as:
**P****n**** L****YP**** = K × N × (P****t****−P****entry****)**
where
* **K** = $1
* **N**=notional position size in USD
**Hedge accuracy** verified to within **0.1%** over short horizons, with smooth continuity through rate jumps or regime changes.
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📘 *BasisX Funding Rate Perpetuals aim to make on-chain funding exposure fully tradable — enabling perpetual funding markets that are composable, hedgeable, and transparent.*