Sunday, 29 March 2020

Ethereum Funding rate registers second-largest dip in 2020

ethereum dip

Ethereum saw a dip in its ‘funding rate’, observed across three exchanges- BitMEX, ByBit, and Deribit. Although a dip in funding rate is not an important update, the extent of the dip was noteworthy.
‘Funding rate’ is used on margin trading platforms like BitMEX, Deribit, etc to maintain the peg of derivative products. Take, for example, the XBT perpetual swap contract by BitMEX. The price of XBT is derived from spot prices of Bitcoin across multiple exchanges [Coinbase, Bitstamp, and others]
Similarly, for Ethereum Futures, ‘funding rate’ is used to maintain a peg. Hence, when a certain contract gets overwhelmed with too much pressure from either longs or shorts, the exchange collects fees via the funding rate. This is paid by the dominant side to the weak side.

On Saturday, the spot price of ETH fell off a cliff when it dipped by more than 9% in less than 6 hours. This caused the funding rate to dip to the negative side on the aforementioned exchanges.

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