What are crypto funding rates?

Funding rates are periodic payments either to traders that are long or short based on the difference between perpetual contract markets and spot prices. Therefore, depending on open positions, traders will either pay or receive funding. Crypto funding rates prevent lasting divergence in the price of both markets.

What is crypto lending?

Crypto lending is the process of depositing cryptocurrency that is lent out to borrowers in return for regular interest payments. Payments are made in the form of the cryptocurrency that is deposited typically and compounded on a daily, weekly, or monthly basis.

How do crypto-derivatives exchanges work?

Most crypto-derivatives exchanges employ a funding rate mechanism to keep contract prices in line with the index at all times. These rates vary as asset prices turn bullish or bearish and are determined by market forces. Additionally, crypto funding rates also differ across exchanges - on some exchanges, these rates remain persistently high.

How to make passive income from cryptocurrency funding rates?

One tip to make some “passive income” from funding rates is to buy AND short the exact same amount of the cryptocurrency you put your money on. This method balances the positive and negative funding rates, where technically you do not have a position in that particular cryptocurrency market since it is counterbalanced.