The funding rate mechanism in decentralized futures contracts, like Perpetual Protocol, ensures the contract price aligns with the underlying asset’s spot price. Periodic payments are exchanged between long and short position holders based on the price difference. If the futures price exceeds the spot price (contango), longs pay shorts a positive funding rate; if below (backwardation), shorts pay longs a negative rate. Calculated typically every eight hours, the rate uses the premium index and interest rate components. This incentivizes traders to adjust positions, maintaining price convergence without an expiration date. Perpetual Protocol’s vAMM enhances liquidity and efficiency, enabling up to 10x leverage while keeping costs low on Optimism’s Layer 2 network.