A funding rate is a periodic payment made between traders holding long positions and traders holding short positions on a perpetual futures contract. Its job is to keep the contract’s price close to the spot price of the underlying asset, according to iShares, BlackRock’s ETF and index unit. A negative funding rate means the contract is trading below spot, so short holders pay long holders.
Why perpetuals need a funding rate at all
A perpetual futures contract, or “perp,” is a derivative that tracks the price of an asset like bitcoin or ether but never expires, according to iShares. A traditional futures contract naturally converges toward the spot price as its settlement date approaches; a perpetual contract has no settlement date, so it needs another mechanism to stop its price drifting away from spot. That mechanism is the funding rate, iShares said, describing it as a periodic payment exchanged between longs and shorts that creates a financial incentive to trade the contract back toward the reference asset’s price.
Chainalysis frames the same mechanic in similar terms: a recurring payment flows between long and short holders whenever the contract’s price and the reference spot price diverge, nudging the two back together. Both sources describe the mechanism the same way, which is the strongest basis this page has for stating it as settled.
Which way the payment flows
The direction of the payment depends on where the perpetual contract is trading relative to spot. Per iShares, when the contract trades above the spot price of the reference asset, long holders generally pay short holders. When the contract trades below spot, the payment direction reverses. Chainalysis states the same rule in shorthand: when the funding rate is positive, longs pay shorts, and when it is negative, the relationship flips.
So a negative funding rate is not an abstract market mood indicator. It is the direct consequence of the perpetual contract’s price sitting below the spot price at that moment. Traders who are short the contract are being paid by traders who are long it, because the market has priced the perp at a discount to the asset it tracks. The payment itself is designed to correct that discount over time — it gives an incentive for more buyers to step in on the perp, or more sellers to close short positions, narrowing the gap back toward zero.
The common misreading
A negative print is frequently read in trading commentary as proof that “bears are winning” or that a crash is underway. What the number actually reflects is a pricing gap between one derivative contract and its spot reference, and a resulting transfer of cash between two groups of leveraged traders. It says something about current positioning and about the discount the perpetual market is pricing in relative to spot — not about where the asset’s price is headed next. A rate can turn negative because demand for short exposure has genuinely increased, or simply because the perp price has temporarily lagged a fast-moving spot market; neither of the sources reviewed for this page distinguishes those cases in the funding number itself.
How often payments happen
Research from Cornell’s business school, published on the Cornell Business Centers & Institutes site, describes an eight-hour funding cycle as a common structure: traders periodically pay or receive the fee on that schedule. The same research used the eight-hour cycle as a natural experiment, finding that trading activity and bid-ask spreads follow a U-shaped pattern within each cycle, and that the pattern shows up in spot markets too — evidence, the researchers said, that perpetual contracts actively shape market behavior rather than simply reflecting it.
Scale and origin
Perpetual futures have become the most widely traded derivative instrument in digital asset markets, according to iShares, which said in an August 2026 commentary that centralized crypto exchanges traded approximately $86 trillion in perpetual futures during 2025, with decentralized venues trading nearly $6.7 trillion, primarily across assets such as bitcoin and ether — figures reported only by iShares among the sources reviewed here, with no independent second source to confirm them and no methodology detailed in the piece itself.
On the instrument’s history, Cornell’s research credits economist Robert Shiller with first proposing the perpetual futures concept in 1993. Chainalysis, separately, credits the specific “inverse perpetual” contract design to Alexey Bragin, who it says built it in 2011 for the ICBIT exchange, with wider adoption following after BitMEX and other exchanges began offering the product in 2016. The two sources are describing different steps in the same lineage — an academic proposal decades before crypto existed, and a specific exchange implementation years later — rather than contradicting each other.
What this page does not tell you
This page explains the direction and purpose of a funding payment. It does not show how any exchange actually calculates the number. None of the sources reviewed — iShares, Chainalysis, or the Cornell research — publishes the formula used to turn the gap between perp price and spot into a specific rate, such as the interest-rate and premium-index components that traders sometimes refer to. Without that formula in the evidence, this page cannot build a numeric worked example of how a rate gets calculated, and it would be inventing a figure to try.
It also cannot tell you the funding rate on any specific exchange or contract right now. Funding rates change continuously and are set per venue; a reader who wants a live number has to check that exchange’s own data page. iShares itself notes that mechanics can vary by venue, so even the general description of payment direction and timing above may not apply identically everywhere.
The $86 trillion and $6.7 trillion trading-volume figures for 2025 come from a single source in this review, iShares, and this page has no second outlet or primary exchange filing to check them against. Whether those figures are independently audited, self-reported by exchanges, or aggregated from a third-party data provider is not stated in the iShares piece as reviewed here.
Finally, Chainalysis notes that most perpetual futures trading occurs on exchanges not registered with U.S. regulators, and that the Commodity Futures Trading Commission oversees U.S. derivatives markets including crypto futures. This page does not attempt to state the current U.S. legal status of any specific perpetual futures product; that is a separate, evolving regulatory question outside what the sources here establish.
Sources
Every fact above is attributed to one of these reports. Where they disagree, the article says so.
