6min

Trading FAQ

Why are the price differences between Drift and other platforms?

Drift uses a DAMM for its price discovery mechanism. Using a dynamic virtual AMM leads to a different price discovery process which can result in slightly different prices to other platforms.

However, using a DAMM tends to lead to "smoother" perpetual prices that can exhibit more options-esque payoffs based on:

  1. the relative orientation of the mark, oracle, and terminal price (see Glossary); and
  2. the round trip fee (see Fees & Liquidations ).

Why is the funding rate on Drift higher/different to other platforms?

Drift's round trip fee of 0.2% makes funding rates higher for lower volatility assets.

Drift is working on a number of different mechanisms to incentivise tamer funding rates and price levels including: cross collateral, more robust oracle twap update, improving formualic repeg/k and introducing volume tiers and feed discounts.

However, our highest priority at the moment for trading is the stability of rates and price level.

Reduced funding rates is something we're working on.

Why can funding be asymmetric? Funding is paid (partly) from the collected fees, but why is that?

Funding can be asymmetric at times to protect the insurance fund. In a DAMM, the protocol pays the imbalance where longs don't equal shorts. If the imbalance exceeds two-thirds (2/3) of the fee pool, then the funding is capped to the available amount.

Capped Funding (Funding Rates) is an exception in place to protect the Insurance Fund. Over time the DAMM parameters update and converge to a state with reduced/eliminated long-short imbalance, providing ample exit liquidity for the current set of position holders in the larger imbalanced side.

The protocol aims to avoid persistent capped funding with fee reallocation and curve operations. Learn more: https://docs.drift.trade/funding-rates#uj-capped-symmetric-funding.

The formula for capped funding (in USDC) is:

capped_funding = (smaller_side * next_funding + funding_fee_pool) / larger_side.

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Read more developer FAQs here: SDK FAQ

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