Why is funding rate for some RWA tokens are 0?

[Oshosondy]

Have you noticed while trading that some RWA tokens are almost always of zero funding rate? I have been following XAU (a gold derivative), XAG (a silver derivative), MSTR (Strategy derivative) and  CRCL (Circle derivative).

I noticed their funding rate is always zero which is very good. Is there a good explanation for it?

I have noticed this for days now and still zero funding rate. I can decide to amhikd them for long and not think about any funding rate deduction.

[Dr.Bitcoin_Strange]

First, this actually depends on the exchange you are using. Have you read the Binance post where they said they removed the fixed 0.01% funding fee every 8 hours and reduced it to 0% for XAU and XAG?

Assuming the perpetual contract prices of XAU and XAG remain balanced such that they are the same as the actual asset prices, then traders will enjoy a 0% funding rate. However, in a market where there are lots of long positions pushing the perpetual contract price higher, the funding rate can become positive again and will no longer be 0%, unless the exchange you are using specifically allows those RWA contracts with a 0% funding rate.

I believe each exchange has its own method or formula for calculating funding rates. Aside from that, the funding rate can still be 0% based on the explanation I gave and examples below.

Take, for example:

- The actual price of gold is $4,000 and the perpetual contract price is also $4,000. The price difference is $0, so the funding rate becomes 0%.
- If the actual asset price is $4,000 and the perpetual contract price is $4,500, the price difference is $500, so the funding rate would not be 0% because long position holders would be paying short traders.

To put it another way, you know that spot trading for RWAs like XAU and XAG closes on weekends, but their perpetual contracts can still trade 24/7 on exchanges during that period, right? If, due to excessive long positions, the perpetual contract price trades higher than the index price of the underlying asset, the funding rate will become positive and long traders will pay short traders. Vice versa.

When the market opens again on Monday and spot traders start buying and selling, it can help bring the perpetual contract price and the actual asset price back into balance, causing the funding rate to return to 0%. You can relate this to the examples I gave above.

So, when you see a 0% funding rate, it simply means there is little or no imbalance between buyers and sellers, or that the exchange's funding rate model currently results in no funding payments.

In conclusion, if you are seeing 0% funding rates for the XAU, XAG, and MSTR contracts you have been holding for days, it probably means that there is little imbalance between long and short traders.

I would also advise you to check other exchanges to confirm whether they charge funding fees when holding these contracts for several days, since some exchanges set their funding rates at 0% for certain assets like this ones.

[shinratensei_]

Beside the reply above that clearly explained the 0% IR rate by crypto exchange for RWA tokens, you also need to consider funding rate being close to 0% which in this case you are only paying for premium index which doesn't happen too often to RWA token at market hour as just promotional phase for attracting users, not saying it will not be there for quite a while, the 0% IR will be there for years maybe but even though it looks permanent there is always a chance that those cex will raise IR.

The real carry cost for commodities like gold and stock is ranging around 3-4%. Most exchange zeroed out the IR because they were using 11% annualized IR specifically tailored for crypto which isn't right for RWA token might be the real reason.

[sergiorus]

Have you noticed while trading that some RWA tokens are almost always of zero funding rate? I have been following XAU (a gold derivative), XAG (a silver derivative), MSTR (Strategy derivative) and  CRCL (Circle derivative).

I noticed their funding rate is always zero which is very good. Is there a good explanation for it?

I have noticed this for days now and still zero funding rate. I can decide to amhikd them for long and not think about any funding rate deduction.

No I haven't noticed that. Which exchange are you using?

I trade on OKX, getting squeezed like a lemon on the funding. For Circle (CRCL) is currently more than 0.07% that's crazy. But its price is still sitting at the bottom and people keep longing it so I get it.

The rest of the RWA you listed all have pretty high funding on there too. Maybe you just use an exchange with nearly zero open interest on those assets?

[joniboini]

I scrolled some of OP's post history and can't pinpoint which exchange he's referring to either. Judging from one of their post there's a possibility he's using different exchanges for different purpose too. Anyway, another answer from OP would solve this. I'm curious though, is Circle and MSTR really that attractive as a derivative token? Why not put those funds to trade Bitcoin or gold?

[sergiorus]

I scrolled some of OP's post history and can't pinpoint which exchange he's referring to either. Judging from one of their post there's a possibility he's using different exchanges for different purpose too. Anyway, another answer from OP would solve this.

I've done the same and also noticed that the OP basically never replies in their own threads even when important questions from other users arise. That doesn't necessarily mean their threads are low quality or something. Just saying.

For example, I would really love to know which exchange somehow doesn't have funding on perpetual (assuming they are perpetual) futures.

Since perp futures are the epitome of the free market, and he who demands will always have to pay I can only think of a short-term incentivisation campain by the exchange covering the funding fees, but that sounds improbable given the current times.

Another option is the OP simply confused something and those were not perpetual futures but some similarly looking but different product.