Buyers pay the Writer Pool a funding rate in exchange for impermanent loss protection on their LP positions. Funding rates are calculated based on token price volatility, demand for contracts, supply of collateral, and the impermanent loss risk associated with each NIL contract’s strike price.
Funding rates are calculated on a per-contract basis and are reset every 24 hours (i.e. the “Funding Period”). At the beginning of each funding period, the funding rate payments from Buyers are sent to the Writer Pool. In effect, when Writers deposit collateral into the Writer Pool, their ROI is a weighted average of the funding rates across all NIL contracts using their collateral asset.
In this section, we outline how funding rate payments are calculated for NIL contracts.