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0. Before start

If you have no experience with the Funding rates, please read this first: https://www.binance.com/en/academy/articles/what-are-funding-rates-in-crypto-markets

Else, let’s profit from the Billion Dollar on Solana!

1. Overview

FandY facilitates the trading of interest rates by tokenizing floating yield streams into Yield Units (YU). Each YU corresponds to the yield generated by one unit of the underlying collateral. For instance, in a FandY SOL-Perp market (integrated with Drift - a DEX on Solana), a single YU represents the funding rate earned by 1 SOL.

Key Applications:

• Betting on Rates (Bullish): If you think funding rates will go up, you can Long YU. You pay a fixed fee to receive the actual floating rate. If the rate goes higher than your fee, you make money.
• Hedging Costs: If you are trading perps on Binance and want to stop worrying about fluctuating funding fees, you can Long YU. This turns your unpredictable funding payments into a stable, fixed cost.
• Fixed-Yield Lock-in: If you are using Delta Neutral strategy, you usually get paid variable funding rates. By Short YU, you can swap that variable income for a fixed, guaranteed payout, locking in your profit regardless of market changes.

2. Definitions

• YU (Yield Unit): Think of a YU as a token that tracks earnings. Holding 1 YU is equivalent to earning the yield (funding rate) of 1 unit of the actual asset.

  • Example: In a SOL-Perp market, 1 YU earns the exact same funding rate as holding a position worth 1 SOL on the DRIFT Exchange.

• Market APR: This is essentially the current market price of a YU, but it is shown as a percentage (%).

  • It represents what the market thinks the average future yield will be.
  • Locking it in: When you open a position, the current Market APR (like Entry Price in standard crypto futures) becomes the Fixed APR that you pay (or receive) for that trade.

• My Fixed APR This is the specific fixed rate you have locked in for your position.

  • Since you might enter a trade multiple times at different rates, this number is the average of all the rates you agreed to when you entered.

• Mark APR: This is a "smooth" version of the price used to calculate your estimated profit/loss and to check for liquidation.

  • It works just like Mark Price in standard crypto futures. It prevents you from being unfairly liquidated due to sudden, short-term price spikes or manipulation.

• Float APR This is the real-time funding rate is oracle from the external exchange. In early stage, FandY integrates funding rates data from DRIFT Exchange. We will integrate other popular CEX - DEX like Binance, Bybit, HyperLiquid, Aster,… soon.

  • Clarify that each token pair from each exchange will be derived into a distinguish pair in FandY. Example: YU-SOLUSDT-Binance, YU-SOLUSDT-Bybit, YU-SOL-Perp-Drift are different pair.

  <aside> ☀️

  Question: I see the funding rate at one point in Drift is about ~0.001%, but you mention the APR of funding rate (Float APR). How to calculate Float APR?

  Answer: Every funding rate in FandY are represented in APR. APR calculation formula base on interval settlement of every exchange. Example: at one point, the funding rate of SOL-Perp in Drift Exchange is 0.001%, Drift settles every 1 hour. So, the Float APR of SOL-Perp-Drift at this time is:

  0.001% * 24 (times per day) * 365 (days per year) = 8.76% (in basics) 
  

  Reference: https://app.drift.trade/stats/funding-history

  </aside>

  • If the current funding rate on Drift is 10%, then the Float APR is 10%, and if the current funding rate on Drift is 20%, then the Float APR is 20%. This number changes constantly (hourly change with YU-SOL-Perp-Drift).

3. How Settlement (Interest Rate Swap) work