[eUSS Only] Funding Rate Risk

eUSS holders can be exposed to funding rate risk, but funding rate has tendency to be positive in the long term

Because eUSS uses perpetual contracts to hedge the delta of the jitoSOL collateral, the token is exposed to 'Funding Rate Risk'. As explained in the Underlying Derivatives section, funding rate can turn negative at times. Funding Rate Risk is when the funding rate is negative for a long time, deteriorating underlying asset value. USS does not have this risk because USS token uses spot hedging, not perpetual contracts.

While this directly impacts the eUSS yield, the data below shows that negative yields are typically short-lived and revert to a positive mean. Funding rates can turn either positive or negative, allowing eUSS holders to take a directional bet and potential earn higher yield than USS holders.

That funding rate is positive-biased means, despite short-term fluctuation, funding fees are usually positive in the long run. The monthly funding rate in the last 3 years:

Funding Rate has been largely positive, except for a large dip due to market meltdown in November 2022. However, in the longer term of more than a few months, funding rate reverted to positive. After the November 2022 dip, monthly funding fee reverted back to positive in February 2023, only 4 months later. Statistics show funding rate is very positive-biased. In the last 3 years, funding rate only turns negative on approximately 15% of trading days, and the median funding rate is 0.035%/day.