Funding is an hourly exchange of payments between traders that hold long positions, and traders that hold short positions. The purpose of this payment exchange is to keep the Everstrike Mark Price aligned with the Everstrike Index Price. By forcing longs to pay money to shorts, whenever the Mark Price is above the Everstrike Index Price, the Mark Price will gradually move towards the Everstrike Index Price. This happens because the payment disincentivizes being long.
By likewise forcing shorts to pay money to longs, whenever the Mark Price is below the Everstrike Index Price, the same will happen once again. The Mark Price will move towards the Everstrike Index Price.

The Funding Rate

The Funding Rate determines the amount that is transferred between longs and shorts every hour. It is calculated as the relative difference between the Index Price and the Mark Price. This difference is also known as the Premium. The Premium is calculated as follows: Premium = ((Mark Price - Index Price) / Index Price) Once the premium is obtained, the Base Funding Rate can be calculated by taking the Premium, and applying a dampener: Base Funding Rate = Max(dampener, Premium) + Min(dampener, Premium) The dampener can vary by trading pair. For futures, it is currently set to 0.03 (3%). For options, it is set to 1.00 (100%). These values are subject to change. The dampener ensures that the Base Funding Rate can only ever be within an interval of [-dampener,+dampener] To calculate the funding on a Bitcoin options position, one must first scale the Base Funding Rate, to reflect only the interval, for which funding takes place: Funding Rate = Base Funding Rate * (Funding Interval/Funding Period) where the Funding Period is 10 hours, and the Funding Interval is 1 hour. Then simply multiply the Funding Rate with the size of the position to get the amount of funding to exchange: Funding Payment = Funding Rate * Position Size (USD)