Funding Risk

The Vault strategy involves using Bluefin's perpetual contracts to hedge the delta of the SUI collateral supplied to NAVI.

Perpetual contracts differ from traditional futures contracts in that they have no expiry date and use a mechanism known as the Funding Rate to keep the price of the perpetual contract in line with the index price of the underlying asset.

For a more detailed explanation of how Funding Rates work, please refer to any of the following sources:

• Deribit

• Coinbase

• Bitmex

Funding Risk refers to the potential for Funding Rates to turn negative for extended periods of time, thereby requiring the Vault to pay a Funding Expense instead of receiving regular Funding Income.

Historical data analysis suggests that there is a long-term positive bias in Funding Rates due to excess demand for exposure to digital assets. The Vault has been built to take advantage of this.

Bluefin Exchange Funding Mechanism: https://learn.bluefin.io/bluefin/bluefin-exchange/trading/funding