## Basis Payments

Basis payments are periodic payments made between longs and shorts designed to push perpetuals prices as close to spot prices as possible.

Basis measures the relationship between spot prices and derivatives prices and is calculated by subtracting the spot/index price of an underlying asset from the derivatives price of a contract. Therefore, when perpetuals prices are higher than index prices, the basis will be positive and the longs will make basis payments to shorts. Conversely, when perpetuals prices are lower than index prices, the basis will be negative and shorts will make basis payments to longs.

Basis payments are calculated by multiplying the position value (irrespective of leverage) by the basis payment rate:

- Basis Payment = Position Value * Basis Payment Rate

These payments are applied as profit-and-loss twice a day (every twelve hours) at the daily settlement times of 05:00 UTC and 17:00 UTC. Basis payments are paid/received if and only if a position is held at time of settlement.

### Basis Payment Rate

At a high level, the current basis payment rate is the time-weighted average price of the basis reference rates calculated over the previous settlement window, where the basis reference rates are the percentage differences between the derivatives price and the spot price, calculated at the calculation frequency.

- Reference Rate = (Derivatives Price - Spot) / Spot Price
- Payment Rate = TWAP(Reference Rates)

More specifically, the basis payment rate is calculated using the following formulas:

- Reference Rate = (Perpetuals VWAP - Index Price) / Index Price
- Payment Rate = TWAP of the n Reference Rates, where n = settlement window * calculation frequency

The index price is the same as the mark price and represents the underlying spot price.

The perpetuals VWAP is the volume-weighted average price of all trades in the last 60 minutes and represents the derivatives price.

The settlement window is 43200 (12 hours) and the reference rate calculation frequency is 1/60s (once per minute).

The TWAP bucket duration is 30 minutes.

The Payment Rate will be capped to 0.10%.