## 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 derivatives price of a contract from the spot/index price of an underlying asset. Therefore, when perpetuals prices are higher than index prices, the basis will be negative and longs will make basis payments to shorts. Conversely, when perpetuals prices are lower than index prices, the basis will be positive and shorts will make basis payments to longs.

Basis payments are calculated (and subsequently applied) continuously every second by multiplying the position value (irrespective of leverage) by the basis payment rate:

- Basis Payment = Position Value * Basis Payment Rate

These payments accumulate as unrealized profit-and-loss until daily settlement at 1:00 UTC.

### Basis Payment Rate

At a high level, the basis payment rate is the percentage difference between spot prices and derivatives prices multiplied by the payment frequency divided by the time horizon over which the basis payment is realized:

- Payment Rate = (Spot Price - Derivatives Price) / Spot Price * Payment Frequency / Time Horizon

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

- Payment Rate = (Index Price - Perpetuals VWAP) / Index Price * 1 / 43200

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 payment frequency is set to 1 because basis payments are applied once a second.

The time horizon is set to 43,200 because basis payments are realized over a 12 hour time span (12 * 60 * 60).

### Basis Payment Activation

For any new perpetuals contract, basis payments will be activated once trading volume reaches 50,000 contracts a day for 7 consecutive days (measured in UTC time). Until this point, new perpetuals contracts will trade without basis payments.