# Funding Curve

Each Funding Position receives funding fees determined by a dynamic funding rate. The funding rate follows a funding curve, which is a function of the Utilization Ratio.<br>

* The Funding Curve is defined as a piecewise function with two segments.
* As the Utilization Ratio changes, the funding rate adjusts accordingly, ensuring a balanced relationship between Leveraged Position holders and Funding Position holders.

\
The Funding Rate is determined by a piecewise function of the Utilization Ratio (ur):

$$
\begin{align\*} \&If\ ur < 80%,\ Funding\ APY = a + b × ur \ & If\ 80% ≤ ur < 100%,\ Funding\ APY = a + b × 80% + c × (ur – 80%)\\& a\ is\ the\ bottom\ funding \ rate,\ b\ is\  the\ first\ funding\ growth\ rate,\ c\ is\ the\ second\ funding\ growth\ rate.\end{align\*}
$$

<figure><img src="https://406199118-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FJU0ljCKdTl5gS8qv2O56%2Fuploads%2Fv18G4qMjb3tSWC0XUVuK%2Fimage.png?alt=media&#x26;token=57d0e472-5818-4a4a-b5a5-e56c54c7e84d" alt=""><figcaption></figcaption></figure>

Utilization Ratio:

The Utilization Ratio is a key metric that measures whether Leveraged Positions and Funding Positions in the market are balanced.

$$
\begin{align\*} \&funding\ ratio  = funding\ position\ in\ funding\ vault / total\ funding\ position\\
\&leveraged\ ratio = leveraged\ position\ in\ leveraged\ vault / total\ leveraged\ position\end{align\*}
$$

When minting funding vault tokens is allowed:

$$
Utilization\ Ratio= 0.5 + 0.5 \* (leveraged\ ratio - funding\ ratio)
$$

When minting funding vault tokens is not allowed:

$$
Utilization\ Ratio= leveraged\ ratio
$$

The Utilization Ratio is a key indicator that measures the balance between Leveraged Positions and Funding Positions in the market. It directly determines the value of the Funding APY.