Mark Price vs Index Price: Which One Determines Funding?.

Funding is determined by the perp’s premium to the index price, not the mark price. The index is the venue’s measurement of the asset’s external price, an aggregate of spot prices or an oracle feed, and the funding formula measures how far executable perp prices sit from that index. The mark price is a different object with a different job: it is the venue’s smoothed fair-value estimate of the perp itself, typically built from the index plus an adjustment for the funding basis, and it is used to compute unrealized PnL and to trigger liquidations. Funding looks at perp versus index. Your liquidation looks at mark.

The division of labor is deliberate. Liquidations key off mark rather than the last traded price so that a single aberrant print or a momentary wick on a thin book cannot force positions out; the mark’s smoothing is protection. Funding keys off the index because its entire purpose is to measure and correct the perp’s deviation from external reality, and measuring deviation requires the external anchor. Variational’s documentation describes the mark price as the calculated fair value of the market built from the index price and funding rates, used for margin requirements, which is the standard architecture across the industry.

Three practical consequences. First, you can be liquidated without the spot market ever touching your liquidation level, because mark is a perp-side estimate, and in a fast market the perp detaches from spot, the exact moments covered in what is cross-venue mark price divergence. Second, funding payments are insulated from the perp’s own dislocation in a specific way on some venues: Hyperliquid converts your position size to notional using the spot oracle price, not the mark, so the payments exchanged during a dislocation are valued at external reality rather than at the dislocated price. Third, when you compare funding across venues, you are partly comparing their indexes: two venues with different index compositions will measure different premiums on identical perp prices, one of the quieter reasons behind why funding differs across exchanges.

The confusion between the two prices does its real damage in risk math. Traders compute liquidation distance against the index or the spot chart they are watching, while the engine that will actually liquidate them watches mark, and during the fast moves when it matters, the gap between those two numbers is at its widest. The rule that keeps you safe: trade your thesis on the index, but do your survival math on the mark, and on a venue whose docs do not clearly specify what drives each mechanism, assume nothing and read until they do. The role both prices play inside the formula itself is laid out in how funding is calculated, and what mark does in a liquidation specifically is part of liquidation distance versus funding capture.