Funding Rate Farming With Cloned Assets

Clone Protocol
3 min readMar 22, 2024

Clone is a Solana DEX optimized for non-native token trading through cloned assets, or clAssets. Our unique liquidity model, the Comet Liquidity System, allows us to scale quickly to new non-native token markets. Our vision is for cloned assets to allow anyone to trade any token from any chain without ever needing to leave Solana. At the time of writing this article, there are currently 3 clAsset markets available on Clone: clARB, clOP, and clSUI. Cloned assets open up a multitude of interesting opportunities for traders and LPs alike, and in this article we will analyze one strategy where we see a lot of potential.

What are Perpetual Contracts?

Perpetual contracts, or perps, are a type of derivatives contract that allow users to trade with leverage. Perps are powerful financial instruments, and are understandably very popular within Solana DeFi. A key component of perps is the funding rate, which ensures the contract price remains tethered to the underlying asset’s spot price. Funding rates incentivize traders to take positions that balance the market, with long positions paying shorts when the rate is positive, and vice versa.

Funding Rate Farming: The Basics

It is possible for traders to exploit the funding rate mechanism in perpetual contracts to earn yield in a delta-neutral position, we call this “Funding Rate Farming”. By simultaneously taking opposite positions on Clone and a perpetual exchange like Drift, traders can profit from funding rates while minimizing market exposure, all within Solana DeFi.

Funding Rate Farming: Longs Paying Shorts

When funding rates are positive, meaning long positions are paying shorts, traders can easily farm the funding rate using the following strategy. Let’s say ARB has a positive funding rate on Drift, a funding rate farmer can…

  1. Buy clARB on Clone
  2. Short an equal number of ARB on Drift

The farmer has now established a delta-neutral position where they will be paid a funding rate. Not only will you earn the funding rate, but you can also farm points on both Clone and Drift using this strategy!

Funding Rate Farming: Adding Efficiency with Solend

We can further enhance the capital efficiency of funding rate farming using the Clone Pool on Solend. The Clone Pool allows users to borrow/lend clAssets using USDC and SOL. Instead of deploying capital to Clone and Drift separately to farm the funding rate, traders can use Solend to bridge the gap. The new strategy works as follows…

  1. Buy clARB on Clone
  2. Borrow USDC or SOL using clARB as collateral on the Clone Pool
  3. Use the USDC or SOL to short an equal number of ARB on Drift

This approach allows traders to funding rate farm with less upfront capital, maximizing their potential returns.

Funding Rate Farming: Shorts Paying Longs

Conversely, when funding rates are negative and shorts are paying longs, the strategy inverts. Here is how the example would work if clARB had a negative funding rate…

  1. Borrow clARB using USDC or SOL on the Clone Pool
  2. Sell clARB on Clone
  3. Use the resulting USDC to long an equal number of ARB on Drift

With this knowledge you’re now fully prepared to navigate funding rate farming between Clone and Drift, regardless of the funding rate direction!

Stay Safe & DYOR
Participating in funding rate farming carries inherent risks, underscoring the importance of conducting thorough research and fully comprehending the risks associated with borrowing on Solend and engaging with perpetual contract exchanges like Drift. Vigilant monitoring of your positions is crucial to prevent potential liquidation on both platforms. Wishing you success and happy cloning!

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Clone Protocol

Hyper-liquid cloned assets, powered by our Comet Liquidity System on Solana 🪐 https://www.clone.so/