> For the complete documentation index, see [llms.txt](https://delpho.gitbook.io/delpho-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://delpho.gitbook.io/delpho-docs/risk/funding-rate-risk.md).

# Funding rate risk

This is the primary risk to sUSDV yield.

For the underlying mechanic of how funding is captured, see [The yield engine: funding capture](/delpho-docs/how-delpho-works/yield-engine-delta-neutral.md).

Perpetual funding can compress, flip negative, or stay negative for an extended window. When that happens, the short leg of Delpho's hedge stops receiving payments and begins paying. In the income equation `gross funding − borrow interest − protocol/reserve costs`, the result can be net negative.

Borrow interest here is the cost the protocol pays on the spot-long leg of the hedge on a lending venue. When funding compresses or flips negative but borrow rates stay elevated, the spread between the two is what drives a negative net to sUSDV.

**At V1, the structural response is the treasury reserve.** A protocol-owned smart-contract balance targeting roughly **5% of TVL**, funded by retaining a portion of positive-funding inflow during normal periods. When funding flips, the reserve absorbs the short-term gap. The reserve is held as staked sUSDV and doubles as the stability pool that absorbs liquidations and redemptions, so its health relative to TVL is monitored continuously.

**Two further controls are planned for future releases:**

* **Hedge inversion.** Flipping the perp leg from short to long to keep capturing the spread when negative funding looks persistent rather than transient.
* **Yield-distribution pause.** Programmatically pausing distribution to sUSDV during a sustained negative window, holding per-share value flat rather than letting it accrue negatively.

The protocol does not borrow against future earnings to maintain a quoted yield. If the spread is negative and the reserve cannot fully buffer it, sUSDV simply does not earn.

The worst case in the dataset is the 10 October 2025 ADL crash, in which HYPE perp funding briefly annualized to -1,650% in a single hour while HYPE itself fell roughly 28% across the cascade. See [Stress test results](/delpho-docs/risk/stress-test-results.md).