Currently, in the world of altcoin contracts, the most ruthless knife is not the violent crashes or surges, but rather the funding rate that many people don't understand. This was originally intended to balance both long and short positions, but it has now become a weapon for high-control traders to precisely harvest retail investors.
In simple terms, the funding rate is the 'balance fee' that both long and short positions pay to each other in perpetual contracts, so that the contract price doesn't deviate too far from the spot price. Normally, this fee is calculated every 8 hours, and the rate is very low. However, many altcoins now have a settlement cycle shortened to 1 hour, with rates that can charge you 2% in one hour! Just think, if they deduct dozens of points from you in a day while the price remains unchanged, you could lose everything.
Why does this happen?
Because over 70% of altcoins are high-control coins. To put it simply:
Extremely low trading volume allows market makers to manipulate price charts with a small amount of money.
Most coins are concentrated in the hands of a few addresses.
The project itself has no actual substance, relying entirely on storytelling.
The harvesting strategy of market makers is a combination of tactics:
Accumulating positions at low levels, creating hype with news, and attracting retail investors with low fees.
Suddenly launching a violent price surge to attract everyone to follow suit and go long. As more people join in, the contract price rises significantly above the spot price, and the funding rate instantly skyrockets to 1% or 2% per hour.
Staying at high levels, beginning to drain funds. The price neither rises nor falls, but the high fees are continuously deducting money from long-position retail investors until their margins are exhausted.
Dumping to harvest profits. Once retail investors are nearly drained by the fees, the market makers directly dump to release their holdings, causing a price crash and completing the final harvest.
What's even more absurd is that the market makers will arbitrage between different exchanges, creating false appearances to attract retail investors in high-fee exchanges, while simultaneously operating in the opposite way in stable-fee exchanges, making profits from both ends.
Retail investors are often cut off, mainly due to three fatal misunderstandings about funding rates:
Misunderstanding 1: Thinking that the higher the fee, the stronger the upward momentum. In fact, the opposite is true; excessively high fees often signal that the market makers are drawing in buyers and preparing to sell.
Misunderstanding 2: Believing that short-term trading can avoid fees. In reality, with short settlement cycles and large fee fluctuations, the accumulated transaction fees and costs from short-term trades can exceed your profits.
Misunderstanding 3: Thinking that shorting guarantees stable fees. In highly controlled markets, fees are typically positive (bulls pay bears), and market makers can explode the short positions at any time, making shorting extremely risky.
To summarize:
In the altcoin market, the funding rate has shifted from a balancing tool to a major source of risk. When faced with highly controlled coins and high fees, the best strategy is to stay away. If participation is necessary, one must account for fee costs in every trade and be fully aware: you are not investing in a project, but gambling at a table completely controlled by market makers, competing against those who can see your cards.
