Why ETH² instead of ETH
A power perpetual tracks price to a power > 1. Squeeth tracks ETH², so its instantaneous sensitivity to ETH is roughly 2× (delta ≈ 2·ETH) and it has positive gamma — moves compound in your favor whichever direction ETH goes. That convexity isn't free: longs pay a continuous funding leg to shorts so the mark price stays anchored near the ETH² index, and that funding is engineered to track realized variance, i.e. squeeth is really a bet on realized vs. implied volatility as much as on ETH's direction. Compare the funding mechanic against a regular perp funding calculator.
Reading the numbers
The raw ETH² payoff is (exit ÷ entry)² − 1 — a 10% ETH rally becomes a 21% raw squeeth gain, a 10% ETH drop becomes only an 19% raw loss (asymmetric in the holder's favor, before funding). That asymmetry is squeeth's entire value proposition over a plain 2x long.
The funding leg approximates (annualised IV)² ÷ 365 per day, charged continuously from long to short. At 70% IV that's about 0.134% per day — over a 30-day hold, roughly 4.03% comes out of the long's raw gain. If realized volatility ends up lower than the IV baked into funding, longs overpay for convexity they didn't use; if realized vol spikes, longs come out ahead of a comparable options structure.
Shorts are the mirror image: they collect that funding as compensation for selling convexity, but because the payoff is squared, a sharp rally can hurt a naked short far faster than a plain short ETH position — which is why short squeeth is usually run delta-hedged, not naked.