Polkadot futures open interest approaches $1 billion as the DOT price hits a new peak.

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Polkadot futures open interest surpassed $1 billion, surpassing Litecoin and XRP to become the third-largest futures exchange.

Polkadot’s DOT token’s price corrected by 23 percent in six hours on March 24, resulting in $174 million in liquidations across the futures market. This accelerated downturn also decreased overall open interest by 26%.

Investors may be concerned that another market collapse is on the way now that DOT’s open interest has reached a new peak of $1 billion.


DOT/USDT on Binance. Source: TradingView

Despite the fact that the incident badly harmed leveraged longs at the moment, the token rallied 46 percent in 10 days, touching an all-time high of $46. Investors soon regained optimism as a result of the explosive rise, and futures open interest has now hit a record high of $1 billion.

KwikSwap, a decentralised exchange, recently expressed interest in using Polkadot’s layer-two approach to reduce costs and improve transaction throughput. This may be some of the key factors for the rise in price and futures market open interest.

The price decline on March 24 was not exclusive to DOT, as the altcoin market capitalisation dropped 10% during that time frame. According to Cointelegraph, FUD — panic, volatility, and doubt — activities, such as the massive futures and options expiry on March 26, pressed cryptocurrency markets.

Nonetheless, DOT’s 23 percent correction was much higher than that of other altcoins, and the explanation for it may be its $844-million futures open interest on March 24. By contrast, XRP had $780 million in available interest, while Litecoin (LTC) had $662 million.

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The effect of liquidations is determined by how liquid the stocks are at the moment. DOT’s overall bids, on the other hand, seldom exceed $15 million. As a result, the $844 million open interest represented more than 50 times that amount.

Top 10 cryptocurrencies aggregate bids and asks, April 5. Source: Cryptowatch

Although there is no background for such details, Cryptowatch offers a method for aggregating exchange bids and asks. The website takes into account all measurable orders that are below 1% of the previous trade.

Using data from April 5, one can see how “illiquid” DOT’s books were in comparison to XRP and Litecoin. According to Staking Rewards results, staking processes hold 65 percent of the DOT in circulation. Whatever the explanation for the lower bids, it poses a possible danger during related liquidations.


DOT futures aggregate open interest. Source: Bybt

DOT’s futures open interest has more than doubled in the last two months, making it the second-largest options market behind Bitcoin (BTC) and Ether (ETH). As a result, investors have cause to be concerned about the liquidity effect of a sudden price collapse.

As the DOT’s futures markets mature, more liquidity can be added to the spot exchanges. Arbitrage opportunities will present themselves, and buyers will find that piling bids 5% to 10% below the price is lucrative. As a result, it could only be a matter of time before the gap between futures open interest and aggregate bids narrows to 1% below the price.

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The “flipping” of XRP and Litecoin futures open interest by DOT indicates that investors are much more interested in Polkadot’s scaling and interoperability potential than in its competitors’ more narrowly based protocols.


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