Dogecoin’s derivatives market is busier than ever after prices surged after Twitter decided earlier this week to replace its blue bird logo with an image of a Shiba Inu dog.
Open interest (OI) in stablecoin-margined Dogecoin (DOGE) futures contracts surged to nearly 6 billion DOGE tokens Tuesday night, data from Coinanlyze shows, setting a record high. That equates to $600 million worth of Dogecoin in unsettled futures positions on Wednesday.
The previous high for stablecoin margin contracts was five billion DOGE tokens in November 2021, which was then valued at over $1 billion. Stablecoin-margined contracts are settled in tokens like Tether (USDT).
Meanwhile, coin-margin contracts on Dogecoin — which settled in other assets like bitcoin rather than stablecoins — recorded over $55 million in total open interest on Wednesday.
Stablecoin or fiat margin futures offer a linear payout as the value of the collateral remains constant regardless of the overall market trend. Meanwhile, coin margin contracts offer a non-linear payout and are more prone to liquidations as the trader suffers a loss on both the security and the futures contract when the market goes against their bet.
As such, stablecoin margin contracts are better suited for risk-averse traders and for hedging, while coin margin contracts are favored by aggressive traders, especially during bull runs.
OI refers to the number of unsettled contracts or the net amount of positions opened by traders on financial derivative instruments that track an underlying asset. This can be used to determine the market strength behind a recent price trend – suggesting upcoming market volatility rather than prices being flat.
Data shows that funding rates, or a fee paid by leveraged traders to stay in a futures position, average +0.01% on cryptocurrency exchange Binance, which has the highest open interest among peers, and one similar fee for Bybit. Prices on OKX fluctuate between -0.04% and +0.02%. Positive interest rates imply that leverage is skewed on the bullish side.
Funding installments are periodic payments made by traders based on the difference between prices in the futures and spot markets. Depending on their open positions, traders either pay or receive funds. The payments ensure that there are always participants on both sides of the trade.
Participants employ sophisticated strategies to raise funding rates while hedging losses due to token movements.
Meanwhile, Coinalyze analysts told CoinDesk that current open interest rate levels indicate high volumes of leveraged bets on Dogecoin.
“Most likely we will see more liquidators,” the firm said, suggesting that the Dogecoin market could experience severe volatility in the near-term.
As a result, some say the current move is unlikely to last.
“Meme coin pumps may indicate bullishness among retailers in general. However, this is not indicative of a long-term trend, as we can see from the huge DOGE spike of 2021 and massive drop shortly after,” François Cluzeau, head of commerce at Flowdesk, told CoinDesk in a Telegram message.
“The stable upward momentum of Bitcoin also correlates with this. There’s a certain trickle-down effect that follows the no. 1 cryptocurrency. This is also partly because many are using their meme coin bets with bitcoin,” Cluzeau added.
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