Polkadot (DOT) is a blockchain project designed to interconnect substrings called parachains or parallel chains. Each application specific chain built within Polkadot uses the modular framework Substrate, And this is intended to facilitate the development process.
The project has been in the limelight of developers and investors for most of 2021, But the strong market correction on May 19 dealt a severe blow to the DOT price, and the team has been relatively quiet for the past two months.
On July 22, Karura Swap, the first decentralized exchange (DEX) of the Polkadot ecosystem. The project was created by Acala, a Proyect of decentralized finance (DeFi) backed by Coinbase Ventures.
In the last 24 days, DOT is up 100% to regain support at $ 20, although the price is still 58% below the high of $ 50. Currently, investors seem unsure of the direction after the $ 22 level served as resistance.
What is the difference between Polkadot and Kusama?
Polkadot refers to the entire ecosystem of parachains that connect to a single base platform known as a relay chain. This base layer provides security to the network and handles the logic of consensus, finality, and voting.
Secondly, Kusama is an early, unpolished version of Polkadot that is designed to serve as a “canarian” network to test governance, staking and sharding in real economic conditions.
Therefore, although the recently launched DEX Karura Swap does not run directly on the Polkadot blockchain, it does demonstrate its capabilities.
Derivatives data sheds light on investor sentiment
Technical analysis charts may project a bullish outlook for the DOT, but what does the derivatives data say?
For instanceIf the premium on futures contracts is non-existent, it means that investors are not comfortable creating long positions using leverage. A reduction in spot trade volume shows little interest in price at current levels. This is especially concerning after a rally like the one the DOT token has seen.
Analysis of open interest in futures contracts measures the notional currently in play. Instead of measuring the number of daily trades, it only takes into account open positions.
After reaching a maximum of USD 1.2 billion On April 17, this metric fell back to USD 340 million. Although it is much lower, it currently maintains the same levels as in early February, when DOT was also trading at $ 20.
The use of leverage has been balanced
Longs (buyers) and shorts (sellers) coincide at all times in futures contracts, but their leverage varies. Eventual imbalances are detected by the funding rate indicator and derivatives exchanges will charge the party that uses the most leverage to balance their risk.
As shown above, from mid-July to August 1, the funding rate was mostly negative, indicating that shorts were the ones that demanded the most leverage. A negative rate of 0.05% every 8 hours is equivalent to 1% weekly. However, the situation was reversed in the last two weeks, after the indicator oscillated between 0% and 0.04%, a level that is usually considered neutral.
The open interest and the financing rate do not show any signs of an uptrend from a derivatives trading point of view. There is also no sign of excessive leverage or excitement after the recent rally, which is also positive.
With both indicators currently in a neutral stance, DOT’s performance will likely depend on the evolution of its ecosystem.
The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph.com. Every investment and business move involves risk, you should do your own research when making a decision.
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