Polkadot (DOT) is a blockchain project designed to interconnect sub-chains called parallel chains or parachains. Each application-specific chain built within Polkadot uses the Substrate modular structure, and this is intended to facilitate the development process.
The project has been in the spotlight of developers and investors for most of 2021, but the sharp market-wide correction on May 19 dealt a heavy 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) in the Polkadot ecosystem, was launched. The project was created by Acala, a decentralized finance (DeFi) project supported by Coinbase Ventures.
Over the past 24 days, the DOT has risen 100% to regain $20 support, although the price is still 58% below the $50 high. 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 the relay chain. This base layer provides security for the network and handles consensus, purpose, and voting logic.
On the other hand, Kusama is an early, unrefined version of Polkadot that was designed to serve as a “canary” network to test governance, staking and fragmentation under real economic conditions.
So even though the newly released Karura Swap DEX isn’t running directly on the Polkadot blockchain, it proves its capabilities.
Derivatives data sheds light on investor sentiment
Technical analysis charts may be projecting an optimistic viewpoint for the DOT, but what does the derivative data say?
For example, if the premium on futures contracts is non-existent, it means that investors are not comfortable creating long positions using leverage. A reduction in the volume of regular spot exchange shows little interest in the price at current levels. This is especially worrisome after a rally like the one seen at DOT.
Analysis of the open interest on future contracts measures the notional currently in play. Instead of measuring how many trades per day, it only takes into account open positions.
After peaking at $1.2 billion on April 17, this metric retraced to $340 million. Albeit much smaller, it holds the same levels seen in early February, when DOT was currently also trading at $20.
Leverage has been balanced
Longs (buyers) and shorts (sellers) are always combined into futures contracts, but their leverage varies. Any imbalances are detected by the funding rate indicator and derivatives exchanges will charge the side that is using the most leverage to balance its risk.
As shown above, from mid-July to August 1, the funding rate was mostly negative, indicating that short positions were the ones that required the most leverage. A negative rate of 0.05% every 8 hours is equivalent to 1% per week. However, the situation reversed in the last two weeks after the indicator fluctuated between 0% and 0.04%, a level generally considered neutral.
The open interest rate and the financing rate show no signs of rising from a derivatives trading point of view. There are also no signs of excessive leverage or enthusiasm after the recent rally, which is also positive.
With both indicators currently exhibiting a neutral stance, the performance of the DOT will likely depend on the development of its ecosystem.
The views and opinions expressed herein are those of the author alone and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You must conduct your own research when making a decision.
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