Cardano (ADA) is on track to continue its stellar 2021 success after setting a new all-time high. Surprisingly, this one came as a surprise given the majority of the crypto market’s decline. Cardano Price began the new year at about $0.18, but it has since ridden the current bull market to new heights.
Decentralized finance (DeFi) has undoubtedly fueled the rise of smart contract-focused cryptocurrencies, with Ethereum’s median fees soaring past $35 prompting investors to look for alternatives. The recent increase in the price of ADA is due to the impending launch of the “Alonzo Testnet” in May 2021.
The long-awaited smart contract launch has promised reduced traffic, minimal service downtime, and substantial gas savings. People are supposed to migrate from the Ethereum network to the Cardano network, putting Ethereum in a competitive position.
Higher the leverage, Higher the fees
The number of open futures contracts is measured by open interest, but these are often balanced between buyers (longs) and sellers (shorts) (shorts). As a result, the most violent liquidations occur when longs use undue leverage, and the funding rate is the only way to quantify this.
Inverse swaps are also known as perpetual contracts, and these contracts have a funding rate that changes every eight hours. When (buyers) use more leverage, this fee rises, and their balances are gradually depleted. A fee of up to 5.5% per week can be charged during a retail buying frenzy.
A funding rate of 0.30 percent per eight hours equals 6.5 percent monthly, which is a significant burden for those with long shifts.
These high funding levels are unprecedented, and stop orders will be issued quickly. That’s exactly what happened on April 17, when Bitcoin (BTC) price plummeted to $52,000, dragging the entire cryptocurrency market down with it.
On most markets, however, the existing funding rate is close to zero, showing a balanced use of leverage on the buy and sell sides. Even though open interest is increasing, there are no signs that the derivatives market could trigger an ADA price crash.