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Detecting Inconsistent Open Interest and Volume in Perpetual Swaps

Article arXiv papers · Author: Ioannis Giagkiozis et al.
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Summary

This document explains how open interest in cryptocurrency perpetual swaps relates to market activity, liquidity, and potential exchange leverage. Since outstanding contracts can indicate a minimum collateral requirement, aggregating open interest across an exchange and comparing it with proof of reserves may help assess solvency risk.

The study compares reported open interest with tick-by-tick trading data from seven liquid crypto derivatives exchanges across two periods in 2023. It finds that some large exchanges misreport open interest to differing degrees: some figures appear implausible, while other discrepancies seem consistent with delayed reporting of liquidations. The description provides no specific validation procedure or detailed exchange-by-exchange results, so the findings do not establish that every discrepancy reflects intentional misreporting.

Key ideas

  • Open interest counts outstanding derivative contracts and can inform assessments of activity and liquidity.
  • Aggregated open interest can help estimate minimum collateral needs when considered alongside proof of reserves.
  • Tick-level comparisons reveal inconsistencies in some exchanges' reported Bitcoin perpetual swap open interest.
  • Discrepancies vary and may include implausible figures or delayed liquidation updates.
  • The analysis draws on data from seven liquid derivatives exchanges over two periods in 2023.

Tags

CryptoPerpetual futuresMarket microstructureRisk management
Full text
# Reconciling Open Interest with Traded Volume in Perpetual Swaps


# Reconciling Open Interest with Traded Volume in Perpetual Swaps









Perpetual swaps are derivative contracts that allow traders to speculate on, or hedge, the price movements of cryptocurrencies. Unlike futures contracts, perpetual swaps have no settlement or expiration in the traditional sense. The funding rate acts as the mechanism that tethers the perpetual swap to its underlying with the help of arbitrageurs. Open interest, in the context of perpetual swaps and derivative contracts in general, refers to the total number of outstanding contracts at a given point in time. It is a critical metric in derivatives markets as it can provide insight into market activity, sentiment and overall liquidity. It also provides a way to estimate a lower bound on the collateral required for every cryptocurrency market on an exchange. This number, cumulated across all markets on the exchange in combination with proof of reserves, can be used to gauge whether the exchange in question operates with unsustainable levels of leverage, which could have solvency implications. We find that open interest in Bitcoin perpetual swaps is systematically misquoted by some of the largest derivatives exchanges; however, the degree varies, with some exchanges reporting open interest that is wholly implausible to others that seem to be delaying messages of forced trades, i.e., liquidations. We identify these incongruities by analyzing tick-by-tick data for two time periods in $2023$ by connecting directly to seven of the most liquid cryptocurrency derivatives exchanges.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.