Unit 3 · Level 4 · Perpetuals & Funding
Liquidation cascades & OI
Open interest (OI) = total open perp contracts. Rising OI with rising price: new money chasing. Rising OI + extreme funding: a crowded, leveraged powder keg. When price turns against a crowded side, forced liquidations sell into falling prices, triggering MORE liquidations: the cascade. Billions can unwind in minutes.
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What you get asked
Why do liquidation cascades accelerate themselves?
Dominoes. You met this mechanism in League 4's margin unit. OI tells you how many dominoes are standing; funding tells you which direction they lean.
Match the OI + price combo to its classic read
Four combinations, one question answered: is this move NEW conviction or OLD positions unwinding? Volume analysis, leveraged edition.
A violent wick that instantly recovers usually marks a liquidation ___, not a change in fundamentals.
Forced sellers exhaust in minutes; the price snaps back once they're gone. Spot buyers with alerts near obvious liquidation clusters feast on these.
Practical defense: how does a disciplined trader position AROUND cascade risk?
You can't predict cascades; you can refuse to be a domino. Position survival > move prediction. The League 4 anthem.
Deepest read: perps data (funding, OI, liquidations) gives spot-only traders what advantage?
Even if you never touch leverage, you can see where the forced flows will come from. This is why pros watch derivatives even for spot decisions: the leveraged crowd's pain points are tomorrow's price magnets. Boss next. 🐜
The rest of this unit
Futures without expiry, the funding rubber band, cascades and hedging. Crypto's sharpest machinery.