Open interest is a count of contracts outstanding. It rises when new positions are opened on both sides and falls when they are closed. On its own, a rising number tells you participation is increasing; what makes it interesting is what price did while that happened.
Rising open interest, flat price
This is compression. New longs and new shorts are being added at roughly the same prices, which means the two sides disagree and neither is being forced out. The exposure is accumulating without resolution.
It matters because the accumulated exposure has to go somewhere eventually. A market that has spent three days building positions in a range has more fuel for a move out of that range than one that arrived at the same price with flat open interest.
Falling open interest, flat price
The opposite. Positions are being closed without price moving, which usually means the market is being de-risked ahead of something — an event, a weekend, an expiry — or that interest is simply draining. This is a market with less stored energy than it had, and moves out of it tend to be less violent.
Read it with funding
Open interest says how much exposure exists. Funding says which side is paying to hold it. Rising open interest with funding drifting steadily to one side is compression with a lean, and the lean is the side that gets hurt if the range breaks the other way.
Rising open interest with funding near zero is compression with genuine two-way disagreement, which is less predictable and often precedes larger moves.
The trap
Open interest quoted in contracts rather than notional will change when price does, without any position being opened or closed. Check which unit you are reading before drawing conclusions from a rise.