A volatility reading answers one question: how much movement is the market pricing. Open interest and funding answer another: how much leverage is in place, and which side is paying for it. Each is half a picture. Put together they sort a market into four states.
Low volatility, heavy leverage
Price is calm, open interest is high and one side is paying to hold. This is the fragile calm. Positions were opened when daily moves were small, so their liquidation prices sit close in terms of what a livelier market would cover. If volatility returns, there is a lot to force. The state says nothing about when.
High volatility, heavy leverage
Price is moving hard and leverage has not left. Holders are paying funding and absorbing swings to stay in. Liquidation flow is the tell here. If it is steady and one-sided, that side is being carried out a piece at a time. This is the most active of the four states and the most expensive one to be wrong in.
High volatility, light leverage
This is often the market just after a flush. Open interest has dropped, funding has reset, and price is still jumpy. With less leverage, moves come from spot buying and selling more than from forced closes. They can still be large. They are less likely to feed on themselves. What a market looks like in this phase is covered in deleveraging events and what follows.
Low volatility, light leverage
Nothing is moving and nobody is positioned. Funding rests, open interest is flat or falling, liquidations are background noise. There is little to read, and saying so is the correct read. That case gets its own treatment in when positioning says nothing.
What the grid does not do
It does not point up or down. Heavy leverage can be long or short, and funding’s sign says which side pays, not which side wins. It also does not blend venues. Funding and open interest are read per venue, for the reasons in why funding is never blended across venues. A coin can be crowded on one venue and neutral on another.
And high or low only means something against that coin’s own past. A reading that is high for bitcoin may be ordinary for a small coin. The regime view in volatility regimes in crypto applies to both axes.
Where to see it
The NoVo Crypto Market Map puts the two axes on one screen: a volatility index reading, and beside it open interest, funding per venue and 24-hour liquidation flow. Dr. NoVo, the Financial Markets Super Intelligence, reads which of the four states the numbers describe. He does not turn the state into a forecast.