With the explosive growth in trading volume of derivatives for major cryptocurrencies such as Bitcoin, market participants urgently need an indicator tool that can accurately quantify and provide early warnings of systemic risks. The CoinGlass Derivatives Risk Index (CDRI) was created in this context. By integrating multi-dimensional derivatives market data, it offers market participants a standardized risk assessment framework. CDRI not only provides a real-time reflection of market leverage usage and trading sentiment, but more importantly, it can warn of potential systemic liquidation risks, helping investors make more rational decisions in the complex and ever-changing cryptocurrency derivatives market.
What is the CoinGlass Derivatives Risk Index (CDRI)?
The CoinGlass Derivatives Risk Index (CDRI) is a standardized market risk scoring model developed by the CoinGlass research team. It aims to quantitatively reflect the current level of leverage usage, trading sentiment heat, and systemic liquidation risk in the crypto derivatives market. The index adopts a standardized scoring system ranging from 0 to 100, with higher values indicating that the market is approaching an overheated or fragile state. The design philosophy of CDRI is based on an in-depth analysis of the unique risk characteristics of the cryptocurrency derivatives market. Unlike traditional financial markets, the crypto market features 24/7 trading, high volatility, and high leverage, making it difficult for traditional risk assessment models to accurately capture the true state of market risk.
CDRI divides market risk into four levels, each corresponding to different market conditions and strategic recommendations:
Low Risk (0-30): The market is calm, leverage usage is conservative. It is recommended to moderately increase positions, with greater strategy flexibility.
Neutral Volatility (30-60): The market structure is healthy and sentiment is moderate. Continue with regular trading strategies.
High Risk (60-80): Leverage is piling up, sentiment is extreme or speculation is on the rise. It is advised to reduce exposure and increase stop-loss sensitivity.
Extreme Risk (80-100): Excessive leverage/FOMO, a surge in forced liquidation risk. Focus on defense and avoid short-term high-risk trades.
What are the Advantages of CDRI?
Compared to the traditional Fear & Greed Index, CDRI can better reflect current market sentiment and overheating risks. The traditional Fear & Greed Index is composed of six data sources: volatility (25%), market momentum/trading volume (25%), social media (15%), market surveys (15%), dominance (10%), and Google Trends (10%). It mainly measures the overall sentiment of the market, determining whether investors are overly optimistic or pessimistic. In contrast, CDRI focuses on structural risks in the cryptocurrency market by incorporating derivatives data, assessing leverage usage, liquidation risk, and market overheating. This makes CDRI more suitable for risk control and position management than the Fear & Greed Index. While the traditional index reflects current sentiment, it may lag behind actual price movements. CDRI, on the other hand, emphasizes forward-looking risk warnings, issuing alerts when market structure deteriorates—even if prices are still rising, it may indicate a high-risk state.
CDRI constructs a comprehensive market risk profile by analyzing seven key indicators:
Total Open Interest
Open interest reflects the overall leverage in the market. When OI rises rapidly, risk accumulates quickly. According to CoinGlass data, the USD-denominated open interest of Bitcoin perpetual contracts can effectively measure the amount of capital flowing into the market.
Funding Rate
The funding rate reflects changes in the cost of long and short positions. Extreme positive or negative rates often accompany sharp market reversals. When bullish sentiment prevails, the funding rate is positive and longs pay shorts; when bearish sentiment is strong, the rate is negative.
Average Leverage Multiple
This indicator reflects traders' risk appetite, including differences in leverage usage between retail and institutional players. High leverage amplifies returns but also significantly increases liquidation risk.
Long/Short Ratio Deviation
Measures the degree of directional crowding in the market. When the ratio is extremely skewed (e.g., 90% long), it indicates potential concentrated liquidation risk. This indicator effectively identifies extreme market sentiment.
Implied Volatility
Reflects market expectations for future volatility. High volatility means increased uncertainty and impact risk. This is especially important in the options market.
24-Hour Liquidation Volume
A surge in daily liquidation volume is often a precursor to systemic risk release. Historically, large-scale liquidations have been accompanied by sharp market swings.
Trading Volume Heat Change
A recent surge in trading volume indicates FOMO or panic sentiment. Abnormal volume changes often signal a market turning point.
Summary
As an innovative risk assessment tool for the cryptocurrency derivatives market developed by CoinGlass, the CoinGlass Derivatives Risk Index (CDRI) provides valuable risk management references for market participants through multi-dimensional data integration and a standardized scoring system. In the increasingly complex digital asset derivatives market, CDRI not only helps investors identify potential risks but, more importantly, offers quantitative support for rational decision-making.
