What Is the Impact of a Sustained Negative Funding Rate on the Open Interest of Perpetual Swaps?

A sustained negative funding rate means that short position holders are paying long position holders. This financial incentive makes it costly to maintain a short position and profitable to hold a long position.

Over time, this pressure will incentivize short traders to close their positions and new traders to open long positions, which generally leads to a decrease in the overall short open interest and an increase in the long open interest.