What Is the Relationship between Open Interest and Funding Rate Magnitude during Volatility?

High open interest (the total number of outstanding contracts) during periods of high volatility can amplify the funding rate's magnitude. If the open interest is heavily skewed towards one side (e.g. many more long positions), the pressure on the contract price to deviate from the spot price is greater.

The funding rate must become very high to counteract this large, imbalanced open interest and incentivize a price correction.