Stellar (XLM) Plummets as Open Interest Craters by $200M – What’s Next?

Stellar's price takes a nosedive as traders flee—$200 million in open interest vanishes overnight. Was it overleveraged hype or just another Tuesday in crypto?

The Great Unwind: XLM's derivatives market bleeds out as speculators hit the exits. No fancy narratives here—just cold, hard liquidation.

Market Whiplash: The drop comes amid broader crypto volatility, proving once again that 'stablecoins' are the only oxymoron more ridiculous than 'institutional-grade DeFi.'

Will Stellar's payment-focused blockchain regain traction? Or is this the start of a deeper correction? Either way, the charts don't lie—even if the whitepapers sometimes do.

Protocol 23 Upgrade: A Potential Game-Changer?

Stellar’s upcoming Protocol 23 upgrade is designed to enhance smart contract capabilities and improve transaction speeds and costs. These changes could make Stellar more attractive to developers and institutions. One notable development tied to the upgrade is PayPal’s PYUSD stablecoin, which is expected to be introduced on the Stellar blockchain following the network improvements.

The testnet version of the upgrade has already been deployed, with the validator vote scheduled for August 26, 2025. If the vote passes, the update will proceed to the Stellar Mainnet on September 3. This timeline gives traders and investors something to watch closely. A positive outcome could help XLM regain buying interest after its recent slide.

Traders Pull Back as Open Interest Plunges

One of the clearest signs of waning confidence in XLM is the sharp decline in open interest (OI) over the past two weeks. According to data from CoinGlass, XLM’s OI peaked at $588.33 million on July 18 — the same day the price hit an annual high of $0.5206. Since then, OI has dropped by over $237 million, currently sitting at $351.13 million.

This drop indicates that many futures and options traders have exited their positions, possibly expecting further downside. Lower open interest usually signals decreased trading activity and reduced confidence in price growth.

XLM Faces Wedge Breakdown Risk on the Charts

From a technical analysis perspective, XLM is showing signs of weakness. The price is currently testing the 200-period Exponential Moving Average (EMA) on the 4-hour chart, located around $0.3862. A decisive close below this level could open the door for more losses in the NEAR term.

The Relative Strength Index (RSI) on the same chart is at 31, which signals increasing selling pressure and a potential MOVE into oversold territory. Meanwhile, the Moving Average Convergence Divergence (MACD) indicator is showing larger red histogram bars, suggesting growing bearish momentum.

A key pattern that has formed on the chart is a descending wedge, created by two converging trendlines. The resistance trendline connects the July 18 and July 27 highs, while the support trendline links the lows of July 15 and July 24. If the price breaks below this wedge, it could spark a sharper drop in the coming days.

Price Targets if Breakdown Continues

If XLM closes below the 200-period EMA and the support trendline, the next key support lies around $0.3732. A continued decline could then test the S2 pivot level at $0.3533, followed by a deeper dip toward the S3 pivot level at $0.3056. These levels represent important areas to watch for potential buyer interest or further sell-offs.

Is There Upside Potential?

Despite the bearish outlook, there is still some hope for a rebound. If XLM manages to hold above the 200-period EMA, it could mount a short-term recovery. A bounce from current levels might take the price back up to the 100-period EMA at $0.4187, a potential resistance area.

The upcoming Protocol 23 vote also adds a LAYER of anticipation. If the upgrade is approved, the improved network performance and support from projects like PYUSD could encourage new buying activity and revive investor interest in XLM.

Conclusion

Stellar (XLM) is facing critical technical and sentiment-based challenges as the price trends lower. The sharp drop in open interest reflects growing caution among traders, while technical indicators point toward a possible breakdown from a wedge pattern.

However, the Protocol 23 upgrade offers a glimmer of hope. If the upgrade proceeds smoothly and delivers on its promises, XLM may recover some of its recent losses. Until then, investors should closely monitor key price levels and upcoming validator decisions, particularly on August 26 and September 3, for potential market-moving developments.