Ethena’s Capital Plunge Signals Long Demand Shortage

Ethena's capital in market-neutral strategies fell from $2 billion to $800 million, noted WuBlockchain.

The capital deployed by Ethena in market-neutral strategies plummeted from $2 billion to $800 million within a month. This was highlighted by WuBlockchain commentator SoskaKyle.

The decline began back in 2025, with a drop of over 75% from $5 billion to $1.1 billion. Contributing factors included the launch of the meme coin TRUMP and initial discussions on trade tariffs by the US.

Currently, the capital deployed in BTC, ETH, SOL, BNB, XRP, and HYPE markets stands at $791.2 million. This is 71% of last year’s minimum and 12.9% of the historical peak in October.

These data are indirectly confirmed by the decline in yield of Ethena’s synthetic stablecoin USDe. At the time of writing, the yield stands at 3.5%, compared to double digits at the start of 2025.

The asset’s capitalization has fallen from a peak of $14 billion to $5.9 billion.

The expert described the trend as unusual: during that period, the market mostly moved sideways. He identified three possible reasons:

1. Gradual closure of profitable but unstable basis trades opened after February.
2. Increased competition from directional shorts and hedgers, pushing out basis traders.
3. Weak demand for leveraged longs.

SoskaKyle believes the first two factors played a major role. Open interest in Bitcoin and other major assets remained stable overall, while positions on Ethena decreased. Simultaneously, funding rates remained negative for a long time.

What Do the Data Indicate?

Ethena implements cash-and-carry arbitrage based on perpetual futures. The platform’s mechanics allow its metrics to serve as a proxy for excess demand for longs—demand that the market cannot meet with natural short volumes.

When a trader opens a long, Ethena acts as the counterparty, opening a short and simultaneously buying an equivalent amount of the underlying asset. The higher the unmet demand for long positions, the more capital the protocol deploys.

SoskaKyle emphasized that the dynamics of accumulated capital reflect the market’s state rather than Ethena’s issues. According to him, net demand for longs is currently at a historic low.

“The market has found itself in one of the rarest configurations for cryptocurrencies: the volumes of directional long and short positions are almost equal. Theoretically, this could become the new norm. But if you look at other markets and asset classes, such balance usually doesn’t last long,” he noted.

The expert suggested that small projects like Eigen, Grass, and Monad, as well as venture funds, might have exerted pressure. They need to limit losses, lock in profits, and maintain liquidity reserves.

In his view, under such conditions, market participants more frequently use structured products that short a basket of liquid assets to hedge less liquid tokens.

The presence of such products may be indicated by sharp price spikes in Ethereum, which lead to the closing of short positions in mid- and small-cap altcoins. Another signal is the aggressive displacement of speculative basis strategies, including Ethena’s positions.

Earlier in March, CryptoQuant analyst Axel Adler Jr. recorded a record outflow of Bitcoin from exchanges.