Ethena's capital has fallen sharply by 60% due to diminished demand for long positions, reflecting broader market challenges.
Ethena's capital allocated to market-neutral strategies has sharply dropped from $2 billion to $800 million within the last month, revealing a significant decrease in demand for long positions, as reported by analyst SoskaKyle from WuBlockchain.
This downturn has roots in 2025, during which Ethena's capital plunged over 75% from a high of $5 billion to $1.1 billion, coinciding with a market shift initiated by the launch of the TRUMP meme coin and discussions surrounding U.S. trade tariffs.
Currently, Ethena has deployed approximately $791.2 million across key markets including BTC, ETH, and SOL, which represents just 71% of its lowest amount from the previous year and only 12.9% of its peak seen in October.
Further compounding the issue, the yield on Ethena's synthetic stablecoin, USDe, has dropped to 3.5%, down from earlier double-digit yields in 2025. Alongside this, the market capitalization of the asset has decreased from $14 billion to $5.9 billion, according to DefiLlama.
SoskaKyle noted that the unusual trend could be attributed to three main factors: the winding down of profitable but unstable basis trades established after February, heightened competition from shorts and hedgers, and a notable weakness in demand for leveraged longs.
He suggested the first two factors significantly influenced the current situation, as open interest in Bitcoin and other major cryptocurrencies has remained stable while Ethena's positions have been reduced. Additionally, funding rates have stayed negative for an extended period.
Market Dynamics Unveiled
Ethena's cash-and-carry arbitrage strategy using perpetual futures means that its metrics can effectively indicate exceedance in demand for long positions, highlighting dissatisfaction in the existing short volumes.
The platform functions by taking on short positions for traders who go long, signaling that unmet demand for longs results in increased capital deployment by the protocol.
SoskaKyle pointed out that the current capital accumulation trend is a reflection of market conditions, rather than a fault of Ethena. He commented on the historically low net demand for longs, stating, “The market has entered one of the rarest configurations for cryptocurrencies: the volumes of directed long and short positions are nearly equal.”
He further speculated that pressure on the market may be stemming from smaller projects and venture funds that are trying to minimize losses and protect liquidity, leading participants to favor structured products that hedge against liquid assets. This context could explain the erratic price movements in Ethereum and the adjustments seen in mid- and small-cap altcoins.
Moreover, CryptoQuant analyst Axel Adler recently noted significant Bitcoin outflows from exchanges, suggesting a shift in market dynamics.
