Author: Kyle Soska, Chief Investment Officer of Ramiel Capital
Translation: Felix, PANews
The crypto market has been in a risk-averse state for several months. Kyle Soska, Chief Investment Officer of Ramiel Capital, has been carefully analyzing various market data to look for signs of a potential turnaround. This article explores the market structure of perpetual contracts and, combined with data from Ethena’s transparency dashboard, analyzes market risk appetite.
For a long time, the characteristics of the crypto market have included extreme asset volatility and widespread use of high leverage by traders. Perpetual contracts have become the most traded product in the crypto space, with trading volumes 5 to 20 times that of the spot market. As the center of retail leverage in the market, it is logical to gauge crypto risk appetite through perpetual contracts.
In particular, Ethena provides a unique window into the crypto derivatives market. As shown below, Ethena has implemented “crypto arbitrage trading.” This strategy is simple: when crypto traders go long, Ethena acts as the counterparty and shorts. Ethena then ensures it holds assets in exactly the same amount as its short position.
In a sense, Ethena offers “leverage as a service.” Traders want to profit from rising cryptocurrencies but lack capital, while Ethena has capital but limited risk tolerance. Therefore, traders borrow from Ethena using perpetual contracts, paying the cost via “basis + funding rate.”
Source: ethena.fi
According to the structure of perpetual contracts, each long position corresponds to a short position at a 1:1 ratio. Each open interest contract in perpetuals represents an agreement between two parties. The exchange’s role is to facilitate matching these contracts, ensuring that each contract always has sufficient capital backing both a long and a short holder. The table below shows the four possible outcomes of exchange matching.
Perpetual Contract Matrix
Every trade involves a buyer and a seller. When both the buyer and seller are either long or short, the exchange simply transfers ownership of the contract from one to the other. This transfer does not create or destroy any contracts. When the buyer is long and the seller is short, a new contract must be created, with the buyer holding a long position and the seller a short position, increasing open interest by 1. Conversely, if the seller closes their long and the buyer closes their short, the exchange can directly disassociate the buyer and seller from the contract and delete the newly released contract, decreasing open interest by 1.
So, in a typical market, who truly owns these contracts? I believe they mainly fall into four categories:
- (Long) Directional longs
- (Short) Directional shorts / Hedges
- a. Direct asset short / Hedge
- b. Structured product hedging
- (Short) Basis traders (Ethena and others)
- (Mixed) Cross-platform perpetual arbitrageurs
Directional longs seek exposure. They pursue risk, with their risk appetite depending on their preferences.
Directional shorts include various participants: those seeking downside exposure, and those hedging holdings for tax benefits. Venture capital firms (VCs) and company employees earning tokens often hedge their unlocked tokens at current prices. For altcoins, many markets are too illiquid for effective direct hedging or lack hedging tools altogether. In such cases, firms like Cumberland, Wintermute, FalconX, Flowdesk, Amber, etc., create dynamically managed synthetic positions, using short positions in highly liquid assets like Bitcoin and Ethereum to hedge exposure in low-liquidity markets like Monad. This also includes projects like Neutrl, which treat such hedging as a profit strategy.
Basis traders are speculative short-sellers. They are not interested in directional exposure but actively fill excess demand for longs during market imbalances. In most market environments, long demand exceeds short demand, and their role is to fill this gap. Their position adjustments are usually highly flexible.
Cross-platform perpetual arbitrageurs hold both long and short positions simultaneously. Their role is to connect different perpetual contracts and arbitrage within the cost scope of trading fees. Their longs are always fully matched with their shorts at any given time.
Based on the structure, each perpetual contract is 1:1, with longs matched to shorts, so:
Directional longs + Arbitrage longs = Directional shorts + Basis shorts + Arbitrage shorts
Furthermore, the structure of perpetual arbitrage shows:
Arbitrage longs = Arbitrage shorts
Canceling this from the first equation yields:
Directional longs = Directional shorts + Basis shorts
Ethena provides an indicator proxy for all basis short positions, helping to better understand the differences between directional longs and shorts.
The chart below shows Ethena’s self-reported balance sheet, divided into cash and deployed capital (from December 27, 2024, to March 7, 2026):
In 2025, after the launch of the $TRUMP token in January, market sentiment sharply shifted towards risk aversion, declining through the tariff negotiations in April and culminating in “Liberation Day.” During this period, Ethena’s deployed capital plummeted from over $5 billion to just $1.108 billion, a drop of over 75%.
It’s important to note that Ethena’s deployed capital acts as a proxy for excess long demand in the market. While Ethena is not the only entity executing such trades, its large scale (sometimes accounting for about 25% of Binance and Bybit) means that as long as they have surplus cash, they should expand their books to meet unmet long demand. This indicates that, although total long exposure demand in April 2025 may not have fallen by 75%, the excess demand not filled by directional shorts indeed decreased.
The chart below shows Ethena’s asset deployment relative to its total size, lows, and highs in 2025.
Looking at today’s market, Ethena’s deployed funds across all markets (BTC, ETH, SOL, BNB, XRP, HYPE) amount to only $790 million (791,241,545.6 USD). This is 71% of the lowest level in 2025 and just 12.9% of the peak before October 10. This figure does not imply a negative view of Ethena but reflects current market conditions: net long demand is at a historic low.
Specifically, during the market crash when Bitcoin’s price plunged below $60,000, Ethena’s deployed capital once exceeded $2 billion. Since February 8, 2026 (a month ago), its deployed capital has dropped an astonishing 60%.
The chart below zooms in on Ethena’s deployed capital and Bitcoin’s price since January this year.
Since Bitcoin fell below $60,000, Ethena’s basis positions have shrunk by over 60%, from over $2 billion to less than $800 million. This change is puzzling because the market has been relatively stable during this period. Possible explanations include:
- Gradual unwinding of profitable but unsustainable basis trades created after the February crash (basis moved to favorable negative values, but funding rates are also negative).
- Competition from directional shorts and hedging activities by price-insensitive participants, squeezing out speculative basis traders.
- Lack of long demand seeking leverage exposure.
Source: Coinglass
I believe the reality is largely a combination of factors 1 and 2, with factor 3 having less impact. As shown in the chart, during Ethena’s unwinding, the overall open interest in Bitcoin (and other major coins) remained relatively stable. Meanwhile, funding rates have been negative for a long time, with many tokens like SOL accumulating negative funding across multiple exchanges. This indicates increasing demand for directional shorts or hedging certain risk exposures.
I think small crypto firms and VCs are going through a crisis. Consider small-cap projects like Eigen, Grass, Monad—these tokens number in the hundreds, each representing dozens of VCs, treasury-holding companies, and staff. VCs need to limit losses and lock in gains to meet investment goals, while companies need to protect cash flow and staff. This creates a scenario where all parties try to extract maximum value from limited resources, resulting in a relatively crowded trading environment: actively managed structured products shorting baskets of related assets.
Evidence of these structured products appeared during the explosive rise of ETH, which triggered short covering rebounds in many small and mid-cap crypto assets. Another sign is the large-scale crowding out of speculative basis trades like Ethena’s.
Whatever the reason, it’s clear that long and short positions in the crypto market are now nearly balanced—something unprecedented in history. While there’s no reason to believe this can’t become the new normal, or that the situation needs to change, such a trend is rare when viewed across other asset classes and markets.
