The 60% decline in Ethena's capital indicated a lack of demand for longs - ForkLog: cryptocurrencies, AI, singularity, the future

The decline of Ethena’s capital by 60% indicates a demand deficit for longs.

The amount of capital involved in Ethena’s market-neutral strategies dropped from $2 billion to $800 million over the month. This was noted by WuBlockchain analyst SoskaKyle.

The decline began as early as 2025. During that period, it fell more than 75% — from $5 billion to $1.1 billion. Negative factors included the launch of the meme coin TRUMP and the first discussions of trade tariffs by the US.

Currently, the total capital engaged in markets for BTC, ETH, SOL, BNB, XRP, and HYPE amounts to $791.2 million. This is 71% of last year’s minimum and 12.9% of the October all-time high.

Source: WuBlockchain Indirectly, these data confirm the decline in the yield of Ethena’s synthetic stablecoin USDe. At the time of writing, the rate is 3.5%, compared to double digits at the beginning of 2025.

The asset’s market cap has plummeted from a peak of $14 billion to $5.9 billion.

Source: DefiLlama An expert described the trend as unusual: during that period, the market mostly moved sideways. He highlighted three possible reasons:

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

SoskaKyle believes that the first two factors played the main role. Open interest in Bitcoin and other major assets remained generally stable while Ethena’s positions shrank. At the same time, funding rates had been in negative territory for a long time.

What do the data indicate?

Ethena implements a 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 cover with natural short volume.

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

Source: WuBlockchain SoskaKyle emphasized that the accumulated capital dynamics reflect more on the market condition than on Ethena’s issues. According to him, net demand for longs is currently at a historic low.

“The market is in one of the rarest configurations for cryptocurrencies: the volumes of targeted long and short positions are nearly equal. Theoretically, this could become the new normal. But looking at other markets and asset classes, such balance usually doesn’t last long,” he noted.

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

He believes that, under such conditions, market participants more often use structured products that short a basket of liquid assets to hedge less liquid tokens.

Signs of such products include sharp price swings 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 positions.

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