Ethena Capital Plunges 60% in a Month, Signaling Historic Low in Long Demand

Ethena's deployed capital sees sharp decline

Capital deployed by the Ethena protocol in market-neutral strategies has dropped roughly 60% over the past month, falling from $2 billion to $800 million. The trend was highlighted by WuBlockchain observer SoskaKyle.

The drawdown actually began in 2025, when deployed capital fell more than 75% — from $5 billion to $1.1 billion. At that time, the broader market shifted into a risk-off mode following the launch of the TRUMP meme coin and early discussions about U.S. trade tariffs.

As of now, total deployed capital across BTC, ETH, SOL, BNB, XRP, and HYPE markets stands at $791.2 million — just 71% of last year's minimum and only 12.9% of the all-time high recorded in October.

Why this matters

Ethena operates a cash-and-carry arbitrage strategy based on perpetual futures. When a trader opens a long position, Ethena acts as the counterparty by opening a short while simultaneously purchasing an equivalent amount of the underlying asset. This makes Ethena's deployed capital a useful proxy for excess long demand — demand the market cannot absorb through its natural supply of short positions.

The collapse of this metric suggests that net long demand has reached historically low levels. According to SoskaKyle, the data reflects the overall state of the market rather than any issues specific to the Ethena protocol itself.

USDe yield and market cap under pressure

Supporting evidence comes from the declining yield on Ethena's synthetic stablecoin USDe. The current yield stands at just 3.5%, compared to double-digit figures at the start of 2025. Meanwhile, USDe's market capitalization has fallen from a peak of $14 billion to $5.9 billion.

Three drivers behind the capital outflow

The analyst described the situation as unusual, given that the market had largely been trading sideways during the period. He identified three potential causes:

• Gradual unwinding of profitable but unsustainable basis trades opened after February.
• Increased competition from directional shorts and hedgers crowding out basis traders.
• Weak demand for leveraged long positions.

SoskaKyle attributed the primary impact to the first two factors. Open interest in Bitcoin and other major assets remained relatively stable even as Ethena positions were being reduced. Funding rates, meanwhile, stayed negative for an extended period.

A rare market configuration

SoskaKyle pointed to an exceptionally rare crypto market configuration: directional long and short volumes have nearly equalized. He acknowledged this could theoretically become a new norm, but noted that based on experience from other markets and asset classes, such equilibrium rarely persists for long.

Additional selling pressure may have come from smaller projects like Eigen, Grass, and Monad, as well as from venture capital funds. These participants need to limit losses, lock in profits, and maintain liquidity reserves. Under these conditions, they tend to deploy structured products that short baskets of liquid assets to hedge exposure to less liquid tokens.

Signs of such products include sudden Ethereum price spikes that trigger short squeezes in mid- and small-cap altcoins. Another indicator is the aggressive displacement of speculative basis strategies, including those operated by Ethena.