<div id="readability-page-1" class="page"><div><div>Article Author: Kyle SoskaArticle Compilation: Block unicornThe crypto market has been in a risk-off state for several months, and I have been carefully studying various market data, looking for signs that the market may be turning around. In this article, I will delve into the market structure of perpetual futures and analyze market risk appetite using data provided by the Ethena Transparency Dashboard.In short: Ethena's deployed capital is at a multi-year low, only 71% of the low point in 2025. This is not a criticism of Ethena, but rather reflects the current market situation. Directional short positions are almost equal to directional long positions, which is an extremely rare and historically unsustainable balance in the cryptocurrency space.<img src="https://imageproxy.pbkrs.com/https://admin2049.chaincatcher.info/upload/image/20260309/1773050139163-412232.webp?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://admin2049.chaincatcher.info/upload/image/20260309/1773050139163-412232.webp"/>(Chart: Ethena Mechanism Illustration)According to the structure of perpetual contracts, each long contract corresponds to one short contract, with a 1:1 ratio. The open interest of each perpetual contract represents a cash flow agreement between the two parties. The exchange's role is to facilitate the matching of these contracts, ensuring that each contract always has a well-funded long and short holder. The table below illustrates the four possible outcomes of the exchange facilitating the trade. <img src="https://imageproxy.pbkrs.com/https://admin2049.chaincatcher.info/upload/image/20260309/1773050157446-638652.webp?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://admin2049.chaincatcher.info/upload/image/20260309/1773050157446-638652.webp"/><h3>Perpetual Contract Matching Matrix</h3>Each trade has a buyer and a seller. When both the buyer and seller of a contract are long or both are short, the exchange simply transfers ownership of the contract from one party 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 assuming the long position and the seller assuming the short position, increasing the open interest by one contract. ... On the other hand, if the seller goes long and the buyer goes short, the exchange can directly terminate the contracts of both parties and delete the newly released contracts, reducing the open interest by one contract. So, in a typical market, who are the actual holders of these contracts? I believe contract holders can be mainly divided into four categories: [Long] Directional Long Positions [Short] Directional Short Positions / Hedging a. Direct Asset Short Positions / Hedging b. Structured Product Hedging [Short] Basis Traders (e.g., Ethena) [Hybrid] Perpetual Contract Arbitrageurs Directional longs seek exposure. They are risk-seeking investors whose risk appetite depends on their own risk tolerance. Directional short traders include investors looking to take on downside risk as well as those seeking to hedge their assets tax-efficiently. Venture capitalists and employees paid in tokens often want to hedge tokens unlocked at current prices. In the case of altcoins, many markets have too little trading volume for effective direct hedging, or even none at all. In such cases, companies like Cumberland, Wintertermute, FalconX, Flowdesk, and Amber can build dynamically managed synthetic positions, using short selling of multiple highly correlated liquid assets like Bitcoin and Ethereum to hedge exposure to less liquid markets (such as Monad). Projects like Neutrl also employ this strategy, using such hedging as a yield strategy. Basis traders are opportunistic short sellers. They are not interested in directional risk exposure, but rather actively fill excess demand for directional long positions when market supply and demand are imbalanced. Under most market mechanisms, long demand exceeds short demand, and the role of long positions is to bridge price differences. Their position sizes are typically highly flexible. Perpetual contract arbitrageurs simultaneously hold both long and short positions in perpetual contracts. Their role is to connect different perpetual contracts and correct for any minor price discrepancies at a cost not exceeding transaction fees. Their long positions can be perfectly matched with their short positions at any given time. According to the construction, all perpetual contracts are in a 1:1 ratio, with long positions perfectly matched to short positions. Therefore, we know: Directional Long + Arbitrage Long = Directional Short + Basis Short + Arbitrage Short. Furthermore, the structure of perpetual contract arbitrage tells us: Arbitrage Long = Arbitrage Short. Canceling this term from the first equation, we get: Directional Long = Directional Short + Basis Short. Ethena provides us with a proxy indicator for all basis short positions, which helps us gain a deeper understanding of the differences between directional long and short positions. The following chart is Ethena's self-reported balance sheet, broken down by cash and deployed capital, covering the period from December 27, 2024 to March 7, 2026: (Chart: Ethena Balance Sheet 2024-2026) The decline continued during the &#34;liberation day&#34; period in the month. During this period, Ethena's deployed capital plummeted from over $5 billion to just around $1.108 billion, a drop of over 75%. It's important to note that Ethena's deployed capital can serve as a reference indicator of the extent of excess long demand in the market. While Ethena is not the only institution engaging in such trading, its sheer size (sometimes around 25% of Binance and Bybit) means that, given ample cash, they will expand their positions to meet any unmet long demand. This suggests that while total long demand may not have decreased by 75% by April 2025, excess demand not being targeted for short covering has indeed decreased by 75%. The chart below shows Ethena's balance sheet deployment relative to its total size, its lowest and highest values ​​in 2025. <img src="https://imageproxy.pbkrs.com/https://admin2049.chaincatcher.info/upload/image/20260309/1773050190078-229551.webp?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://admin2049.chaincatcher.info/upload/image/20260309/1773050190078-229551.webp"/>(Chart: Ethena Deployment Comparison)Observing the current market, Ethena's total deployment across all markets (BTC, ETH, SOL, BNB, XRP, HYPE) is only around $791 million. This is equivalent to 71% of the lowest value in 2025 and only 12.9% of the highest value before October 10th. This figure is not a negation of Ethena, but rather reflects the current market situation: net long demand is at a historical low. ... Of particular note is that Ethena deployed over $2 billion during the market crash when Bitcoin's price plummeted to $60,000. Since just one month ago, on February 8, 2026, Ethena's deployed capital has decreased by a staggering 60%! The chart below, enlarged to show Ethena's deployed capital and Bitcoin's price movement since January of this year, illustrates this point. <img src="https://imageproxy.pbkrs.com/https://admin2049.chaincatcher.info/upload/image/20260309/1773050205736-672897.webp?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://admin2049.chaincatcher.info/upload/image/20260309/1773050205736-672897.webp"/>(Chart: Ethena's Deployed Capital vs. Bitcoin Price Movement 2026)Since the price of Bitcoin fell to $60,000, Ethena's basis position has shrunk by more than 60%, from over $2 billion to less than $800 million. This change is puzzling, as the market has been relatively stable during this period.<img src="https://imageproxy.pbkrs.com/https://admin2049.chaincatcher.info/upload/image/20260309/1773050218659-762995.webp?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://admin2049.chaincatcher.info/upload/image/20260309/1773050218659-762995.webp"/>(Chart: Open Interest and Funding Rate Trends)In my opinion, the truth is mainly determined by Factor 1 and Factor 2, while the impact of Factor 3 is negligible. As shown in the chart above, during the period of Ethereum project withdrawal, the overall open interest of Bitcoin (and other major cryptocurrencies) remained relatively stable. At the same time, funding rates remained negative for an extended period, with many cryptocurrencies (such as SOL) having negative cumulative funding rates across multiple exchanges. This indicates an increasing demand in the market for shorting or hedging certain risk exposures.<img src="https://imageproxy.pbkrs.com/https://admin2049.chaincatcher.info/upload/image/20260309/1773050218659-762995.webp?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://admin2049.chaincatcher.info/upload/image/20260309/1773050218659-762995.webp"/>In my view, the truth is mainly determined by Factor 1 and Factor 2, while Factor 3 has a negligible impact.</div></div></div>

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The cryptocurrency market is currently in a risk-off state, with Ethena's deployed capital at a multi-year low, reflecting the overall market situation. The balance between directional short and long positions is historically unsustainable. Ethena's analysis of perpetual futures reveals that the market structure is characterized by a 1:1 ratio of long to short contracts, indicating a complex interplay of risk-seeking and hedging strategies among investors. The decline in Ethena's capital from over $5 billion to around $1.108 billion highlights the excess long demand in the market.

- The cryptocurrency market is currently in a risk-off state, with Ethena's deployed capital at a multi-year low, approximately 71% of the lowest point in 2025.  
- The balance between directional short and long positions in perpetual contracts is historically unsustainable, indicating a significant shift in market dynamics.  
- Ethena's decreasing capital and the negative funding rates suggest diminishing net long demand, reflecting a broader trend of increased shorting and hedging activities in response to market conditions.

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What information does Ethena's price movement reveal about the cryptocurrency market?