Author: Kyle Soska , Chief Investment Officer, Ramiel Capital

Compiled by: Felix, PANews

The crypto market has been in a risk-averse state for months, and Kyle Soska, Chief Investment Officer of Ramiel Capital, has been carefully analyzing various market data, looking for signs of a potential market turnaround. This article will explore the market structure of perpetual contracts and analyze market risk appetite using data from the Ethena Transparency Dashboard.

The crypto market has long been characterized by extreme asset volatility and the widespread use of high leverage by traders. Perpetual contracts have become the most traded product in the crypto space, with a trading volume 5 to 20 times that of the spot market. As the central tool for retail leverage in the market, it is logical to use perpetual contracts to gauge the risk appetite of cryptocurrencies.

In particular, Ethena offers a unique window into the crypto derivatives market. As shown in the diagram below, Ethena implements "crypto arbitrage trading." The strategy is simple: when a crypto trader goes long, Ethena acts as their counterparty by going short. Ethena then ensures that it purchases an asset of exactly the same amount as its short position.

In a sense, Ethena offers "leverage as a service." Traders who want to profit from rising cryptocurrency prices but lack funds, while Ethena has funds but limited risk tolerance, can borrow these funds from Ethena through perpetual contracts at a cost of "basis + funding rate."

 Source: ethena.fi

Under the structure of perpetual contracts, each long position corresponds to one short position, in a 1:1 ratio. Each open contract in a perpetual contract represents an 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 shows the four possible outcomes of exchange matching.

 Perpetual Contract Matrix

Every transaction involves 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 a buyer is long and a seller is short, a new contract must be created, with the buyer holding a long position and the seller holding a short position, increasing the open interest by 1. Conversely, if a seller closes a long position and a buyer closes a short position, the exchange can directly unlink the buyer and seller from the contract and delete the newly released contract, decreasing the open interest by 1.

So, in a typical market, who actually owns these contracts? I believe they mainly fall into four categories:

1. (Bull) Directional Bullish

2. (Short-selling) Directional short sellers / hedgers

a. Direct asset short positions/hedging
b. Structured product hedging

3. (Short) Basis traders (Ethena and others)

4. (Hybrid) Perpetual Contract Cross-Platform Arbitrageurs

Directional bulls seek exposure. They are risk-seeking, and their risk needs depend on their risk appetite.

Directional short positions consist of a variety of participants, including those seeking exposure to asset declines and those looking to hedge their holdings tax-efficiently. Venture capital firms (VCs) and employees of companies compensated in tokens often want to hedge unlocking tokens at current prices. In the case of altcoins, many markets are too illiquid to support effective direct hedging, or simply lack hedging instruments altogether. In such cases, companies like Cumberland, Wintertermute, FalconX, Flowdesk, and Amber can create dynamically managed synthetic positions that use short positions in related highly liquid assets like Bitcoin and Ethereum to hedge exposure in less liquid markets like Monad. This also includes projects like Neutrl, which use this type of hedging as a yield strategy.

Basis traders are speculative short sellers. They are not interested in directional exposure, but rather actively fill excess demand for directional long positions when the market is out of balance. In most market environments, long demand exceeds short demand, and their role is to fill this gap. Their ability to increase or decrease positions is typically very flexible.

Perpetual contract cross-platform arbitrageurs simultaneously hold both long and short positions in perpetual contracts. Their role is to connect different perpetual contract instruments and correct for minor price differences within the range of transaction fee costs. Their long positions are perfectly matched with their short positions at any given time.

By design, each perpetual contract is 1:1 with long positions matched with short positions, therefore:

Directional bullish position + arbitrage bullish position = Directional bearish position + basis bearish position + arbitrage bearish position

Furthermore, the structure of perpetual contract arbitrage shows that:

Arbitrage long position = Arbitrage short position

Cancel this term out of the first equation, and we get:

Directional bullish trend = Directional bearish trend + Basis bearish trend

Ethena provides a proxy indicator for all basis short positions, which helps to gain insight into the differences between directional long and short positions.

The following is Ethena's self-reported balance sheet, divided into cash and deployed capital (December 27, 2024 to March 7, 2026):

In 2025, following the launch of the $TRUMP token in January, market sentiment shifted sharply towards risk aversion, continuing its decline until the tariff negotiations in April and the eventual "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 isn't the only entity executing this trade, its sheer size (sometimes representing around 25% of Binance and Bybit) means they should be able to expand their books to cover any unmet long demand as long as they have surplus cash. This suggests that while total demand for long exposure may not have decreased by 75% by April 2025, the excess demand not being covered by directional shorts has indeed decreased.

The chart below shows the deployment of Ethena's balance sheet relative to its total size, 2025 low, and 2025 high.

Looking at the current market, Ethena's total assets deployed across all markets (BTC, ETH, SOL, BNB, XRP, HYPE) amount to only $790 million ($791,241,545.6). This is 71% of the lowest level in 2025 and only 12.9% of the highest level before October 10th. This figure is not a negative indicator for Ethena, but rather reflects the current market situation: net demand from long positions is at historically low levels.

In particular, during the market crash when Bitcoin's price plummeted to $60,000, Ethena's deployed funds exceeded $2 billion. Since February 8, 2026 (one month ago), its deployed funds have plummeted by a staggering 60%.

The enlarged chart below shows Ethena's deployed capital and the price of Bitcoin since January of this year.

Since Bitcoin dipped to $60,000, Ethena's basis positions have 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. Several explanations exist:

1. Gradual closing of profitable but unsustainable basis trades created after the February crash (the basis has moved into a favorable negative value, but the funding rate is also negative).

2. Competition from directional short sellers and hedging activities by price-insensitive participants squeezed out speculative basis traders.

3. Lack of long demand seeking leveraged exposure.

 Source: Coinglass

In my opinion, the actual situation is largely due to the combined effects of factors 1 and 2, with factor 3 having a relatively minor impact. As shown in the chart above, during Ethena's liquidation period, the overall open interest of Bitcoin (and other major cryptocurrencies) remained relatively stable. Meanwhile, funding rates have been negative for quite some time, with many cryptocurrencies, such as SOL, having negative cumulative funding rates across multiple exchanges. This indicates an increasing demand for directional shorting or hedging certain risk exposures.

In my opinion, both small crypto companies and VCs are experiencing a crisis. Consider small-cap projects like Eigen, Grass, and Monad, with hundreds of tokens, each representing dozens of VCs, a company with its own coffers and employees. VCs need to limit losses and lock in profits to meet investment objectives, while companies need to protect their cash flow and headcount. This creates a scenario where everyone is trying to extract the maximum benefit from limited resources, resulting in a relatively crowded trading format: shorting a basket of related assets through actively managed structured products.

Evidence of these structured products was seen on the day ETH experienced its explosive surge, which triggered short-covering rallies in many small and medium-sized crypto assets. Another piece of evidence was the significant crowding out of speculative basis trades like Ethena.

Whatever the reason, one thing is certain: long and short positions in the crypto market have nearly reached equilibrium, a first 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 sustained trend is rare across other asset classes and markets.

Wintermute accepts USDe as margin collateral for its OTC trades

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