Ethena's arbitrage positions have shrunk by over 60%, and the crypto derivatives market is experiencing a rare balance between long and short positions

Since btc-42">Bitcoin plummeted to $60,000 on February 8, the arbitrage positions of the decentralized stablecoin protocol Ethena have dropped sharply from over $2 billion to below $800 million, a decline of over 60%.

Ethena's business model relies on fulfilling the demand for counterparties from leveraged long positions in the perpetual contract market. The significant shrinkage of positions indicates that short sellers and hedgers in the market are filling roles that were originally dominated by arbitrage traders. Analyst SoskaKyle pointed out that this shift is mainly due to crypto venture capital firms and small to medium-sized projects entering the market in large numbers to hedge in order to protect treasury assets and lock in profits, resulting in crowded trades shorting various related cryptocurrencies.

Currently, the long and short positions in the derivatives market are approaching equilibrium, a state that is historically rare and difficult to sustain, suggesting that the market may be at a critical point of directional change.