Key conclusions:
- Ether derivatives metrics are turning sharply bearish as cascading liquidations interrupt the recovery.
- ZCash Critical Bug Discovered by AI Sparks Widespread Contagion Fears, Fueling Ethereum TVL Decline.
Ether (ETH) fell to a 13-month low of $1,540 on Friday, following a bearish trend in the broader cryptocurrency market. Traders now fear a deeper price correction, given the weakness in ETH derivatives metrics and increased risk after a bug was found in the Zcash blockchain.
ETH perpetual futures annual funding rate. Source: Easiness
The annual Ether futures funding rate turned negative on Friday, indicating increased demand for short positions. Even with ETH trading 67% below its all-time high of August 2025, confidence among bulls has been shaken after $1.28 billion of long bullion contracts were liquidated over 5 days.
ETH options premium put-to-call ratio on Deribit. Source: Laevitas
Demand for downside protection increased as the Deribit ETH option put-to-call premium jumped to 3.7 times on Friday. The indicator has consistently shown excess demand for put (sell) options since Monday. Weak belief among holders fosters insecurity, giving the bears an easy path to take control.
ETH Price Followed Zcash: Why?
A severe drop in Ethereum’s Total Value Locked (TVL) to its lowest level since February 2024 also weighed on trader sentiment. Smaller deposits in decentralized applications (DApps) tend to reduce ecosystem revenues, which ultimately reduces the demand for using ETH in smart contracts.
Ethereum Network DApps Total Value Locked, USD. Source: DefiLlama
Some of Ethereum’s top DApps experienced severe TVL contractions, including Spark (-50%), Ether.fi (-49%), EigenCloud (-41%), and KernelDAO (-39%). Part of the exodus from smart contracts can be attributed to allowing a critical vulnerability unlimited ZEC coinage in the largest ZCash zero-knowledge pool. The bug was found on May 29 using Anthropic’s Opus 4.8 AI model.
Given that the ZCash bug has existed since 2022 without anyone discovering it, traders fear that other blockchains and smart contracts could also be compromised. Advances in AI-driven security breach detection have put investors on alert, especially after cryptocurrency hacking in April amounted to 630 million dollars.
The $293 million KelpDAO hack and the $280 million Drift Protocol exploit accounted for 82% of monthly losses across 25 protocols, causing panic in the decentralized finance (DeFi) industry. The hack occurred on multiple networks, including Ethereum, Solana, Base, BNB Chain, Sui, and PulseChain.
Percentage of ETH supply in profit since last move. Source: Glass node
Currently only 30% of the ETH supply is profitable compared to when these coins were last moved. This setup has only happened a few times in history, the most recent being the COVID-induced crash in mid-March 2020. Prior to that, this strong buy signal also appeared in mid-December 2019, preceding a 118% rally within 60 days.
Related: FG Nexus Releases Additional $17.8M in Ether as Losses Exceed $100M
With over $500 million of long leveraged ETH positions liquidated in 48 hours, there is no sign of recovery. The largest Ethereum treasury, Bitmine (BMNR US), has an unprecedented $10.5 billion unrealized loss, as the company holds 4.5% of the entire ETH supply.
ETH could slide further below $1,550 as investor confidence declines following multiple hacks in the DeFi industry and an inflation bug found in the proprietary Zcash protocol.
