Key takeaways:
- Ether derivatives indicators are taking a heavily bearish stance as cascading liquidations cut off the rebound.
- Critical ZCash bug detected by artificial intelligence sparks widespread fears of contagion, sending Ethereum TVL prices crashing.
Ether (ETH) fell to a 13-month low of $1,540 on Friday, following a downtrend in the broader cryptocurrency market. Traders are now concerned about a deeper price correction given the weakness in ETH derivatives benchmarks and increased risk following the discovery of a bug in the Zcash blockchain.
ETH perpetual futures annual funding rate. Source: Lightness
The one-year funding rate for Ether futures turned negative on Friday, indicating increased demand for low positions. Even with ETH trading 67% below its all-time high in August 2025, bulls’ confidence was shaken after $1.28 billion in leveraged long positions were liquidated in 5 days.
Premium put-to-call indicator in ETH options at Deribit. source: Laevitas
Demand for downside price protection surged as the premium for call options on the Deribit ETH platform rose to 3.7 times on Friday. Since Monday, the indicator has consistently shown excess demand for puts. Low confidence among holders fuels uncertainty, giving bears an basic path to take control.
ETH Price Followed Zcash: Why?
The severe decline in Total Value Locked (TVL) on the Ethereum network to its lowest level since February 2024 also negatively impacted investor sentiment. Smaller deposits in decentralized applications (DApps) tend to reduce ecosystem revenues, ultimately reducing demand for ETH usage in sharp contracts.
Ethereum DApps Network Total Value Locked, USD. source: DefiLlama
Some of the top DApps on Ethereum experienced severe TVL declines, including Spark (-50%), Ether.fi (-49%), EigenCloud (-41%), and KernelDAO (-39%). Part of the shift away from sharp contracts can be attributed to a critical enabling security vulnerability unlimited ZEC beat in the largest zero knowledge pool ZCash. The bug was found on May 29 using Anthropic’s Opus 4.8 AI model.
Given that the ZCash bug has existed since 2022 and no one has ever detected it, investors are concerned that other blockchains and sharp contracts could also be at risk. Advances in AI-based security failure detection have put investors on high alert, especially after cryptocurrency hacks in April it amounted to USD 630 million.
The $293 million KelpDAO hack and a $280 million Drift Protocol exploit accounted for 82% of monthly losses across 25 protocols, sparking panic in the decentralized finance (DeFi) industry. The breaches occurred on multiple networks, including Ethereum, Solana, Base, BNB Chain, Sui, and PulseChain.
Percentage of ETH supply in profit since last move. Source: Glass knot
Currently, only 30% of the ETH supply is profitable compared to the date these coins were last transferred. This setup has only happened a few times in history, with the most recent example being the pandemic crash in mid-March 2020. Previously, this robust buy signal also appeared in mid-December 2019, preceding a 118% rally in 60 days.
Related: FG Nexus Lands Extra $17.8M in Ether as Losses Surpass $100M
With over $500 million in leveraged long positions in ETH liquidated in 48 hours, there is no sign of a rebound. Ethereum’s largest treasury company, Bitmine (BMNR US), suffers an unprecedented unrealized loss of $10.5 billion as the company holds 4.5% of the total ETH supply.
ETH could fall further below $1,550 as investor confidence declines amid multiple hacks in the DeFi industry and an inflation bug discovered in the protected Zcash protocol.
