Funding rates in bitcoin (BTC) perpetual futures listed worldwide crashed late Thursday after a sudden price slide put the recently popular short volatility bets at risk.

Perpetuals are futures with no expiry with a funding rate mechanism that helps tether perpetual prices to the index price. A negative funding rate suggests the dominance of bearish short positions, with shorts paying longs to keep their bets open. Positive rates indicate otherwise.

Funding rates on OKX, Deribit and Bybit crashed to -10% and more in annualized terms on Thursday, as bitcoin’s average price tanked to $25,392, according to data source Velo. Bitcoin DVOL, the Deribit Implied Volatility Index gauging expected price turbulence over 30 days, jumped from an annualized 36% to 48.5%.

Perhaps traders who shorted options in recent weeks, a popular strategy to profit from a continued volatility lull, sold perpetual futures to hedge mitigate risks from volatility spike, pushing perpetuals into a steep discount and adding to the price swoon.

“For BTC, option sellers were short too many put options, for more investors were previously bullish, selling put options to finance buying call options to reduce costs. So the sudden and unexpected price drop lead to hedging behavior, catalyzing deeper decline,” Griffin Ardern, volatility trader from crypto asset management firm Blofin, said.

Per some pseudonymous market observers on Twitter, the sharp discount in Deribit’s perpetual futures stemmed from the exchange selling perpetuals while liquidating a large short volatility position.

Deribit controls nearly 90% of the crypto options market. In other words, almost all volatility selling observed in recent weeks happened on Deribit. At one point late Thursday, Deribit’s BTC perpetual futures traded at a discount of $2,000 to the cryptocurrency’s average spot price across exchanges.

Lukk Strijers, chief commercial officer at Deribit, said the exchange has recently tweaked its liquidation policy, adding the steep discount in perpetual futures was negative funding rates worldwide.

“Previously, Deribit only auto-liquidated options positions using perpetual/futures when possible, which was a form of Delta hedging as the first step to manage risk. Since early August, directly closing options positions has been a part of the liquidation algorithm as well. That logic has been changed to liquidate with whichever instrument is causing the issue and, therefore, more effective,” Strijers told CoinDesk.