BALD rekt, Pintswap, Bitcoin IVs, CCIP & More

The Castle Chronicle: Volume 28

AuthorAuthorAuthorAuthor

unex, Francesco, Caroulemapoule & 0x Vlad
August 02, 2023 • Est. Reading Time: 20 minutes

Sheesh, what a week. These last couple of days truly has shown the current state of crypto and how brutal this bear market really can be.

Fear not. Better times are coming.

Let’s get stuck in 👇️ 

 👀 What’s to Come in Volume 28

🔑 Key News: FED raising rates, Richard Heart SUED, massive exploits LEETSWAP and Curve, Celo L2 proposal passed & more from CJ

🔥 Hot Narratives: $BALD rugging and Curve death spiral?? from unexployed

📈 Macro Outlook: Simplified Round-up and Implications from Hansolar

📉 HTF Price Action Scenarios: re-accumulation and sitting on the hands from Vlad

⛓ On-Chain Sleuthing: Smart Money favorite farms, $UNIBOT, $RLB, $DMT, $GNS, and PintSwap feature along with Smart Money Moves from Cl & Amir Ormu

🍕 Francesco Feature: ChainLink and the importance of CCIP from Francesco

⚔️ A Call to Arms

Think you have what it takes to enter the Castle and contribute to funding and advising projects across the space?

🔑 Key News

Major Headlines

  • FED raising interest rates by another 25 bps

  • Binance listing FDUSD by First Digital Labs in Hong Kong

  • SEC charges Quantstamp over $28 million ICO

  • US Government drops political campaign finance criminal charge against Sam Bankman-Fried

  • Missing millionaire crypto influencer found dismembered in suitcase

  • Japan Blockchain Association requests crypto tax revision

  • Binance's activities are Illegal in Nigeria while they get MVP license in Dubai

  • Crypto staking rewards must count as taxable income, IRS says

  • Richard Heart sued by SEC

  • FTX confirms plan to relaunch exchange

  • Etihad Airways 'Horizon Club' Web3 loyalty program will let you stake NFTs for miles

Exploits/Updates that happened this week

  • Palmswap exploiter returned 80% of funds

  • Kannagi on zkSync rugged for $2.13M

  • Jpegd_69 exploited for $11.4M

  • MetronomeDAO, Alchemix Fi, DeBridge Finance, Ellipsisfi and CRV/ETH pools exploited

  • Leetswap exploited for $620k

Useful Weekly Defi Updates

Some interesting projects to look out for:

  • RentApp: Pay or collect rent instantly, worldwide, with crypto

  • Highlight: Platform for creating art and culture on Ethereum

  • ZekoLabs: Layer 2 ZK Rollup ecosystem specifically designed for zero-knowledge applications (zkApps)

  • ethXY: On-chain land game with treasury that is redeemable

  • Merkly: Multifunctional Omnichain Solution

Courtesy of CJ - check out his telegram channel for daily news, projects updates and new releases

🔥 Hot Narratives

BASE: a total minefield

Base is the fulfillment of the prophecy of all exchanges having a chain. Coinbase is the latest exchanges, but also one of biggest exchanges left without a chain. Until last week.

Base is a Lyaer 2 built on the Optimism tech stack and even though it is not officially live, users are able to bridge to the chain by sending ETH to a proxy contract.

At first, the usual shenanigans took place. Developers were flocking in to launch the first Uniswap fork, the first Base Doge derivative ($DBASE), the first Pepe derivative, etc. etc. Slowly, but surely the newest on-chain casino started opening its doors.

Things took a turn on the 29th when the notorious $BALD was launched. It started as any other ordinary memecoin, this one, in particular, poking fun at the “hair” of Coinbase CEO Brian Armstrong.

$BALD deployment transactions.

The thing is. The deployer (DeBank page) kept adding liquidity as the coin was bidded up by casino participants. He added tons of liquidity, 6,700 ETH in total, and the token surged to just short of $100 million market cap. People began to speculate that this was done by Coinbase or Coinbase insiders.

Now the twist. After 24 hours the deployer pulled the rug. Removing all of the liquidity and running away with over 3,000 ETH. A crazy turn of events. All the while smaller scams and rug pulls were rampant on the Coinbase chain.

Thiccythot wrote a wonderful Twitter thread on this event for those that wish to have a more detailed insight: https://twitter.com/thiccythot_/status/1686024695865360384

To make things even more crazy. There is damning evidence that Alameda is behind this fiasco:

CRAZI. WEN BRIPTO MOVIE STARRING JONAH HILL AS SBF?!!?

Curve: DeFi is dead, long live DeFi.

Now, a minefield of rug pulls, that’s something we can survive.

You gamble some money, you win some, you lose some. Name of the game. It doesn’t hurt anybody, but the speculators involved.

Now what does hurt the broader industry is the collapse of key DeFi protocols due to the liquidation of a single user.

Over a year ago, anyone would’ve said: “Extremely unlikely to happen! DeFi is hardcoded, enforced, and works as intended. In that case, the person gets liquidated and arbitrageurs will be able to step in and take his collateral.

Well, yes, but back then the markets were way more liquid. Things are quite different now.

Let’s start from the beginning because this is brutal from the get-go.

On June 30th, coincidentally when all the BALD stuff was happening, the official Vyper Twitter account confirmed an exploitable bug in their compiler. Vyper is a programming language and like Solidity used to build smart contracts. It has been popularized by Curve.

This exploit affected Curve heavily. Five of their pools were exploited, although three were saved by MEV front runners: alETH/ETH, msETH/ETH, pETH/ETH, and CRV/ETH.

This obviously was bad press for CRV even more so as the hacker was holding a ton of CRV tokens.

Michael Egorov, the founder of Curve, has some massive loans on his CRV position. He collateralized millions of CRV and borrowed millions on Aave, Frax, and Inverse Finance. Due to the hack, he was getting into trouble and was at risk of liquidation.

His liquidation would’ve meant that CRV went to the abyss, but also had detrimental consequences for Aave. There would not have been enough liquidity for Aave to absorb Michael’s liquidation and in that case, the protocol’s Aave token would be used to pay back the debt. So, not only CRV, but also Aave would fall. This a scenario no DeFi user would wish to see.

Between the 31st of July and the 1st of August, notable names came to the rescue.

Michael made OTC deals with, among others, Justin Sun, Sifu, and Machi Big Brother (the infamous $BLUR farmer). In total, he received close to $21 million in stables and Mich was able to repay his debt on FraxLend and Aave.

Courtesy of unexployed

💹 Macro Outlook

Upcoming Events

  • 8/01 : Manu PMI

  • 8/02 : ADP Employment Report

  • 8/03 : Jobless Claims, Global Composite PMI, ISM Services PMI & AAPL/AMZN earnings

  • 8/04 : Employment Situation Report

  • 8/10 : CPI

BTC, ETH and Macro

  • After another week of deathly low volatilities, the potential contagion of the CRV bad debt situation has led BTC to take another step down to 28.8k and has returned to its eternal range of 29k.

  • DXY and US bond yields have also risen higher over the week. This could be due to the the BoJ tightening their monetary policy by increasing their YCC band by 50 bps and changing their YCC hard target to a softer range. There also seems to be a growing consensus of higher-for-longer in the bond market, also contributing to the higher yields.

    https://twitter.com/zerohedge/status/1684786231626915840?s=20

  • This weeks employment data could show signs of recession, but it does still seem that labor markets are tight. The anon macro analyst @InArteCarloDoss is expecting signs of weakness in Q3 and Q4.

    https://twitter.com/INArteCarloDoss/status/1685978869658963969

Crypto Options Markets

  • With only 10 days until Ark’s SEC approval decision and a fairly strong reaction from the 28.8k level, we may finally see some volatility from BTC. With IVs (implied volatility) at historical lows and the prolonged ranging price action could lead to some fomo into the event. Key gamma level for BTC to really take off is 32k.

    The yellow line shows the Implied Volatility. Decision time soon?

Courtesy of Hansolar - check out his telegram chat for all things options, crypto and DeFi

📈 HTF Price Action Scenarios

Gm frens!

This week’s outlook is exactly the same as last week’s, as nothing major has happened. Price is still correcting the most recent impulse to the upside and is inside the daily demand zone.

I am waiting for some bullish setups from this zone on the LTF. If those don’t happen, there is nothing to do but sit on the sidelines.

Remember, you can outperform the majority of the market by knowing when to sit on your hands.

  • Re-accumulation playing out

  • Price in the daily demand zone

  • Looking to follow new momentum to the upside

I wouldn’t be surprised to see some lows liquidated before the continuation up via re-accumulation, but at no point would I be looking to short this market.

Trade responsibly and I’ll see y’all next week.

Courtesy of Vlad - trend-based trader and MentFX student

⛓ On-Chain Sleuthing

Arca cutting $GNS

Hedge fund Arca, one we have covered in the past, has been cutting its $GNS position by 2/3rd (more or less). Selling 121k $GNS tokens via Binance.

It seems that the folks at Arca think the launch of GMX V2 is bearish for Gains Network. They still hold 44k tokens (around $200k).

Arca’s DeBank page [only visible for (free) subs]

DigitsDAO bidding $RLB and $UNIBOT

Punting some $RLB.

Acquired some $UNIBOT recently too.

You can see the holding value of both tokens for the DAO below.

Digits DAO’s DeBank page [only visible for (free) subs]

PintSwap NFT launch

The mint for PintSwap’s NFT collection happened on the 1st of August and a total of 1000 coupons were mintable. Similar to PepeAI Analytics, these NFTs will be redeemable for tokens.

Their product is an OTC marketplace for memecoins with zero slippage and zero taxes.

The two biggest NFT holders of this collection are:

A lot of Smart Money was among the minters.

NFTs will be converted to tokens at TGE.

Smart Money Farms

• Velodrome V2 continues its dominance on Optimism.

• Tarot has been still favored by smart farmers.

• Extra Finance has been popular among Optimism farmers.

• Lodestar has caught the attention of smart farmers as well.

• Maverick has been popular among smart farmers too.

• Aura and Raft have maintained their popularity among smart farmers for a long time now (Raft has no token yet, so maybe a good airdrop opportunity).

Research and analysis by Cl & Amir Ormu

🍕 Francesco Feature

The importance of the CCIP for Chainlink cannot be overstated.

The team has been working for over 3 years on the CCIP, which is like 5 centuries in the crypto time continuum.

What is Chainlink CCIP?

At its core, the CCIP is an interoperability protocol with the purpose of:

  • Facilitate cross-chain real-world assets

  • Scale cross-chain ecosystems

  • Bridge private and public blockchains

  • Enable token transfers across different blockchains

  • Assist in the creation of cross-chain applications

It is not just a fancy word for a bridge to move tokens, but a protocol focused on communication and messaging.

With CCIP you will be able to launch one single smart contract composed of multiple on-chain contracts, and multiple off-chain services, providing both bridging in the form of communication and the ability to get data and do trust-minimized off-chain computing.

You’ll be able to leverage some chains for their security guarantees, others for their speed or scalability guarantees, and yet more chains as storefronts.

Imagine how easy would be for developers to deploy tokens or mint NFTs across tens of networks and for users to have a much better wallet UX that abstracts different networks.

Think about the countless development hours saved by not having to build custom multi-chain solutions.

In fact, the introduction of CCIP can substantially reduce development times, making them much closer to Web2: quicker, and cost-efficient.

Contracts will be able to send each other messages to use their services and tokens across contacts with minimal additional work, giving rise to cross-chain smart contracts that are enabled by highly-validated data and bolstered by the ability to leverage advance computations to provide clear cryptographic guarantees to users.

Aside from being powered by Chainlink DONs, the CCIP leverages additional security via the Active Risk Management (ARM) Network, a secondary validation service that enhances the security of CCIP by identifying and stopping malicious and anomalous activity.

The Active Risk Management (ARM) network is made of on-chain and off-chain components.

The ARM can either “bless” or “curse” a message by reconstructing a transaction's history (Merkle root) and comparing it with the one DON commits.

If they match, the ARM node "blesses" the root.

However, discrepancies lead to the ARM "cursing" the system, halting operations until any issues are addressed.

As such the ARM network is an additional security guarantee that allows the CCIP to add an extra level of security to cross-chain transactions.

A Variety of Cross-chain Use Cases

Some of the use cases enabled by the CCIP include:

  • Cross-chain lending: lend and borrow a wide range of crypto assets across multiple DeFi platforms running on independent chains;

  • Low-cost transaction computation: offload the computation of transaction data on cost-optimized chains;

  • Optimizing cross-chain yield: move collateral to new DeFi protocols to maximize yield across chains;

  • Creating new kinds of dApps: developers can take advantage of network effects on certain chains while harnessing compute and storage capabilities of other chains;

  • Cross-chain transfers: seamlessly transfer assets and data across blockchains;

  • Cross-development and collaboration between developers: cross-chain dApps;

Research by Francesco

Thanks for reading, please give us a follow at Castle Capital and subscribe to The Castle Chronicle for an update each week!

Virtually yours,

Atomist & The Castle

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