Bestowed with Riches

The Castle Chronicle: Volume 14

Author

Atomist
April 27, 2023 • Est. Reading Time: 20 minutes

Continued uncertainty in the markets this week again as price can’t yet decide where we are headed amongst several macro concerns. All eyes are on Arbitrum as we wait to see where protocols direct their ARB allocations.

Let’s get stuck in 👇️ 

 👀 What’s to Come in Volume 14

🔑 Key News: Headlines, Exploits, Continued Adoption, DeFi Updates, New Projects & more from CJ

🔥 Hot Narratives: Arbitrum Incentives and The Perpetual Narrative

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

📉 HTF Price Action Scenarios: Trend is friend from Vlad

⛓ On-Chain Sleuthing: Hayes Seeding, MUX Catching Eyes, Blur and Nova feature along with Smart Money Moves from Cl & Amir Ormu

🔬 Digesting the Biggest Paper on Zero-Knowledge from Herres

⚔️ 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

  • Coinbase plans to launch offshore exchange while Gemini is opening a derivatives platform outside the US

  • Tornado Cash dev released

  • Drama between OPNX and its investors

  • Coinbase sues SEC

  • Bybit now requires KYC

  • Binance reopens service for Russian customers

Exploits that happened this week

Adoption is not stopping!

  • Russia prepares draft law to allow crypto for international trade

  • HK court recognizes crypto as property

  • ABGN proposes a legal framework for crypto

  • First nuclear-powered BTC mining plant deploys its miners

  • Zimbabwe is creating a gold-backed digital currency

  • Changshu salaries are to be paid in CBDC starting in May

  • Romania launching institutional NFT trading platform

  • Visa focusing on stablecoin payment

Weekly DeFi Updates

Some interesting projects to look out for

  • Beam - Gaming-focused blockchain by Merit Circle and Avalanche

  • Hyperliquid - Orderbook DEX on their own chain

  • IronFish - Privacy chain which mainnet just went live

  • Carbon - AMM from Bancor which went live on ETH

  • Himalayan Protocol - Structured products on Polygon

  • Open Campus - Education platform that recently went live on Binance’s launchpad

  • Hepton - Layer-3 based infrastructure that focuses on Ethereum hyper-scale through sidechain and ZK-rollup

  • Aura Consortium - Luxury branded blockchain from LVMH and others

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

🔥 Hot Narratives

ARB Incentive Season

With the airdrop allocation for DAO dropping this week, it’s high time to keep an eye on how these protocols will use their allocation. Anticipating lots of liquidity and user incentives over the coming weeks. You can see all the airdrops and how they stack up to each project’s market cap here.

The Perpetual Narrative

As always, we have been seeing lots of activity on perp DEXs and interest around them in several communities. A few highlights from the week include:

We firmly believe these projects are here to stay and each will push the others to iterate on innovations. GMX V2 is just around the corner and could well start a new wave for the entire sector.

💹 Macro Outlook

Past Week Events

  • 4/19 TSLA(hits EPS, lots of cash), MS(hits EPS, warns of earnings-recession in banking sector)

  • 4/20 UK 👉 10.1% inflation numbers sparks sell off

  • 4/26 MSFT(beat EPS, up 5%), GOOG(beat EPS, up 1%)

Upcoming Events

  • 4/28 Core PCE, Personal Income/Spending

  • 5/1 ISM Manu PMI

  • 5/4 FOMC

BTC, ETH and Macro

There is some talk about the SPX topping as it reaches a local high. Crypto also seems to be derisking pretty heavily after a short bull run, reacting strongly to small pullbacks from equities. I’d side towards caution and keep trades short(or hedged) as the macro backdrop is still bearish in terms of falling net liquidity, falling consumer disposable income, and the weak real estate market.

Regional banks were considered generally okay but looks like First Republic Bank wasn’t part of the okay crew. The 14th largest US bank by assets falls another 40% as $100b in assets are withdrawn.

  • Regional Banks look okay? PNC, Keybank look okay. Regional banks are not systemically that important, and so risks seem overblown. They expect some loan growth.

  • GDPnow’s real-time GDP forecasts 2.5% are above the FED’s forecasts at 1.2%, showing stronger-than-expected GDP growth

  • Stagflation(similar to 1970s): Consumer spending stays strong while de-globalization trends lead to less efficient supply chains and hence higher prices.

In the longer term, Druck is confident in a short dollar trade as rates are expected to fall towards the end of the year and also in general as there are many geo-political moves trying to reduce their dependence on the dollar.

Ray Dalio, one of the most successful investors of our time released a short piece on Linkedin about how it seems like we are at the end of a large economic cycle(50-75 year cycle). He mentions how the five forces that have coincided at the end of all cycles seem to be increasing in intensity; massive money printing, civil conflict from inequality, massive geo-political conflict, acts of nature(pandemics and climate change), technological changes(computing, internet and AI). Perhaps not really that actionable, as timeframes are in years, but probably something to consider nonetheless.

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

📈 HTF Price Action Scenarios

Gm frens!

Last week’s expectation was for the 12h demand zone to be tapped and get some long setups from there.

Price dumped right through that zone without presenting any sensible long setups at all. Whenever a level doesn’t hold for the 1st time, we should always assume re-accumulation for the purpose of liquidating some late longs that have stops below obvious swing points. With that in mind, I expect price to eventually break back bullish and for the move up to continue.

My expectation, therefore, is for price to continue liquidating lows until enough fuel is re-accumulated to continue back higher. I have no idea where it will reverse, but overall for the structure to remain HTF bullish, I’d like to see it bounce at or above this daily demand zone. Any LTF bullish reversal setups are good to take here with the expectation of new highs.

Always remember - we don’t know anything. We just play the game of statistics and probability. Trend = friend and as long as HTF remains bullish, we look for reasons to be bullish.

I’m interested to see how this plays out and I’ll report again next week. See ya!

Courtesy of Vlad - trend-based trader and MentFX student

⛓ On-Chain Sleuthing

Arthur Hayes Seeding New Project?

We have recently noticed that the public GMX addy of Arthur Hayes has sent over 75,000 USDC to a newly created multi-sig. DCF GOD has also been sending USDC to this multi-sig. It seems a new hot project is raising money…

MUX Catching the Big Boys

Andrew Kang seems to be a new POWER USER of MUX Protocol. Address here. This position was open on the 24th of April but was closed yesterday. Nonetheless, interesting to see him trying out a new platform for his trades.

If Andrew Kang is a new POWER USER of MUX, DigitsDAO is a new POWER LPerrr at MUX, now with over 250k USD in MUXLP.

The $BLUR Farmooor

Some of our members that are actively trading NFT on BLUR have noticed a public addy that has been very active on the platform. This wallet has a bit more than 4500 ETH in the BLUR bidding pool which is equivalent to about 9% of the total TVL of BLUR. By analyzing his multiple actions on the platform, we have observed that most of his transactions are the product of wash trading to farm the coming airdrop. Boolish BLUR innit kek.

What's happening on Arbitrum Nova?

We have noticed a big increase in the number of TXs on the network and now the side chain has more daily transactions than Optimism itself.

DigitsDAO Takes an L on Merlin

DigitsDAO lost more than 100,000 USDT on Merlin dex Hack 24h after starting to LP into the genesis pool after also seeding the raise of the project. Address here.

Smart Money Moves - Tokens

  • Smart Money has been de-risking in the recent week (CT's Sell in May plan got front-ran) resulting in a decrease in Smart Money activity

  • Smart Money detected in $LBR, a new LSD project which launched recently

  • Smart Money sold the news on Floki's Binance US listing announcement

  • New LSD coins like $MEGA and $LSDS gained attention in the last few days but it didn't last long (the best strat was staking ETH and insta-selling the rewards)

  • Memecoins were dead for the first few days of the week but after some time Smart Money showed interest in this category again

  • Additionally, Smart Money was detected in RDPX, most likely because of the V2 news

Smart Money Moves - NFTs

  • Smart Money has been accumulating chrNFTs recently (ChronosFi)

  • Smart NFT Flippers have been selling Spartans NFTs on Arbitrum

A few Smart Money addresses minted Keynanas on Arbitrum and most of them had a FRENS LIST allowing a 0.0075 ETH mint price (PrimapesDAO)

Smart Money Moves - Farms

  • Farming LGO on LEVEL Finance has become popular among Smart Farmers

  • Farming MUXLP on MUX has been another popular option among Smart Farmers in the recent week

  • Velocimeter's rewards are still juicy and Smart Farmers are still farming on it

  • Smart Farmers are still comfy in SoliSnek and Glacier Finance farms on AVAX

  • Ramses is still popular among Arbitrum's farmers.

  • Velodrome and Hermes have emerged as one of the most popular yield farming protocols among Smart Farmers, having maintained their popularity for close to a month now

  • Smart Farmers with a higher risk tolerance briefly farmed ETH on Meth Finance ($MEGA) and Lsdswap ($LSDS), but both protocols' yields were unsustainable, leading to a quick exit by the Smart Farmers

Research and analysis by Cl & Amir Ormu

🔬 Digesting the Biggest Paper on Zero-Knowledge: Part 1

At the start of 2023, something big happened for enthusiastic researchers that wanted to upskill their knowledge on Zero-Knowledge. A supreme chad, Justin Thaler published a Stanford research manifesto called: Proofs, Arguments, and Zero-Knowledge. For some time I wanted to dive a bit deeper into the topic to get a better understanding for myself, while also taking you guys along for the ride to produce some nice insights. The format will be chapter by chapter, where some chapters will go a bit quicker than others. Do note that this paper has 19 chapters and 300+ pages of full-blown academic information, so putting this in a cropped version will also be my first try and will likely be hard, so bear with me.

Chapter 1: Introduction

The first chapter is divided into two parts and goes over the basic and more semantic questions we need to ask ourselves before we try to find which proof we actually want to use for what goal and how we’re gonna build it.

1.1 Mathematical Proofs

This section introduces the importance of mathematical proofs for validating mathematical statements and explains that proofs can take different forms and use various techniques, such as direct proof, proof by contradiction, and proof by induction. The section also presents the concept of interactive proof systems, which involve multiple parties verifying the validity of a statement, and discusses the benefits and limitations of these proof systems, including their ability to verify computations in a distributed setting and their reliance on common randomness. There are however always four properties we aim to achieve when making such a proof system:

  1. Any true statement should have convincing proof of its validity. This property is typically referred to as completeness.

  2. No false statement should have convincing proof. This property is referred to as soundness.

  3. Ideally, the verification procedure will be “efficient”. Roughly, this means that simple statements should have short (convincing) proofs that can be checked quickly.

  4. Ideally, proving should be efficient too. Roughly, this means that simple statements should have short (convincing) proofs that can be found quickly.

1.2 What kinds of non-traditional proofs will we study?

This chapter introduces the various types of non-traditional proofs that will be covered in the paper. Interactive proofs were the first type of non-traditional proof system to be discovered in the 1980s by Goldwasser, Micali, and Rackoff. These proofs were initially used to solve previously unsolvable problems, and have since found applications in verifying computations in a distributed setting. The chapter will provide a detailed analysis of interactive proofs, including their basic definitions, properties, strengths, and limitations.

Zero-knowledge proofs were discovered shortly after interactive proofs, in the late 1980s, by Goldwasser, Micali, and Rackoff. These proofs allow a prover to demonstrate the truth of a statement to a verifier without revealing any additional information beyond its truthfulness. Zero-knowledge proofs have important applications in cryptography, such as in secure authentication and digital signatures. The chapter will discuss the basic definitions, properties, and various constructions of zero-knowledge proofs, as well as some of the open problems in the field.

Witness indistinguishable proofs were discovered in the 1990s by Dwork, Naor, and Sahai. These proofs are a variant of zero-knowledge proofs that allow the prover to demonstrate the truth of a statement in a way that makes it difficult for the verifier to distinguish whether the proof is based on a true statement or a randomly generated one. These proofs have applications in cryptographic protocols that require secure computation without revealing information. The chapter will introduce the basic definitions, properties, and some of the constructions of witness indistinguishable proofs.

In summary, the main differences between these non-traditional proof systems are as follows:

  • Interactive proofs allow multiple parties to collaboratively verify the validity of a statement, while zero-knowledge proofs and witness indistinguishable proofs allow a single prover to demonstrate the truth of a statement to a verifier.

  • Zero-knowledge proofs allow the prover to demonstrate the truth of a statement without revealing any additional information beyond its truthfulness, while witness indistinguishable proofs allow the prover to demonstrate the truth of a statement in a way that makes it difficult for the verifier to distinguish whether the proof is based on a true statement or a randomly generated one.

  • Each type of proof system has its own strengths and limitations, which make them suitable for different applications in cryptography and other areas of computer science.

These proof systems were discovered in chronological order, with interactive proofs being discovered first in the 1980s, followed by zero-knowledge proofs in the late 1980s, and finally, witness indistinguishable proofs in the 1990s.

Research by Herres

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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