A Bright Renaissance Stuns the Kingdom

The Castle Chronicle: Volume 20

Author

Atomist
June 08, 2023 • Est. Reading Time: 22 minutes

Meme season has finally simmered down, allowing degen capital to flow back into some very interesting small-cap DeFi projects. The exciting times may well be back on our doorstep.

Let’s get stuck in 👇️ 

 👀 What’s to Come in Volume 20

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

🔥 Hot Narratives: GMD Eco Grows, Trading Bots Storm, LSD as the Meta, and Further CEX → DEX Pressure

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

📉 HTF Price Action Scenarios from Vlad

⛓ On-Chain Sleuthing: Kang, Sifu, and Vitalik feature along with Smart Money Moves from Cl & Amir Ormu

🔬 All You Need to Know on the Bedrock Update 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

  • SEC sues Binance and Coinbase

  • Bybit exiting Canada

  • CNY stablecoin CNHC and the HKD stablecoin issuer Trust Reserve team arrested by the Chinese police for investigation

  • Hong Kong and the UAE are working together to align their approaches to cryptocurrency regulation

  • Hong Kong-based First Digital introduces USD stablecoin

  • Circle Ditched All U.S. Treasuries From $24B Reserve Fund Amid Debt Ceiling Showdown

  • Hong Kong opens crypto exchange licensing ahead of retail trading while Crypto.com gets license in Singapore

  • Brazil’s largest crypto exchange licensed as a payment institution

  • Binance’s Regulatory Woes Pave a Path for CEO Zhao’s Heir Apparent

  • JPMorgan uses blockchain for 24/7 dollar transfers with Indian banks

  • Cboe Digital approved for margined Bitcoin and Ether futures

Exploits/Updates that happened this week

Adoption is not stopping!

  • Japan’s largest airline launches NFT marketplace while their largest bank is launching a stablecoin on Eth, Polygon, Avax and Cosmos

  • Mercedes Benz Web3 Arm To Release NFT Collection With Digital Art Community Fingerprints DAO

  • Telekom announces support for Polygon infrastructure

  • Sui Network Signs Multiyear Deal With Red Bull Racing

  • GameStop partners with Telos to Grow Web3 Gaming Strategy as well as with Illuvium

  • Nike to bring its SWOOSH platform to EA Sport’s ecosystem

  • Twitch Co-Founder's Fractal Launches Tools to Help Devs Build NFT Games

Weekly DeFi Updates

Some interesting projects to look out for

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

🔥 Hot Narratives

GMD Ecosystem Continues to Grow

After the mention in the Chronicle a couple of weeks ago, GMD and its new ecosystem haven’t slowed up. The recent Ghast Protocol launch has already managed to secure ~$1.5m in TVL. Essentially, they are able to 2x your bog standard GLP yield through their money market built atop GMD (pseudo-delta-neutral strategies on yield-bearing assets).

The GMD Launchpad offering this week was Ether Wars, a GameFi platform where players battle with ETH as bets. A game of both skill and luck.

Could GameFi be making a comeback?

Revenue-Generating Trading Bots

Trading bots allowing you to trade with a click directly from telegram has taken the space by storm over the past couple of weeks. They offer several features such as protecting front-running and sandwich attacks by default, as well as making sniping launches accessible for anyone. They even make aping directly from mobile a walk in the park.

The main ones to watch:

LSDFi Will Remain Meta

One thing we can always be sure of in this current market environment is the power of yield-bearing assets, the largest pool being staked ETH. As such, LSDs likely prove to become an ongoing narrative, just like perp products.

Hunters will be on the lookout for fresh launches to ape here just like the recent Liquity forks that saw some success. This week there seems to be interest around a new ecosystem building out on top of Pendle with tokens such as Equilibria (EQB) and Penpie (PNP) popping up.

Further CEX → DEX Flow on the Way

As you will likely all be sick of me saying, the strongest narrative is the CEX to DEX flow of users and liquidity. With spot transition dominating in 2021 and 2022, we will see a similar perp drive in 2023 and beyond.

The Perpetual Narrative never fades.

💹 Macro Outlook

Previous Events

  • 3/17 BTFP Starts 👉 SPX, Gold, Crypto rally

  • 3/22 08:00 FOMC : 0.25% 👉 SPX & crypto fell, but gold rose and bond yields fell

  • 3/31 12:30 PCE Inflation : A 0.3% F 0.4% P 0.5% 👉 SPX & crypto rally on softer print

  • 4/12 18:00 FOMC Minutes : Admission of light recession towards eoy

  • 4/13 PPI : A -0.5% F 0.1% P 0.0% 👉 Large fall leads to risk-on rally

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

  • 4/28 Core PCE, Personal Income/Spending : A 0.3% F 0.3% P 0.3%

  • 5/4 03:00 FOMC : A 5.25% F 5.25% P 5% 👉 SPX sell off BTC and GOLD up

  • 5/5 12:30 Nonfarm payrolls A 253k F 180k P 165k | Unemployment Rate : A 3.4% F 3.6% P 3.5% 👉 SPX up Gold and BTC down

  • 5/10 12:30 Inflation Rate MoM : A 0.4% F 0.4% P 0.1% YoY : F 4.9% F 5% P 5% 👉 whipsaws

  • 5/25 NVDIA breaks ATHs

  • 5/26 👉 Rally sustained from NVDIA/AI momentum

    • Personal Spending/Income A 0.4% F 0.4% P 0.3% / A 0.8% F 0.4% P 0.1%

  • 5/28 Debt Ceiling resolution 👉 BTC +4.5% ETH +4.3%

  • 5/31 Debt Ceiling Vote : Passes House. Now on to majority Democrat Senate.

  • 6/1 14:00 ISM Manu PMI A 46.9 F 47

  • 6/2 12:30 Unemployment Rate A 3.7% F 3.5% P 3.4%

  • 6/5 14:00 ISM Services PMI A 50.3 F 52.1 P 51.9

Upcoming Events

  • 6/13 12:30 CPI P 5.5%

  • 6/15 FOMC P 0%

  • 6/15 Retail Sales MoM

  • 6/20 Building Permits Prel.

  • 6/30 Core PCE Price Index

  • 6/30 Personal Income / Personal Spending

  • 7/3 ISM Manufacturing PMI

BTC, ETH and Macro

  • Unemployment came in slightly hotter, but still relatively low and ISM Services came in lower than expected indicating a potentially weakening economy. There was a small decrease in the DXY increase in Gold on the news.

  • Now that the debt ceiling has been raised, the US Treasury account is being refilled. There was a $48b top-up on Monday which is the Largest since April 18th when we previously saw BTC drop -10% drop over a week.

  • FOMC will be taking place on Thursday the 15th. Currently implied probabilities are pointing towards a 75% chance of a pause in rate hikes. There could be a further pop in the SPX and NQ on the affirmation of a pause.

Crypto Options Markets

  • Referencing last week’s GEX tweet, price breaking down was exactly what options dealers were positioned for and hence there were no additional flows to push or pull prices. Dealers were more caught off-guard by the short squeeze back up towards 27k which led to short-term weekly IVs to jump past the 6-month levels.

  • Near-term IVs are showing a steep kink relative to the rest of the terms which still are not convinced this volatility will last. Dealers are still in summer-time low-volatility mode.

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

📈 HTF Price Action Scenarios

Gm frens!

  • Daily low still holding

  • Expectation still bullish

  • Re-accumulation towards daily demand is still possible

  • 8h demand absorbed (liquidity grab and quick snap back)

  • Makes sense to look for LTF longs

  • Ideally, I’d wait for a trend to form and get involved on that

  • Lots of chop around these levels

  • Not an optimal market environment for trend-following systems

  • Practice proper risk management!

Courtesy of Vlad - trend-based trader and MentFX student

⛓ On-Chain Sleuthing

Kang is Back Making Moves

Andrew Kang is long $ARB & looping it on Radiant. See movements here.

Sifu Exiting GLP & Farming Lybra (LBR)

Both his personal wallet & Sifu vision wallet have been exiting their $GLP position. (they sold their $GLP position both on ARB & AVAX)

Vitalik Selling ETH to Pay the Rent

Smart Money Moves - Tokens

  • Smart Money has accumulated $OP recently

  • In the recent week, Smart Money has shown interest in the TG bots/on-chain tools narrative.

  • Notably, Smart Money continues to interact with $GHA.

Smart Money Moves - Yield Farms

  • A new DeFi protocol called Raft has recently captured the attention of smart farmers, as it has introduced a new stablecoin known as $R, which is backed by stETH.

  • Additionally, Vesper, KyberSwap, The Granary, and Lybra Finance have remained popular among Smart farmers.

  • Level Finance's LLPs have witnessed a surge in traction over the past few weeks.

  • Asymetrix continues to be favoured by smart farmers for farming stETH.

  • Furthermore, Hermes Protocol, Velodrome, Ramses, and Chronons have consistently maintained their popularity for an extended period.

Smart Money Moves - NFTs

Smart Money has minted Pepe Analytics NFTs. Pepe Analytics is an AI analytics dashboard for memecoins that will release a token in July, offering NFT holders an opportunity to redeem their NFTs for the upcoming token.

Research and analysis by Cl & Amir Ormu

🔬 All You Need to Know on the Bedrock Update

The Bedrock update is the biggest and most awaited update of Optimism Mainnet, and the foundation of the OP Stack Modules.

What are the Main Features of Bedrock?

Lower Transaction Fees: Batching and Compressing

Bedrock improves the efficiency of how “large amounts of data posted to Ethereum” are compressed, by changing how Optimism sends data to L1 to maximize the usage of available space. The Lower Transaction fees come from transaction batching and compressing.

Batches take away ”as much extra information as possible, retaining only essential, small amounts of metadata”. 

This is how it works:

  1. Transactions are batched into “Sequencer Batches”

  2. Further compressed into “Channels”(this is the data that will be compressed and submitted on Ethereum)

  3. Channels are divided into “Channel Frames”: independent chunks of the channel data. Since the order of frames is already established, they can be submitted in parallel to Ethereum, increasing efficiency.

As a result, Optimism is able to handle large L2 transactions by sending them to L2 in parallel, through several channel frames.

This is estimated to reduce protocol costs/security fees by 47% and reduce deposit times by 70%, from 10 minutes to 3 minutes.

Minimal Code difference with Ethereum

Bedrock re-uses a lot of code from Ethereum!

From principle, it was built on purpose to have minimal difference from Geth, the most used Ethereum execution Client.

Optimism forked Geth into Op-Geth, which has only about 2500 lines of difference from Geth.

Using an established and battle-tested client:

  • Increases security;

  • Decreases attack surface;

  • Leverages Ethereum equivalence.

Making development similar to Ethereum is a fundamental component to attract high-calibre developers. Anyone building on Optimism will have minimal differences from building on Ethereum and will find it really easy to leverage the OP Stack, for instance, to build their own L2..

Multiple Clients

The implementation of the engine API enables a multi-client ecosystem, a fundamental step towards infrastructural decentralization and chain security: for instance multiple clients may catch some divergences, making the overall system more secure.

Bedrock Modularity

Arguably the most important feature of Bedrock.

1. Modular Consensus

Bedrock swaps out the consensus layer and replaces it with an OP node, allowing Optimism to reach consensus using L1 consensus and consuming raw L1 data.

Since this is just a raw stream of data, there can be new data sources added on top of it (such as off-chain sources of data, EIP-4844, etc.) which allows further modularity and scalability.

2. Modular Execution

The modularity of the OP stack makes it possible for Optimism to seamlessly switch to a ZK Rollup once the technology is ready to do so. OP will do so through “Cannon”, an execution implementation that “generate the execution trace over the client and allows to prove an execution trace” either with fault proofs or ZK Proofs.

The OP stack offers full modularity between different layers, that other L2s can combine according to their requirements:

  • Consensus Layer: how the chain gets constructed

  • Execution Layer: Virtual Machine executed over the chain of inputs

  • Settlement Layer: where withdrawals occur.

Having an upgradable and modular ecosystem is a fundamental requirement in the ever-changing landscape where L2s operate.

Optimism envisions a “Cambrian explosion” of L2s built on the OP Stack, in turn, these projects will have a choice to use the OP Sequencer.

Let’s assume that they do so, then an increasing amount of fees will be gathered by the OP Sequencers, leading to a virtuous cycle: in fact, Optimism makes pretty impressive use of game theory and incentives, with their Retroactive Public Good Funding (RPGF): a process for funding public goods for the benefit of the Collective.

Food for Thought

The Bedrock upgrade moves in several directions:

  • Lower fees

  • Modularity

  • Ethereum Compatibility

Combined, these Positive Feedback loops and incentives alignments make it much easier for developers to choose the OP Stack. This is unfortunately a point that is often overlooked, especially by other L1s and L2s that build using new Programming Languages and Libraries.

The network effect is arguably one of the key aspects that an L2 has to leverage to build a critical mass of users.

IMHO Optimism is showing a wise long-term approach focused on:

  • Improving the network for users (fewer fees)

  • Improving the network for developers (interoperability)

  • Improving the network for more projects (modularity)

It will be interesting to see how things will move forward given the big unlock that has had a negative price impact on the OP Token.

Research by Francecso - check out his Substack for all things crypto and DeFi

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

Virtually yours,

Atomist & The Castle

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