Fortified Atop The Highest Peak

The Castle Chronicle: Volume 7

Author

Atomist
March 08, 2023 • Est. Reading Time: 20 minutes

A brand-new look for The Castle Chronicle this week, we hope you like it as much as we do!

A relatively quiet market all-in-all this week with very low volatility across most majors. As always though, there have been opportunities if you look hard enough.

Let’s get stuck in 👇️ 

 👀 What’s to Come in Volume 7

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

🔥 Hot Narratives: L2 Season, Forever Perps, GambleFi, DFK on Arbi?! and Shibarium Hype

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

📉 HTF Price Action Scenarios: Nothing New in Low Volatility Range from Vlad

💰 Trade Wins: LIX, Slurping Dips, and Sniping Socks

⛓ On-Chain Sleuthing: CryptoCondom, Arca, Defi Mochi, and GCR feature along with Smart Money Moves from Cl & Amir Ormu

🔬 The Era of Hybrid Rollups is Upon Us from Herres

🔬Yuga Labs Finally Release TwelveFold on Bitcoin from Francesco

🔑 Key News

Nishad Singh (ex FTX director) pleading guilty is something I’m sure everyone is happy to see, and while MtGox repayments are starting this month, it’s mostly over-exaggerated on CT.

ERC4337 is live on mainnet, bringing account abstraction to the table which I’ll take given that ETH withdrawals are delayed to April.

Some of the negative news

Exploits that happened this week

Adoption is not stopping!

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

L2 Season Continues

Following the news of the Base L2 launch, Arbitrum and Optimism continue to march forward in both TVL and transactions per day. In fact, Optimism is now $100m away from overtaking the sidechain of Polygon.

Source: Defillama

Perps Catch Bids Again and Again

Whenever the market gives us a pullback, it’s a great time to look for which alts hold and catch early bids to hold and bounce off of supports. Time and time again we see high revenue perp protocols deliver in this arena — #RealYield from an in-demand market sector is always a safe bet it seems.

GambleFi Set For New Valuations?

With the upcoming launch of Winr Protocol on Camelot’s launch pad, we may well see another huge raise — although the terms are much more ‘fair’ and should discourage huge early apes through a number of requirements. What I’m interested to see here is FOMO after launch from those on the outside pushing up valuations. This in turn may allow other lower cap, possibly more innovative projects also rise with the tide.

DFK on Arbitrum?!

MIND Games ($CRX) has taken many an alfa group by storm this week, making a cool 10x for early apes in a matter of days. And even after that, it still looks like it has legs to actually create something worth looking at…

Shibarium Pamping

With Shibarium L2 around the corner, we are seeing a plethora of Shib/Dog-themed projects launched all over the space. In fact, there are so many that they are almost impossible to filter. If you’d like a new theme to gamble on in your own shitcoin casino, look no further!

💹 Macro Outlook

Past Week Events

  • 03/1 15:00 ISM Manufacturing PMI(Feb)

    • Actual 47.7 (Fore. 48 Prev. 47.4)

  • 03/1 TSLA Investor day & Master plan release

    • TSLA down -1.43%

  • 03/2 13:30 Initial Jobless Claims: Fore. 197k Prev. 192k

    • Actual 190k Fore. 197k Prev. 192k. Jobs market looking pretty okay.

  • 03/2 21:00 Fed Waller Speaks

    • If the next few data reports “continue to come in too hot, the policy target range will have to be raised this year, even more, to ensure that we do not lose the momentum that was in place before the data for January were released.”

    • Yields continue to climb

  • 03/3 13:30 ISM Non-Manu. PMI(Feb)

    • Actual 54.5 Fore. 54.5 Prev. 55.2

  • 03/3 20:00 FOMC member Bowman speaks

    • Non-voting member states he believes rate hikes should be 25bps, leads to upwards gamma squeeze

  • 3/8 Powell Speech

    • Acknowledges sticky and high inflation; states the potential need for higher rates for longer

    • 2Y bond yields increase 2%, SPX falls 1.6%, BTC and crypto also fall

    • Probability for March 0.5% rate hike increases from 30% to 60% overnight

Upcoming Events

  • 3/10 02:30 BoJ Interest Rate Decision

  • 3/10 13:30 US Jobs Report - Nonfarm payrolls & Unemployment Rate

  • 3/14 12:30 CPI

  • 3/22 FOMC: 0.25% vs 0.5% that is the question (probability: 30% vs 70%)

  • 3/31 PCE Inflation

BTC and Macro

#bigflip

An important theme in macro over the past few months has been the #bigflip framework. This is a framework first brought up by anon macro analyst @INArteCarloDoss, which stated that the bonds market was pricing the fed interest rates incorrectly; he deemed that the shorter-term bond yields were too low. This was due to the general consensus that the market expected the fed to lower rates once the economy starts sputtering. However, the economy is in fact much stronger than the market thought and is currently well withstanding one of the fastest rate hikes in modern history.

Record low ETH IV levels

Option markets use IV(implied volatility) or expected volatility levels to price options, and ETH has recently been around the lowest in a long time. As prices have been coming down, IV has also been falling which may be interpreted as dealers in the options market expecting a slow bleed downwards(because they are hedged towards the downside). Some Twitter commentary can be found here.

This can also be interpreted as a good time to long volatility. DeFi already has a number of options that offer ways to long vol.

  • Hegic : Long straddles or strangles

  • Dopex : Long straddles or strangles

  • Lyra : Manually buy calls and puts

  • CVI : Long vol indicies

  • Squeeth : ETH squared product. This is closer to long calls, which have the advantage of convexity

  • Rysk (soon): Launching trading this month

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

📈 HTF Price Action Scenarios

Hello, frens!

This one is gonna be a quick one as literally, nothing has changed from last week in terms of structure.

We are still in the same daily supply zone trying to find arguments for continued bullishness. That argument is the 4h demand zone.

Last week we got the 1st tap of the demand zone and I started looking for some longs already. We now re-visited the demand zone and we can see some clear sideways movement. For the sake of bullishness, we will anticipate accumulations and look for longs from here once we get our confirmation.

For now, I want to see a 2nd break to the upside and I’ll start following that trend. For as long as the 4h demand isn’t broken I’m bullish. Once the 4h demand breaks I’ll be sidelined again for a while before potentially hopping on the shorts!

See y’all next week!

Courtesy of Vlad - trend-based trader and MentFX student

💰 Member Trade Wins

Jimmy Bluebags Nearly Caught a 40x Bagger

Tom Has Been Busy Slurping Dips

CJ Scooping Dumps and Sniping Socks

⛓ On-Chain Sleuthing

Crypto Condom Love Story with UMAMI has Another Chapter

We have seen our fren CC buying back some of his UMAMI bag in recent days. Who knows, maybe the DAO and CC will save the project

Arca Selling CANTO Bag

The hedge fund has been exiting its CANTO position this week.

Defi_Mochi Analyses On-Chain CEX Wallet Profitability 💀 

After reading Mochi’s recent thread on an ‘Arbitrum Whale’s’ edge and profitability, The Castle quickly uncovered it belonged to MEXC exchange (lol). Adding to the excitement, CryptoKaduna even posted the same wallet previously on Twitter as PsyOps.

GCR Offloading Funds from Binance

GCR just withdrew 30m USDT from Binance, stating the end of alt season as his reason to cease high volumes of trading. Interesting to see him wanting to keep inactive funds on-chain and away from a CEX. Will he move them back when he sees peak opportunity again?

Smart Money Moves - Tokens

  • Many SM addresses bought small chunks of $CRX (they didn't have conviction at the time)

  • Some of them rotated into $PSI because of the GameFi narrative ($CRX hype)

  • SM detected in $PLS too, lining up with their bribe market ramp-up (PLS v2)

Smart Money Moves - NFTs

  • Many SM addresses swept SchizoPosters

  • A few SM addresses bought KP machines too, possibly due to their utility for the project's next mint

Research and analysis by Cl & Amir Ormu

🔬 The Era of Hybrid Rollups is Upon Us

In June 2022 Vitalik tweeted an ideal way to make a hybrid rollup. It utilises components of the Optimistic Rollup (OR) and the Zero-Knowledge Rollup (ZKR). Currently, most users are transacting on ORs due to their compatibility with the EVM, such as Arbitrum and Optimism. It makes it easier for developers to launch dApps and for users to have a better experience. The disadvantage of current ORs however, is that it takes 7 days to bridge back from L2 to L1. A by-effect of this 7-day window is that recursivity of proofs cannot happen. Recursivity basically means that we do the same thing over and over again (making validity proofs) to reduce the size of data within the proof. Therefore, recursivity can only happen in validity proofs due to their fast finality — these are used in ZKRs, but not in ORs, which utilise fraud proofs.

Vitalik’s solution always falls back on the fraud proof if needed, so it only enhances performance at times of non-disputes. It also enhances complexity as a majority of the consensus and proofs used (2/3) have to have consensus in case of a dispute. This is still a huge development, as finality can be improved towards 24 hours. However, with 24-hour finalisation, recursivity is still not possible. The solution means that we can bring down finality towards 24 hours instead of 7 days, while also guaranteeing that an attacker has to break 2 of the 3: fault proof, validity proof or consensus — arguably stronger than just a 7-day interactive window of a fault proof.

Recursivity

Why is recursivity so important? Recursivity in validity proofs can lead to hyper scaling. By making a new validity proof of 2 other validity proofs you can compress data and verify even more computations (to a certain extent). For efficient L3s, we need efficient L2s called settlement rollups, which are just designed to settle all executions that happen on multiple L3s. This next phase, however, will still take some years but is in my opinion the archnemesis of ORs. Hence, the pivot of most ORs to a hybrid (or even preparing for a full ZKR) solution is to get their finality closer to that of a validity proof. It is, however, easier to bootstrap and gain early mover advantage for ORs (as we are seeing). Be prepared for the rollup adoption race to start a new phase.

Concluding Thoughts

It will be cool to see how the development of ORs towards ZKRs or other hybrid solutions in between will come to fruition. I do think ZKRs are the final product of rollups but the ORs currently have a way better PMF (product-market fit) and there still is a lot of time left to develop. Then again, EIP-4844 is arguably better for Fraud Proofs so there might come some tug-of-wars regarding the adoption of different rollup designs. One hope for the future is that current ORs do not have to pay too much for transitioning to a fully efficient validity-proof model (ZKR).

Research by Herres

🔬 Yuga Labs Release TwelveFold

Yuga Labs finally released TwelveFold this week, a limited collection of 300 generative pieces inscribed as ordinals on the Bitcoin blockchain. This will be a self-standing collection and will not have other utility related to the Ethereum-based Yuga projects. The 288 pieces have been auctioned in a 24-hour window from March 5th to the 6th. This was a particular auction, as it was held in BTC. Users had to use two different wallets to send the bid and receive the asset in case of winning. 
Furthermore, the auction was rather centralized, as all bids were effectively sent to Yuga’s wallet with the promise that they would send them back if not winning. Some users have pointed out their disappointment, arguing that Yuga has established a bad precedent, since they are basically “taking custody of bidders’ bitcoin with a promise to send back unsuccessful bids”.

The Twelvefold ordinals were awarded to the 288 highest successful bidders at the conclusion of the auction. The minimum bid to win a Twelvefold has been 2.25 BTC, more than 50k. It will be interesting to follow the expansion of Ordinals, and if other companies will follow in Yuga’s footsteps. If so, Bitcoin could become the new home for luxury NFTs.

Research by Francesco

🧵 Castle Content

CJ on Altitude

SniperMonke Shows His Threading Skills

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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