A Golden Dynasty

The Castle Chronicle: Volume 12

Author

Atomist
April 13, 2023 • Est. Reading Time: 18 minutes

All eyes have been on the Shanghai upgrade this week which just clocked successfully a few hours ago. This successful event tied in with BTC breaking $30k and a favourable CPI print means exciting times may well be coming to the risk-on markets.

Let’s get stuck in 👇️ 

 👀 What’s to Come in Volume 12

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

🔥 Hot Narratives: Shanghai Complete and Casinos Dead?

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

📉 HTF Price Action Scenarios: Bullish Until Invalidated from Vlad

⛓ On-Chain Sleuthing: feature along with Smart Money Moves from Cl & Amir Ormu

🔬 EIP-4337 - The New Mempool for Account Abstraction from Herres

🔑 Key News

Elon went on a rampage this past week, changing the Twitter logo to DOGE and removing it after a few day while Cobie tweeted a sha256 which said “Interpol Red Notice for CZ”, sending markets into turmoil. Apparently, the Chinese social media site Douyin added a Bitcoin price feature on their app, only to get taken down a day later.

Meanwhile, Saylor bought more BTC and is finally in profit overall while people found Bitcoin’s whitepaper hidden in their macOS amidst Bitcoin surging to $30k!

Some of the negative news

Exploit updates this week

Adoption is not stopping!

  • S&P Global looking for a Defi Director

  • BTG launched its own stablecoin via Mynt

  • Avalanche partners with Korea’s SK Planet

  • Japan Ministry releases whitepaper for promoting web3 growth

  • Bank of England building a CBDC team

  • Montenegro bank building CBDC with Ripple

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

Shanghai Complete

The Ethereum network upgrade, Shanghai, was completed just a few hours ago. Everything looks to be running smoothly pre-, during and post-upgrade. See the network stats, ETH flows, and LSD mints here.

The big question coming out of this is will liquid staking derivatives (LSDs) continue to catch a bid or has their time come to an end. Although the strength of the narrative may well fade post-Shanghai, we will be keeping a close eye on ETH unstaking from the Beacon chain, and whether this newly freed ETH is deposited into LSD protocols for increased APR.

The big three to watch are Lido (LDO), Rocketpool (RPL) and Frax (FXS). Other smaller caps in need of your attention are Redacted (BTRFLY), Pendle Fi (PENDLE), Unsheth (USH), and Agility (AGI).

Casino Deadzone

Casinos have almost entirely left the attention span of CT and the wider space. If you really want to be successful riding narratives, it’s times like these when you should be searching for positions, not when it’s on Twitter. We see casinos and gambling having a good product-market fit in crypto. The real question you need to be asking is which projects have a good enough product to disrupt the space and which anon teams can you trust in order to build conviction in your bag. We have our eyes on one or two who are continuing to build and are getting their communication and marketing strategies in place.

💹 Macro Outlook

Past Week Events

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

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

  • 3/23 FED’s Balance sheet : DW down, BTFP up, FIMA increased to 60b

  • 3/31 12:30 PCE Inflation : Act 0.3% Fore 0.4% Prev 0.5% : SPX & crypto rally on softer print

  • 4/3 OPEC+ announces surprise oil output cuts : Oil spikes 7%, bonds yields rise and DXY falls

  • 4/3 23:00 ISM Manufacturing PMI : Act 46.3 Fore 47.5 Prev 47.7

  • 4/5 14:00 ISM Non-Manu PMI : Act 51.2 Fore 54.5 Prev 55.1

  • 4/7 12:30 Nonfarm Payrolls : Act 236k Fore 238k Prev 311k

  • 4/7 12:30 Unemployment Rate : Act 3.5% Fore 3.6% Prev 3.6%

Upcoming Events

  • 4/12 12:30 CPI(MoM) : Fore 0.2% Prev 0.4% Core CPI Fore 0.4% Prev 0.5%

  • 4/12 18:00 FOMC Minutes

  • 4/12 23:30 ETH Shanghai Fork

  • 4/13 12:30 PPI yoy Fore 3.0% Core 3.4% | mom Fore 0.0% Core 0.3%

  • 4/19 TSLA

  • 4/25 GOOG

  • 4/27 MSFT

BTC, ETH and Macro

The consensus seems to be that inflation will be sticky. Services make up the majority(+70%) of core inflation and services tend to be sticky.

  • Current estimates for YoY is 5.22% and core is 5.66%

    • Lower is bullish for BTC

    • Higher is bearish for BTC

(Consider the price action from the previous CPI print on the 31st of March)

Regional bank fears have died down and the FED balance sheet is shrinking week over week. The FED will continue to keep rates high as long as inflation stays high, which will continue to slow the economy until something materially breaks. Current weak areas in the economy seem to be commercial real estate, savings (disposable spending runs out during summer) and income (jobs yet to drop).

Option Markets

Mixed gamma plot for BTC. Negative gamma below 30k could indicate a quick slide if we start trending downward.

ETH positive gamma at 1800 means it can work as support and 2000-2300 shows negative gamma, which can get squeezed up towards this level.

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

📈 HTF Price Action Scenarios

Gm frens!

Ever since the 12h demand was tapped we chased the longs with the expectation to reach the 2k level. Price is well on its way there and the plan remains the same as last week.

Once the demand zone of a bullish range is tapped we’re looking for ways to jump onto new LTF bullish trends. Most recently we saw the creation of this rather big 4h demand zone from which I was looking to jump onto longs after the 1st signs of LTF bullishness (in this case the 1h).

The expectation here is for price to continue liquidating highs and make its way to the 2k level. If price was to lose a level here, we still assume re-accumulation and look to get involved in new bullish setups.

It’s bullish until invalidated and BTFD time! Exciting times.

That’s a wrap! See y’all next week.

Courtesy of Vlad - trend-based trader and MentFX student

⛓ On-Chain Sleuthing

Topic #1

Ethersole took some profit on some of his Seizon NFT bag. The Arbitrum influencer/PLS lead still holds over 20 of those.

REMILIO Surging

The REMILIO NFT collection has recently experienced a massive increase in price and volume. One of the biggest holders of this collection is here. This NFT Twitter anon holds more than 100 REMILIO.

Amber Group Liquidating ARB

Amber Group seems to have liquidated his $ARB bag. Sent on different CEX over the course of last weeks. See wallet here.

The group still holds his GMX position as of the 11th of April. The wallet remains the 6th biggest GMX holder on Arbitrum (unstaked).

A GBC Dumpooor

“kojsoihsoishsoj” on Opensea has been dumping some of his GBCs below the floor, creating downward pressure on prices in recent days. The wallet still holds 45 $GBC.

Smart Money Moves - Tokens

  • Recent Smart Money activities have indicated a notable interest in certain tokens, including $AGI (Agility), a new LSD-based project.

  • Additionally, Smart Money has been detected in $HZN too, a bet on the rapidly-growing RWA (real-world assets) narrative

Smart Money Moves - NFTs

Regarding NFTs, GCR recently has made the following transactions:

  • Sold 189 Miladys with an average price of 1.93 ETH per Milady

  • The remaining Miladys were staked on NFTX, which totalled 300 Miladys

  • Furthermore, GCR acquired a new Milady NFT for a purchase price of 3.6 ETH, demonstrating his interest in Miladys!

  • Recent Smart Money activities have shown interest in Spartan NFTs, a collection of NFTs built on Arbitrum by SpartaDex (It is worth noting that many discussions and threads regarding this project may be sponsored or paid promotions)

Smart Money Moves - Farms

Here are some popular yield farming protocols among smart farmers:

  • Velodrome on Optimism

  • Sonne Finance on Optimism

  • RAMSES on Arbitrum

  • Sterling Finance on Arbitrum

  • MareFinance on Kava

  • Velocimeter on Canto 🔥

Research and analysis by Cl & Amir Ormu

🔬 EIP-4337 - The New Mempool for Account Abstraction

What is EIP-4337 and how does it work?

4337 is just a number, but it is an Ethereum Improvement Proposal (EIP) to enhance the ability to perform account abstraction on Ethereum. Account abstraction means making wallets (EOAs) into smart contracts. This has multiple benefits which we will talk about later, but its primary addition will be UX improvement. The account abstraction proposal introduces a new way to handle transactions without changing the underlying protocol. Instead of changing the current transaction type, the proposal suggests creating a new type of transaction object called a "UserOperation". Users send these UserOperations to a different mempool than regular transactions. A special group of people called "bundlers" put together a bunch of these UserOperations and send them as a regular transaction to be added to a block. The bundlers can either be block builders or users who send their transactions to block builders through a marketplace. Below is an infographic given that shows the flow actions of EIP-4337 and was made by Jarrod Watts.

Infographic on how the flow of actions of EIP-4337 happen

EIP-4337 introduces several new specifications. Given below are the 5 definitions of the new specifications:

  1. UserOperation: Sends a transaction on behalf of a user. This is not defined as a transaction to avoid confusion.

  2. Sender: The account contract sending UserOperations

  3. EntryPoint: A contract to execute bundles of UserOperations

  4. Bundler: A node that bundles multiple UserOperations and creates an EntryPoint.handleOps transaction

  5. Aggregator: A helper contract trusted by accounts to validate an aggregated signature

More specifics of how each of these specifications work can be found in the documentation of EIP-4337.

Why EIP-4337?

The intro touched upon the multiple benefits account abstraction can create. But what are some of the motivations for implementing EIP-4337?

The four main motivations for implementing EIP-4337 are:

  1. Achieve Account Abstraction: Allow the use of smart contract wallets with arbitrary verification logic instead of EOAs as the primary account.

  2. Decentralization

    1. Allow any bundler to participate in the process of including account-abstracted user operations

    2. Avoid trust assumptions of bundlers

    3. Work together with all activity happening over a public mempool

  3. No Ethereum consensus changes: The Ethereum consensus layer development team can’t focus on Account Abstraction as all resources are used in other improvements and developments such as scaling features (EIP-4844) and the merge. To increase the chance of faster adoption, this EIP avoids consensus changes.

  4. Support other use cases

    1. Privacy-preserving applications

    2. Atomic multi-operations

    3. Pay tx fee with ERC-20 tokens.

    4. Support aggregated signature (e.g. BLS)

Apart from the motivations there also are many benefits to introducing Account Abstraction. It gives enhanced privacy and security by improving user experience, lowers transaction fees and allows easier smart contract development as the security is enhanced for developers.

Improving EIP-4337 and Closing Thoughts

Once an EIP has been proposed it isn’t finished. This means that priorities have to be chosen based on discussion. Currently, there are a couple of points that need attention within EIP-4337. The weakest point is the lack of wallet clients for using ERC-4337. Currently, there exist 8 bundler clients in active development, four of which seem to have passed the “test” for the Ethereum Foundation. The mempools of the clients at the moment are still operating privately, while work on the peer-to-peer pool is being performed. A couple of Contract Accounts in development also show that developers are adopting or at least playing with it. Regarding the UserOperations, it is still difficult to build them. There are a couple of SDKs making it easier. Pace is dropping a bit though, which can be seen on the dune dashboard John Rising made, as the hype around the EIP has quieted down. Let the real building phase commence!

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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