Oppression in the Kingdom

The Castle Chronicle: Volume 11

Author

Atomist
April 05, 2023 • Est. Reading Time: 19 minutes

Well, the dust didn’t settle for long as we had a bit of a whirlwind week with lots of drama. The focus on our side was around the AIP-1 fiasco (Arbitrum DAO’s first improvement proposal). You can see our full response here and why we abstained from voting on a completely flawed proposal with respect to the entire governance process.

In other news, we have several confluences for ETH to $2,000 in the various sections below.

Let’s get armoured up ⚔️

 👀 What’s to Come in Volume 11

🔑 Key News: More zk Launches, ARB Drama, CZ FUD, Other Headlines, Exploits, Continued Adoption, DeFi Updates, New Projects & more from CJ

🔥 Hot Narratives: LSD Dose Wearing Off, ARB Fumble, and DEX > CEX

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

📈 HTF Price Action Scenarios: ETH to $2,000 from Vlad

⛓ On-Chain Sleuthing: ARCA, ARB, GMX OG, GBCs, and Terraform labs feature along with Smart Money Moves from Cl & Amir Ormu

🔬 

from Herres

🔑 Key News

Consensys zkEVM Linea went live shortly after Polygon’s and zkSync’s. FTX customers received emails from FTX about claims. Drama flies around CT as Arbitrum’s first governance proposal goes live which received heavy backlash although things settled down after the team’s update.

Some of the negative news

  • CFTC filed a lawsuit against CZ and here was his response

  • Disney fires its metaverse team

  • Denmark declares Bitcoin tax

  • Bittrex shuts down US exchange,

  • US Gov dumping BTC from Silk Road

  • Japan flags 4 CEXs for operating without registration

Exploits that happened this week

Adoption is not stopping!

Weekly DeFi Updates

Some interesting projects to look out for

  • Cega Fi: Exotic options structured product vaults

  • Linea Build: Consensys’s zkEVM

  • Yama Finance: Went live recently, omnichain stablecoin with GLP leverage vaults

  • Pikapool: NFT mempool

  • MeOnEthereum: Magic Eden’s ETH marketplace

  • Peanut Protocol: Wallet address infrastructure

  • Delv Tech: Element Finance rebranded

  • OPClave: OP Stack improvement with ERC-4337 account and native Apple faceID/touchID signature verifier

  • Turbos Finance: CLMM AMM and perpetuals on SUI backed by Jump

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

🔥 Hot Narratives

LSD Dose Wearing Off?

As Shanghai draws near (12th April), we are already seeing some LSD tokens running out of steam on their marches upwards. All eyes will be on these along with ETH over the next week. Will this be a sell-the-news event? Either way, expect volatility.

ARB Fumble

As eluded to in the intro, the Arbitrum Foundation has completely fumbled the ARB bag with their first governance proposal being rejected by the community. They are officially the main character — never the place you want to be. As a result, ARB price has suffered but is still holding some kind of floor.

DEX > CEX

With the recent allegations against CZ and Binance, we will continue to see a further exodus from centralised exchanges to their on-chain counterparts. One thing we can almost guarantee, there will always be a demand for spot and perp DEXs, and that demand will continue to grow.

💹 Macro Outlook

Past Week Events

  • 3/30 FED’s Weekly Balance sheet updates: Emergency loans(DW and BTFP) declining
    👉 Keep eyes on FIMA loans which are still elevated
    👉 Keep eyes on off-shore dollar risks. ~50% of USD are outside the US and uninsured From Joseph Wang’s weekly market updates

  • 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
    👉 Weaker PMI, but no large reaction

  • 4/4 14:00 JOLTs Job Openings: Act 9.9m Fore 10.4m Prev 10.8m
    👉 Weaker job market, but no large reaction

Upcoming Events

  • 4/5 12:15 ADP Nonfarm Employment Change: Fore 205k Prev 242k

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

  • 4/6 12:30 Initial Jobless Claims: Fore 200k Prev 198k

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

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

  • 4/12 12:30 CPI(MoM): Fore 0.3% Prev 0.4%

  • 4/12 18:00 FOMC Minutes ⭐️⭐️⭐️
    👉 Considering the Bonds markets strongly asking for lower rates, the stance of the FED before the FOMC decision in May will be crucial for determining market direction for the next month.

BTC, ETH, and Macro

Lots of geo-political shifts over the past week. Brazil, China, Saudi Arabia, Russia, India and others form a trade agreement to trade in their local currencies over USD. OPEC+ announcing supply reductions the next day when the US is fighting an all-out war on inflation was also a truly bold move.
👉 Oil jumps 7%, Gold surpasses $2000 and bond yields are falling again. This is worrying to me as markets truly look fearful.
👉 This is on the backdrop of weaker economic data starting to come through like the weaker manu-PMI and job openings data makes me think something big and bad is coming… TPing some and hedging some downside risk.

The ETH/BTC pair that we said looked good last week broke out with about 1 week before the Shanghai fork.
👉 Looks mostly like front-running the “sell-the-unstaking-event” that was luckily juxtaposed with CZ $1B conversion from BUSD to BTC, ETH and BNB. Not holding my breath here. TPing at 2000 heavily.

For BTC, 28.5k may act as support while 29k can act as a pull zone. Dealers are heavily gamma negative here meaning as price moves towards 29k, they will have to long delta to stay delta-neutral.

ETH may show support at 1800 and looks easily pushed up towards 2000.

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

📈 HTF Price Action Scenarios

Gm frens!

12h demand zone was tapped and longs have delivered to the next upside liquidity point. The market is still very bullish and it makes sense to look for long setups.

Looking at the weekly chart it makes sense to me to liquidate the swing high at around 2k. I think that’s a good target for the upcoming weeks.

That’s all from me! See you next week

Courtesy of Vlad - trend-based trader and MentFX student

⛓ On-Chain Sleuthing

ARCA Accumulating GNS

Arca hedge fund bought for 350k USD of $GNS on Polygon - details here.

The $ARB POWERR Buyooooor

This addy has been incredibly aggressive at buying the $ARB dip in the last 24 hours. Received $5m of $ARB from Binance on the 3rd of April and bought $10m more on-chain this Tuesday - details here.

GMX OG Cashing Out

The addy that used to be the second biggest $GMX holder has been cashing out a hefty sum in the last week. Sold for $3.6m of GMX, the addy still hold 40,000 GMX token - details here.

Tano = Smart Money?!

One of our beloved members was officially tagged as Smart Money this week by Nansen, linked to ChronosFi_ - details here.

Sisyphus Buying GBCs

In anticipation of the Gloop private sale, the infamous Sisyphus has been accumulating GBCs (for private sale allocation) - details here.

However, in response, some GBC whales have been taking profits.

Terraform Preparing for Something…

Terraform lab multisig (profit from their LDO seed has been sent there) has been sending stable to a lot of different addy in the last month, seems capital is needed by some of the Terra folks....

Smart Money Moves - Tokens

Many SMs de-risked right after Cobie's FUD about CZ, but bought back their tokens as they found out that Cobie's Hash was just a speculation.

Smart Money detected in $STRP, which is a bet on Starknet Network, as it's a derivative DEX on Starknet.

Smart Money Moves - Farms

Smart farmers are farming mostly in these protocols:

  • Velodrome🔥

  • Sonne Finance

  • RAMSES🔥

  • Sterling Finance

  • MareFinance

Smart Money Moves - NFTs

Cobie bought a Milday, which is a wartime sign.

GCR redeemed all of his Milady NFTs from NFTX protocol, and holds 265 Miladys in total.

Research and analysis by Cl & Amir Ormu

🔬 Permissionless Interoperability in a Heterogenous Future

On the 10th of March, Scaling Ethereum by ETHGlobal began. During this event, talks are given and people are educated by buildoooors within the space. After the last three Chronicles, i decided to implement one more talk from this event about the state of connecting our multichain future by Jon Kol who works at Hyperlane.

Introduction

Jon Kol starts his talk by explaining the current state of blockchains and mentions three key points for his talk:

  1. The state of different blockchains is isolated

  2. Deploying on multiple chains means creating more isolated instances of your application

    • Devs can only serve users on those chains

    • New deployment does not benefit existing ones - fragmentation

  3. Currently, new users often interact with infrastructure before reaching applications

The last point can especially create large friction within crypto. Think about all the steps you currently have to perform to trade on DEX for example. In addition, note that Jon mentions the current state of chains. For ease of use, Jon means all alt-L1s, rollups, volitions, validiums etc. with the word of blockchains. Be mindful that if we connect it all to 1 specific layer, the gas fee will become too high if demand keeps increasing for block space. So what is the destination with all this friction between the actions of users?

The Destination

The destination will be a combination of different aspects or attributes. First of all, it’s a world where all blockchains are seamlessly connected. There are no isolated environments anymore, and there is not a lot of difference in bridging from chain A to less popular chain B. Secondly, all applications have to be interchain applications. If they are not, they are fragmented and less efficient. Last, the destination has to be a place where all the users of Web3 interact with apps and not with infrastructure. This will be the real and biggest challenge in my opinion, as a lot of safety can be implemented in the UX further.

For this to work, we need to connect the underlying chains. This structure will 100% be a spectrum with trade-offs based on what users want and need. One end of the spectrum can look like a very heterogenous environment, think monolithic chains like Sui, Aptos or Solana. On the other end of the spectrum, we have very homogenous environments that all stem from a single hub, like rollups built on top of the EVM, cosmoschains built on the Cosmos-SDK or subnets on Avalanche. This is more in the direction of the modular blockchain thesis to increase block size for the upcoming future demand.

Different ‘’Modes’’ of interoperability

All topics of the picture above are happening simultaneously and are more set to be modes of interoperability than specific eras with end dates. The basis was defined in 2016 when Polkadot and Cosmos made different rulesets of scaling block size. After that, around 2020, interoperability was mostly focused on bridging specific assets between ecosystems. Everything was wrapped everywhere, all at once via different types of bridges. Nowadays, we are slowly starting to become more app-centric. Not where the assets as isolated data can be bridged, but where whole dApps can freely interact between blockchains. And what happens here is that the burden of interoperability is moved from the user to the dApp, creating less friction and easier access.

In addition, there are (arguably) two generic flavours of interoperability: Native and external verification. Native verification uses the two consensus mechanisms of both blockchains to check for validity, meaning there are no extra trust assumptions created when bridging. It only inherits the security risk of the two chains that are connected and is generally safer than external verification. The disadvantage is that this is the highest cost factor of bridging. Because it is so costly, it works best in well-defined rulesets of interoperability. Luckily advances in Zero-Knowledge tech can also help in making bridging and interoperable dApps safer and way more feasible.

External verification can take the configuration of a multi-sig, proof of stake token, optimistic (delay on finalisation), advanced cryptography or other schemes. As you can see, all these ways inherit more risks than the way of native verification.

The Modular Blockchain Thesis

We will get thousands of different rollups is Jon’s take. But he says they will all stem from a different “hub” which uses a specific VM. He mentions tech stacks of Optimism, Ethereum, Cosmos, Celestia and more. But how are all these rollups and different tech stacks connected and interoperable with each other?

Here he explains how we need a permissionless layer of interoperability. A network of networks. But interoperability nowadays is never permissionless. This is where Hyperlane helps and can be deployed between two environments that want to communicate between them:

Every dApp can deploy Hyperlane, which figuratively means deploying a mailbox on the chain for your dApp. Contracts send messages to this mailbox where relayers are reading messages from these mailboxes and communicating the Merkle trees (the state) of the blockchain they keep in check. This is what Jon believes is the best way to create permissionless interoperability and thus scale modular blockchains, which in turn is the best way to scale Ethereum.

I don’t know if Hyperlane will be successful as there are many different ways to build native verification for bridges and they are still hard. What I do know is that this is a step in the right direction regarding making interoperability permissionless and reducing the overall friction within all crypto ecosystems.

I hope you enjoyed reading, see you next week!

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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