Treasures From Above

The Castle Chronicle: Volume 9

Author

Atomist
March 22, 2023 • Est. Reading Time: 19 minutes

Cries of euphoria were heard across the world last Thursday as Arbitrum officially announced their airdrop. Congrats if you have been living on Arbitrum since the start like Castle. Otherwise, fear not, there will be an abundance of opportunity arising from this event.

We see this as a huge step forward for the Arbitrum ecosystem we are committed to being a part of. We are extremely excited about this cause and dedicated to helping drive forward Arbitrum’s already incredible levels of success. We have therefore applied to be an $ARB Delegate. We hope we can count on your tokens when you delegate upon claiming!

Learn more about our goals, commitment and fit for the position below. Unfortunately, it seems we are battling with Twitter shadow deleting our tweets, so would appreciate any support you can give in sharing the word. Please head over to the forum and like our application to give it a bump up:

Castle Capital $ARB Delegate

t.co/UlCquFKCg3

 👀 What’s to Come in Volume 9

🔑 Key News: ARB Airdrop, Llama Drama, Banking Crisis, Other Headlines, Exploits, Continued Adoption, DeFi Updates, New Projects & more from CJ

🔥 Hot Narratives: ARB ARB ARB ARB, with a Sprinkling of Perps

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

📈 HTF Price Action Scenarios: Finally bullish from Vlad

⛓ On-Chain Sleuthing: DigitsDAO, Foodfarmer.eth, DCF feature along with Smart Money Moves from Cl & Amir Ormu

🔬 Implications of EIP-4844 on Rollups from Herres

🔑 Key News

Headlines everywhere right now are all about Arbitrum’s airdrop which was announced last week and will go live on the 23rd of March with multiple major CEXs ready to list them.

On the side, Shanghai Hardfork’s date was officially set to April 12th while DefiLlama faced an internal power struggle between members which has apparently been resolved. UBS will also be taking over Credit Suisse for $3.23B.

Some of the negative news

Exploits that happened this week

  • Poolz exploited due to an integer overflow bug

  • Blocksec team stopped a $5M exploit from happening on Paraspace

  • Swerve Finance under possible governance attack

  • NDXFi was exploited but frontrunned by MEV

Adoption is not stopping!

Weekly DeFi Updates

Some interesting projects to look out for

  • Hope Ecosystem: Stablecoin ecosystem built by ex-Babel Finance CEO

  • StarkDefi: Defi focused L2 on Starknet

  • Capsule: Wallet infrastructure for transaction signing

  • Pwnednomore: Automated smart contract testing

  • Avail Project: Originally Polygon Avail, modular blockchain

  • Raft: Stablecoin backed by stETH

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

🔥 Hot Narratives

ARB ARB ARB ARB

Probably the hottest narrative we have seen this year. The $ARB token drops tomorrow. There have been many initial pricing speculations, but we can probably assume around $1b of circulating $ARB will be airdropped. This is essentially a huge liquidity injection for the ecosystem that will likely spread to core projects on Arbitrum and those offering $ARB-based products and services.

Our favourites going into the airdrop:

  • GMX (THE Arbitrum blue-chip) — v2 synths on the horizon, max $ARB allocation

  • MAGIC (the NFT blue-chip) — the potential to migrate to an L3, max $ARB allocation

  • GRAIL — the current winning DEX on Arbitrum

  • PLS — governance and bribe blackhole, lines up well with $ARB and offering plsARB product

  • RDNT — v2 just released opening up 1-click leveraged yield (that buys RDNT-ETH LP 🤔 )

  • VSTA — low market cap, huge treasury, staking coming

Check out which projects are getting airdrops and how they stack up against their market caps/FDV here:

Perps on Fire

Nothing new to see here, to be honest — business as usual. When markets are volatile we see this time and time again. Simply put, the market is full of degens and degens love to trade, especially when trading with leverage.

Our main picks are GMX, LVL, and GNS. Notable mentions for smaller projects building new aggregation tools in UNIDX and MUX.

💹 Macro Outlook

Past Week Events

Upcoming Events

  • 3/22 18:00 UTC FOMC: 0.0% vs 0.25% (implied probability: 18% vs 82%)
    👉 Goldman predicting no hike
    👉 Elon thinks -0.5% is required
    👉 Keep an eye out on the dot plots which will signal when the FED is planning to lower rates

  • 3/31 PCE Inflation

BTC, ETH and Macro

BTC is Digital Gold

BTC and Gold became best friends as they both rallied off of the FED pivoting their hawkish stance as financial instability starting from Silvergate spread to more than 5 banks including the 150-year-old Credit Suisse. Bonds have also seen one of the most volatile weeks since 2008. 10-year bond yields fell almost a full percentage point in a matter of days predicting lower rates coming in fast. More info here. Markets did however feel less panicked during the start of the week as bonds yields recovered and the SPX rose.

Option Markets

An interesting phenomenon as of late is the sustained higher IV on BTC relative to ETH as shown in the tweet below. ETH has historically always been more volatile than BTC, but as of late, this trend has flipped. It may be due to the concentrated spot buying pressure on BTC and the pending unlocking of ETH from the Shanghai fork in April. Personally, I don’t think this trend will last and a long-vol strategy either, calls or puts, is a relatively safe play atm.

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

📈 HTF Price Action Scenarios

Gm frens!

It has finally happened! I’m officially flipping bullish!

Last week we talked about this daily supply zone from which I would like to see the LTF trend showing some weakness in order to go full bear mode. We also talked about the fact that we have been in a sideways market for quite some time, so if we see a conclusive break to the upside I will assume that this sideways action has been an ongoing re-accumulation.

Well, we got the break to the upside.

The daily supply has broken through without the LTF trend showing a reversal. I was still cautious around the 1st LTF break to the downside as price could just grab more upside liquidity before reversing, but the moment we got a re-break to the topside I flipped full bull.

So that means it’s BTFD (Buy the fuc**** dip) time! For this purpose, I am now looking at the 2h chart which makes the most sense to me. From here on I will follow any bullish setup that presents itself and I will scale a little more into altcoins.

Right now it’s “bullish until invalidated” time. I am however still very much aware of the 2D supply zone which has been holding price down. We are right now inside that supply, therefore I will not be surprised if we see this LTF rally fail.

For the purpose of analyzing the LTF structure of this push, I will be using the 2h chart with the following game plan. As long as this 2h trend has steam in it, I will look for longs. Once this trend shows weakness and reversal I’ll consider shorts.

See y’all next week!

Courtesy of Vlad - trend-based trader and MentFX student

⛓ On-Chain Sleuthing

DigitsDAO Pumps & Dumps $GFLY for Loss

DigitsDAO has done a quick trade on Battlefly DAO token $GFLY. Most likely assuming that the Arbitrum x Gaming Convention would release an announcement. They paid at least 10-12% entry/exit in total + huge slippage.

Foodfarmer.eth Loads on $PLS

He manages to secure his bag before the recent pump. See wallet here.

Smart Money Moves - Tokens

  • Many SM wallets bridged their funds to Arbitrum and bought Arbitrum ecosystem tokens ($MAGIC, $GRAIL, $PLS, $VSTA and $RDNT were the most popular among SM addresses)

  • Some SM began reducing their positions, possibly due to the incoming FOMC

  • Most of the smart yield farmers entered Ramses

  • SM detected in $LIQD, as the emissions of LIQD ended, meaning no more getting dilution

  • Metis got some attraction from SM, most likely due to Aave's proposal for launching on Metis Network, along with the wider L2 narrative ($ARB)

DCF's Arbitrum holdings are $RDNT and $VSTA. He TP'd a big part of his $RDNT holdings after V2 announcement because of the forced buying via zap when a farmer enters leveraged yield. The most interesting thing about his RDNT bag is that he started buying it 15 mins before the Arbitrum's airdrop announcement!

Research and analysis by Cl & Amir Ormu

🔬 Implications of EIP-4844 for Rollups

Introduction

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. In last week’s Chronicle, I highlighted a talk by Kelvin about how rollups actually work. This week, I will highlight another talk that was given during this event.

The Post-Shanghai Update (EIP-4844)

EIP-4844 will be the next big upgrade that is coming to Ethereum after Shanghai. It will allow for Ethereum to enhance data availability (DA) by introducing a new type of transaction. This type of transaction can maintain data availability of a merkle root for around 2 weeks before it will permanently be removed as it creates overhead and state growth.

So why is increasing Data Availability important on mainnet?

Data availability will increase the capacity of data that Layer 2s can post to Ethereum. Currently, this size is around 75 kB. With EIP-4844, this will be increased to around 0.5MB (8x increase in posting size). As it stands, this data gets posted as CallData, however, in this new transaction type it will be called Blob-Data aka Blobs. Currently, half of the Ethereum EVM is being used for the data of rollups, while 97+% of L2 fees are L1 calldata today. This is a misuse of resources within the blockchain, hence EIP-4844 can solve a great part of this inefficient use of blockspace on the L1. Below is a representation of the implementation of EIP-4944.

ETH with EIP-4844, where Blobs will get attached within the EVM and stay there for a short duration.

In the future when danksharding is out in full force, we will have many more different blob-slots than just one per block illustrated in the image above. You might notice that Ethereum is slowly building out and distinguishing its different layers (Execution, Consensus, Settlement and DA) to make the whole monolith more efficient. The reason we want to maintain blob-data for a couple of weeks is so it can be used to fully rebuild the state of the rollup up to the point where it was finalized on the L1. I expect that fees will get slashed dramatically once EIP-4844 comes out. In short, this is mainly how EIP-4844 works and what effects it will have on Ethereum as an L1.

Implications on rollups

With all this new technology being implemented there are some implications for teams building out on Ethereum.

  1. Tem ams have to change batch-submitter code to encode and submit new blob data

  2. The verifier code has to be changed to verify this new batch-submitter code before it is submitted

  3. Protocols will have to adjust their L1 proof to access the new type of blob data

This means that the inputs of the L2 now correctly go through the L2 state transition. There are differences between the implications of a ZK- and Optimistic-rollup. Optimistic rollups can use pre-image oracles, which basically means they can have a quick scout through the history of the chain, which could include blob-data. This pre-image oracle can be verified. There will also be a new form of fee market around blob-data. Data gas is introduced which is metered separately from regular gas and causes a new Execution block header to be introduced. Just as with EIP-1559, costs increase if data is in excess.

Remaining work

We are actually getting closer to a huge upgrade in efficiency for data on Ethereum, but there still is some more work to do before we can continue. First, we need to update the transaction type of EIP-4844 to make it more efficient over time (see EIP-6493). Currently, the gossip of blobs and the beacon-blocks is performed in the same manner. We want this gossip to be decoupled. This will optimize the network in general as it enhances the propagation of data. When implementing the new transaction type, we also need some transaction-pool hardening. This means that the new transaction type will not interfere with normal computation performed in the EVM (or at little as possible), meaning we want to isolate these properties as much as can we can.

Research by Herres

🧵 Castle Content

Jimmy and Amir Highlight Huge Red Flags around $CAI

Francesco Serves Up a Tokenomics Megathread

This week we are recommending a new source of information for you! Our good friend arndxbt releases a newsletter every week where he puts in the grind so you don’t have to! Collating all the key content from Crypto Twitter for you in your inbox!

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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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