Welcome to another week of Castle Chronicle.

Last week, and especially the weekend, was pretty interesting. We saw Kalshi wash-trading allegations all over the feed, growing interest in options trading, and SEC Exemption News. Also read:

• Zcash NFTs and the ecosystem heating up as $ZEC touches new highs.

• Clarity Cloture failed, but we got something better from both the SEC and the CFTC.

• Arc launched, but not without controversy.

• Kinetiq redirected 5.3 million KNTQ to Hyperliquid AF, and Elysium went live.

• Neutrl holders need to take a harsh 49% haircut in redemption.

and more.

This week’s newsletter is brought to you by NoRekt - borrow USDC against ETH, protect your loan from liquidation, and get up to $225 in ARB rewards.

Kalshi and the Weekend Run

This is probably not how Kalshi envisioned their week going.

After a post by ICO beast, claiming 96% of crypto market share, things got ugly.

This prompted one user, beniduboss, a known builder, to reply with claims of wash trading, to which ICObeast replied as follows:

If there is one thing everyone knows, it’s don’t poke the autist.

For Kalshi, this will be a very expensive option.

In fact, Beni came back with receipts and a post showing proof for its claim.

It starts by showing how Kalshi market makers benefit from rebates, which makes it possible to trade effectively on both sides of the orderbook without losing money.

This directly clashes with ICOBeast’s claim that they have fees and therefore it would not be beneficial for them to wash trade.

However, the most convincing evidence from Beni came from another post, showing a lot of spooky aspects in the data.

Among those, a lot of trades on ETH have the same size of $5500, comprising over 48-58% of all ETH perp volume on over four days.

If you can only read one piece to understand this issue, it should be Octopus Takopi’s research.

It compares Kalshi with other venues such as Bybit, Binance, and Hyperliquid, and uses academic literature on wash trading to run a quantitative analysis of Kalshi’s volumes.

The findings are extremely clear and hard to counter across the different frameworks used.

While we invite you to dive deeper into the research, a single look at this table immediately shows the difference between the Kalshi markets and other control venues.

This is highlighted by trade size, the absence of round-size clusters, and the presence of near-identical opposite pairs in short timeframes with near-identical sizes.

The analysis of Benford’s law emerges clearly from the pictures below, showing how Kalshi is far from a common distribution:

The difference remains staggering and significant across all aspects of the research.

In particular, recurrent trade sizes raise suspicion, as they comprise a large % of Kalshi markets: $5500 for ETH, $5000 for BTC, $1000 for LTC, and $2400 for HYPE represent over 20-30% of the total notional.

They also note that a large % of Kalshi orders end up in the same cluster.

We believe that the data presented is solid and does not need more explanation than this.

Curious to see how Kalshi will respond to this, and if this ends up getting them in trouble. One would wonder, why would you do this?

And even more, knowing volume is not 1005 organic, why would you go on the timeline to celebrate your dominance against Polymarket?

As always, it all comes down to ego, pride and greed.

For those interested, we recommend reading the full report as great academic research on volumes and wash trading.

You can find the full article here.

Options are cooking

Options are picking up again.

Aided by a couple of viral posts with big payoffs and the growth of $DRV, is this the time for options to go mainstream?

Derive just recorded its biggest-ever day in volume.

Turns out options just needed a little push.

One such example, shared by KoolAid, went viral recently:

This user opened a call spread trade on ETH.

He bought ETH calls at a $5k strike for March 26, 2027, and sold ETH calls at $7k.

For those unfamiliar with options, this means he’s betting ETH will be between $5k and $7k by March 2027. And you thought you were bullish on ETH?

Beyond the dreamy target, this post went viral because of a massive payout: the user invested $300k to win up to $20 million if ETH hits $7k. He will only make money if the price is between $5k and $7k; otherwise, the option will expire worthless.

DCF god has also contributed with his post, copying KoolAid’s strategy and showing the power of options in practice.

After opening his risky ETH trade, he posted that he could already sell in-the-money options and end up in profit, showing the power of options as a leveraged bet on spot assets: with ETH up 15%, his bet is already up 70% or more.

Interested in options?

Stay tuned as we are going to release an options article in the next couple of days on our profile.

Zcash NFTs

Zcash ecosystem is heating up. With the token heating up toward $2000 and more, several initiatives are launching.

Just last week, an NFT project, ZKsnarks, attracted over 16791 bids for its collection of 8000 NFTs.

Users had to apply and bid. The clearing price for the collection ended up being over 1.5 ZEC, or $2.19k, meaning the team made over $15 million from the sale.

The collection’s total volume was absurd, reaching almost 37 million, with the team refunding over $19.43 million.

The success of this collection sparked a new NFT mania on the network, with others following suit and trying to replicate ZNsnark’s approach. However, we recommend caution to users considering this. Others are plainly copying the mechanisms, with little to no novelty.

Even the ZKsnark project itself has no utility and is a simple PFP, raising questions about the high price and how much money the team made.

In fact, this launch has not been without criticism; among those voicing it, zachxbt has raised concerns.

However, for once, these seem more like general concerns than substantiated claims. Nonetheless, it’s suspected that most of these NFT project launches are actually coming from Ordinal teams.

We will monitor whether ZKsnarks takes any steps toward broader ZEC community involvement or adds any utility, as well as the other collections launching this and next week.

As always, unfortunately, these initiatives are primarily driven by greed.

However, the Zcash ecosystem is on a heater, and these may be the first signs of adoption and additional ecosystem creation that could spur new primitives.

CLARITY failure, SEC Innovation Exemption, and Rate Hikes

Last Tuesday, the Clarity Cloture vote failed in the U.S. Senate. The act everyone was super bullish on didn’t pass, but the SEC and CFTC have made major progress toward bringing more crypto regulation to the U.S.

On Wednesday, the U.S. Federal Reserve raised its interest rate by 25 basis points (0.25%) to a target range of 3.75%-4.00%, the first rate hike since July 2023.

This makes borrowing more expensive and slows purchasing power, which in turn would reduce inflation. As SOFR nears 3.84%, this decision increases Circle’s reserve yield earnings, which is why its stock also jumped last week.

Last week, the SEC announced an innovation exemption letting U.S. users trade tokenised stocks onchain in a permissioned AMM environment. They outlined three key rules:

• Tokenised stocks must carry the same rights as the underlying share, including voting rights and dividends.

• Contracts must be public, auditable, and deployed on permissionless chains.

• If a third party tokenises a stock, the company receives 30 days’ notice and can object.

This cleared a lot of the air around tokenised equities: which stocks can be traded and which cannot. What’s been skipped are stocks that provide synthetic exposure, meaning they don’t carry the same rights as stocks and merely track the asset’s price.

The problem is that most tokenised stocks today don’t meet the criteria. Ondo is moving towards a custodial tokenisation structure where the tokens represent rights tied to the securities held in regulated custody. Backpack token rallied on this news, but it also doesn’t meet the criteria because its tokens can be redeemed 1:1 but are essentially a claim on the SPV holding the underlying assets. 100y from FourPillars covered this in detail.

Another token that caught a bid is Uniswap because trading is only to be done in a permissioned environment; Uniswap v4 hooks can provide that.

More recently, the CFTC issued a no-action position for providers of passive software, meaning developers who build software to connect users to markets and hold no funds are in a regulatory clear zone.

Arc Launched, but not without Controversy

Last Wednesday, Arc launched, but not without controversy. The team itself tried to push a memecoin named “Duke” on Arc to gain initial traction, trying to copy Robinhood’s trajectory, but it didn’t materialise, as the token still didn’t do well.

The chain’s daily DEX volume averages around $50 million and has declined over time.

Argus, the chain’s largest launchpad, also shows a similar decline in the number of tokens launching on its platform.

On the DeFi side, things look good on the surface, with the chain’s TVL at ~$350m, but it is primarily concentrated in Morpho and Aave, where borrowing demand hasn’t picked up yet, leading to the low APY.

Will the activity pick up the pace?

On our Radar

• OpenZeppelin, one of the oldest crypto security companies, was acquired by S&P Global in a recent deal.

• Kinetiq redirected 5.3 million KNTQ to the Hyperliquid Assistance Fund. These are all the tokens they bought back for the last 5 months. Also, Elysium's testnet went live today.

• Neutrl finally communicated about the redemption after over a month of its asset’s depeg, but to the surprise of NUSD and sNUSD holders, they would need to take a 49% haircut on their holdings.

• Trueo, a prediction market built on Uniswap v4 hooks, recently went live on Ethereum, and Vitalik posted about it, causing its token to rise over 700% in the last 24 hours.

• We are going live tomorrow with xStocks, Veda, Kamino and Sentora discussing their latest release of xStocks vaults on Kraken. Tomorrow at 3 pm UTC.

That’s a wrap!

See you next week.

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In our newsletter, we may discuss projects or tokens in which we hold positions. While we aim to provide informative content, our views are not financial advice. Please conduct your research and consult professionals before making investment decisions. Crypto markets are volatile, and past performance doesn’t guarantee future results. Invest responsibly, and be aware of the risks. Your capital is at risk, and we do not accept liability for any losses.

Welcome to another week of Castle Chronicle.

The past few days have been full of interesting launches and announcements, whether it is Standard Reserve, Pear AP Vaults, or Derive v3. In this week’s newsletter, we cover these and more:

• The CEX distribution: ~$300b worth of assets deposited in CEXs; onchain products can tap into a much larger user base, and products like Spark and Veda are moving in that direction.

• Theorem brings NAV data from RWA.xyz into their secondary markets.

• Cloture vote on the Clarity Act today; odds of Clarity making it into law are at 20%.

• Arc mainnet is launching tomorrow, and everybody is selling shovels.

• Balancer is shutting down; snapshot vote starting on September 25th.

The CEX Distribution

DeFi yield products are scaling, and because they offer lucrative returns on deposits, they also have a huge TAM. But they can only scale so much by being available only to onchain users. One good distribution path is integrating CEXs. They have net assets deposited worth ~$300 billion, a much larger liquidity base to serve, and these users already understand crypto products.

One recent integration is Spark Savings with OKX. Their users can simply subscribe to Spark Savings through OKX’s onchain earn program and are set to earn the yield. To better understand this integration, we interviewed Sam MacPherson, CEO of Spark.

This integration positions Spark products as more of an allocation layer for digital assets. Sam adds: “The broader vision is for Spark to become the allocation layer for digital finance. Exchanges, wallets, fintechs and stablecoin issuers can own the customer experience, while Spark provides the allocation, liquidity and risk infrastructure underneath”

Such integrations also create an abstraction layer for the product and reduce the complexity of accessing them, and the “opportunity is to combine the transparency of onchain finance with the accessibility people expect from mainstream financial products.”

While the whole experience is abstracted, depositors should keep in mind that these products carry risk “associated with smart contracts, counterparties and credit, liquidity, stablecoins, and the underlying markets and venues where capital is deployed.” Spark’s own architecture is designed to contain these risks, as capital is “allocated across governance-approved venues and assets, with exposure limits and rate limits constraining concentration and how quickly capital can move.”

Another offering tapping into CEX distribution is the Veda Earn Program on Kraken, which has recently expanded to tokenised stocks. Veda Earn works similarly to Spark savings, deploying assets to multiple venues while keeping the experience close to the CEX depositors already use.

Kraken users can deposit tokenised stocks like SPYx, QQQx, and NVDAx from xStocks and earn yield, powered by Kamino vaults curated by Sentora.

Yesterday, we published an article on the same topic: how we’ve improved access to TradFi assets by bringing them onchain, but they still lack composability. RWAs are already at $39 billion in tokenised value but still lack composability; while YTD tokenised value has increased, active DeFi TVL relative to these assets has decreased from 12.5% to 10.9%.

To make these assets capital efficient, CEX integrations that already own distribution become pivotal. We expect such integrations to increase, along with more collaborations between infrastructure providers, curators, DeFi protocols, and CEXs.

Standard Reserve

The Standard Reserve project and genesis NFT mint went live on September 14.

The protocol aims to act like a central bank, managing expansionary or contractionary policy based on net ETH flows.

1000 OG charter NFTs were sold, which gives users the power to receive daily standard emissions (a proportional share of protocol issuance, 0.0909%).

At the current market cap of $35 million, these produce around $240 a day of STANDARD, or 1680$/week, 6720$/month, 80640$/year.

To claim these profits, users must close their branch, which incentivises them to accumulate them first.

Minters paid 0.15 ETH to the team. To avoid token sniping, the team also added a 90% tax that decays linearly after 1 hour. Through this, they raised over 1600 ETH (over $4 million).

In particular, we believe it’s interesting to monitor how new branches and charters will evolve, as well as how the standard token will perform.

Last but not least, considering the strong focus on net ETH flows, will the protocol manage to create significant demand?

Aside from this, we are particularly interested in seeing monetary policy in action through either expansionary or contractionary policies.

While purchasing the NFT involves an additional level of risk, getting an entry in the token after the snipe tax was removed was probably a good play too, with fewer restrictions.

Theorem brings RWA.xyz NAV data into secondary markets

Tokenisation has made it easier to issue real-world assets onchain. Trading them is still the harder problem.

A tokenised treasury fund, private credit product or equity is not the same as a normal crypto token. These assets may need to:

• Be transferable between approved investors only.

• Trade around an issuer-published NAV rather than a purely market-discovered price.

• Pause around distributions, corporate actions or stale reference data.

A general-purpose DEX assumes open access, continuous trading and price discovery from the last trade, which doesn’t fit tokenised assets.

That is the gap Theorem is trying to fill by building programmable secondary-market infrastructure for tokenised assets.

It lets issuers, networks and tokenisation platforms launch their own secondary markets while keeping control over eligibility, pricing references, market hours and operating rules. The venue can run under the partner’s own brand, while Theorem provides the underlying contracts and market infrastructure.

Its latest integration with RWA.xyz adds an important data layer to that model as it will act as Theorem’s primary data provider for NAV-based assets, bringing standardised real-world asset data into Theorem’s market logic. That means RWA.xyz data can support NAV-managed liquidity, show premiums or discounts to NAV at the point of trade, and trigger safeguards when reference data becomes stale.

This matters because NAV is often the most important price anchor for tokenised financial products. A fund share may have a periodically published net asset value that reflects the underlying portfolio. A secondary-market trade can still clear above or below that value, but investors need to know whether they are trading at a premium or discount.

RWA.xyz is already one of the better-known data platforms in the tokenisation market. It defines NAV per share or token alongside price, supply, asset value, yield, and other metrics.

Theorem aims to make that data operational.

The wider Theorem product is built around the same idea. A venue owner can list an asset, restrict trading and liquidity provision to issuer-approved investors, manage liquidity around a reference NAV, display pricing as a premium or discount, and open, pause or halt the market according to the asset’s calendar.

Eligibility can connect to systems such as OnchainID, Chainlink ACE, ERC-3643 registries or third-party KYC providers. Underneath, Theorem is built on Algebra Integral’s AMM infrastructure.

The bigger point is that tokenisation doesn’t end at issuance. Subscription and redemption rails give investors access to an asset, but they don’t create a functioning secondary market on their own.

As RWAs become increasingly useful as collateral, portfolio assets, and composable financial instruments, they need markets that understand the constraints of the assets being traded.

Theorem’s RWA.xyz integration is a step in that direction. Check out the demo markets at: https://app.theorem.markets/markets

Pear Protocol & the Agent Pear Vault

This is a big step up for the protocol, moving from a pair-trading/AI play to a more infrastructure-focused approach with the launch of the first Agent Pear vaults.

Beyond using Agent Pear for their own analysis, users can now deposit funds in the vault and let the agent do all the work.

The initial vault is capped at $1 million, with plans to expand after initial testing.

Finding these trades manually is incredibly intense; acting on them is even more so.

This means regularly monitoring setups and divergences between token pairs, as they constantly change.

Previously, users could leverage Agent Pear to do this job for them and run pair analysis every hour:

So what kind of pairs has the vault been trading?

Since inception, every signal from Agent Pear has been labelled, leading to the following track record:

Read the full article here.

Deposits are open on the 16th of September until the $1 million cap is reached.

Derive is soon launching V3

One of the most awaited recent updates is Derive v3.

Derive has established itself as the main place to trade options onchain, with over 95% of onchain options premium volume in the past 30 days.

Nonetheless, options remain a highly underdeveloped narrative.

Every year, someone argues that this is the year when options go mainstream.

Seems like this might be the right time!

Derive is now at an all-time high in terms of TVL.

Open interest peaked too at the end of August at over $170 million.

More and more users on the timeline are buying ZEC and ETH options.

Derive has been teasing the launch of its v3 for a while; finally, they shared a post on their forum.

V3 is the next step to scale further and be able to onboard more “sophisticated users and institutions”.

So, what is new with V3?

• Improved volume throughput

• Faster development of products and features

• Better wallet support for MPCs and multisigs

• Easier integrations for builders, including custom bridge infrastructure

• Path to e2e privacy

• Risk isolation for RWA markets

• Cross-currency margin

V3 introduces a zero-knowledge component (ZK). In v2, order matching happened offchain. In v3, the Derive matching engine runs inside a zkVM sequencer and is then verified on L1.

Orders are executed inside the zkVM, and only their proof is verified on Ethereum (allowing the confirmation of multiple trade batches with a flat gas fee). Users’ funds are kept in escrow in L1 contracts and require a proof-committed withdrawal to redeem.

Derive v3 uses Celestia for data availability, meaning processed states can be rebuilt and used to prove a batch. If designated sequences don’t work properly for a minimum pre-defined time period, submissions can reopen, and anyone can take over settlement and withdrawals (even without Derive).

Eventually, their goal is to reach L2beat stage 1 verification.

3 main roles are envisioned in Derive v3:

• Sequencer: ordering in batches, submitting proofs and withdrawal outputs from the zkVM

• Guardian: can refresh withdrawal parameters to process them smoothly or block them.

• Owner: grants the powers to update the state root, setVKey, update proxies and unpause withdrawals

As onchain options grow, we are incredibly excited for Derive v3, and we believe the additional features and role of ZK will help it scale further and become more appealing to institutional investors.

On our Radar

• The U.S. Senate is holding a cloture vote on the Clarity Act today at 2:15 PM ET. Expectations of passing this vote are low because Democrats rejected the latest draft Republicans released, which included stricter restrictions and additional powers for state attorneys to enforce compliance. After that, Democrats sent Republicans a counteroffer, whose contents aren’t disclosed yet. This vote doesn’t make Clarity law, but it limits debate and amendments, triggering the final vote. Chances of Clarity being signed into law dropped from 35% to 20% in a few days on Polymarket.

• TradeXYZ went live with Events and entered HIP-4 markets, and at the end of August, Hyperliquid opened permissionless deployments. Most of the current HIP-4 is coming from Outcome, followed by Hyperliquid native deployments. HIP-4 markets are themselves small and only represented 0.04% of net volume produced by prediction markets in the trailing 30 days.

• Arc mainnet is expected to go live tomorrow, 16th of September.

Initial expectations of possible success similar to the Robinhood chain have meant many have tried to bridge there earlier than when it went live. As a consequence, users ended up paying a hefty premium to get stablecoins there.

As always, when alpha is too public, it often gets diluted or disappears entirely.

Trying to get on Arc mainnet earlier meant that most projects launched ended up being launchpads or NFT collections.

Sell shovels, I guess?

Expectations and hype on Arc are fairly high as people look for new venues that could replicate Robinhood Chain’s success. Personally, we believe that there is no such thing as public alpha.

We will watch closely how Arc’s launch goes tomorrow and whether they manage to set up a good number of initial projects which can help them get traction and a sustainable user base over time.

It does seem a bit forced.

• Balancer is shutting down: one of the OG DeFi platforms is officially shutting down.

Balancer just published a governance post proposing to wind down the protocol and route treasury assets to $BAL holders.

The main reason for this decision is the fact that the business was not sustainable: Balancer’s monthly spending exceeds revenue. They spend about $150k/month, while protocol revenue was $30k in August and treasury yield was $25k.

The remaining treasury balance is $9m, excluding $BAL, with each token priced at ~$0.13 based on circulating supply, while the market price is $0.11.

The initial distribution begins at the end of May 2027, and any unclaimed tokens are redistributed to those who redeemed.

Another one bites the dust.

• We are going live with Mike Silagadze from EtherFi tomorrow at 10:30 AM ET; don’t forget to tune in. Expect to hear about the long term vision around the EtherFi card, their recent updates, and $ETHFI buybacks.

That’s a wrap!

See you next week.

Every week for the last 3 years, we have shared our research for free, directly in your email. Not a subscriber yet? Let’s fix it:

PLUS, don’t forget to join our Telegram channel for the latest updates from Castle and all our research: Link here

This newsletter includes a sponsored segment produced in collaboration with Theorem. We may discuss projects or tokens in which we hold positions. While we aim to provide informative content, our views are not financial advice. Please conduct your research and consult professionals before making investment decisions. Crypto markets are volatile, and past performance doesn’t guarantee future results. Invest responsibly, and be aware of the risks. Your capital is at risk, and we do not accept liability for any losses

These days, it’s all about RWAs, with a race involving every protocol and ecosystem, rushing to list new assets and boasting about their market size or asset count.

However, these numbers mean little without context.

What is the point of having thousands of RWAs, fragmenting liquidity, if no one uses them?

At their core, RWAs become widely adopted only if they separate themselves from their Traditional Finance counterparts with added value.

This report is about what RWAs are really about; we take a pragmatic look at how to build a fully functional ecosystem, focusing on utility and composability.

To do so, we use Mantle as an example.

If you have been following us, we have discussed Mantle’s early focus on RWAs extensively, documenting their progress in our previous report.

The interesting part of an RWA roadmap is less about accessing tokenised equities. Listing assets is now the easy part: Kraken, Robinhood, Crypto.com, xStocks, Backed, Securitize, Ondo, Franklin Templeton, BlackRock and a long list of exchanges, custodians and tokenisation platforms are all pushing some version of tokenised asset access.

The harder question is whether those assets can become efficient capital once they arrive onchain.

This time, we take it one step further, moving beyond asset count and tokenised asset values in favour of a more practical analysis of whether they can become productive capital.

It’s All About Utility

RWAs have historically been framed as crypto’s pathway to institutional legitimacy. Put TradFi assets such as treasuries, private credit, funds, equities or commodities onchain and watch institutional investors flood the gates.

That story was useful early on, but now tokenised assets are no longer rare, and each listing loses marginal utility. As a consequence, the market is filled with wrappers, tracker products, fund interests, stablecoins, tokenised notes and synthetic equity-like exposure.

Competition among chains cannot be won by simply listing assets, for everyone can do that nowadays.

Instead, the most important question when approaching this subject is utility.

For every new asset listed, protocols should ask themselves: now what?

The RWA sector is evolving, and the next phase of RWA competition will be won by utility rather than asset count.

Tokenised assets only become productive when they trade against deep liquidity, can be used as collateral, are composable across venues, and are accessible to anyone; otherwise, it works counterintuitively, increasing fragmentation with no value addition.

We just mentioned this, but it’s worth reiterating: RWA can reach widespread adoption only by differentiating itself and adding utility beyond its TradFi counterparts.

We focus on two:

• Accessibility

• Composability

Capital access has historically been uneven, shaped by geography, regulation, brokerage relationships, and minimum ticket sizes, rather than information and research.

Digital assets have changed this for many, with stablecoins as a major example. Many in inflation-plagued places now prefer to hold their savings in stablecoins rather than a weak fiat currency.

Tokenisation promises to do the same for TradFi assets: Treasuries, stocks, ETFs, pre-IPO allocations, and more are being redesigned as onchain digital instruments.

As a consequence, this is driving a broader shift toward global access to these assets, with Nasdaq moving toward 24/7 trading.

The first part of the RWA wave has focused on building the initial infrastructure to make this shift possible, aided by a friendly regulatory process.

Stablecoin frameworks, market-structure proposals, MiCA in Europe and tokenisation pilots by large financial institutions have made the sector less marginal.

This has led to over $38 billion of assets tokenised onchain.

Starting with US Treasuries (over $15.9 billion), users can now access a wide range of RWA instruments onchain, including commodities ($4.9 billion), active strategies ($3.6 billion), asset-backed credit ($2.56 billion) and stocks ($2.52 billion), among others.

From an accessibility perspective, progress has been major.

Users can now access a wide range of assets across many networks.

From now on, it will be less about listing more assets (which will continue to proliferate, especially long-tail ones) and more about focusing on the second promised utility of RWAs: capital efficiency and composability.

With accessibility being continuously addressed, another question that surrounds RWAs, which is relevant to both institutions and retail audiences, is how these assets can be further utilised and take advantage of the already established onchain ecosystem to produce further yield.

24/7 trading will soon no longer be a value proposition exclusive to crypto, as it will soon become part of the market structure for TradFi equities as well.

RWAs must move from plain digital representations of TradFi assets to capital-efficient, programmable assets.

While tokenisation has drastically improved access to TradFi assets, they need to be embedded in the existing onchain ecosystem to be used more effectively.

Given the context we provided, with upcoming 24/7 trading, the increasing role of Tradexyz as a venue for trading RWAs, increasing participation of institutions, expected clarity on regulation, and more, this shift matters even more.

Composability can take many forms.

Let’s look at a few of those.

The RWA Roadmap

As already established, what makes an RWA stand out is both accessibility and composability. Many networks and issuers have started to reflect on both. In this section, we study Mantle as a network and how it addresses both verticals simultaneously with its current offerings.

The Mantle ecosystem now hosts over $225 million of assets:

• Over 60% of the value sits in Mantle Index Four Fund, an active RWA strategy

• 21% is represented by syrupUSDT, representing credit or yield exposure to Maple markets

• 15% is in Ondo USDY, representing tokenised U.S. Treasury and dollar-yield exposure.

• 2% is in xStocks, representing tokenised equities and exchange-traded fund exposure.

Mantle’s approach to its RWA roadmap reflects the shift we discussed above.

It all started with a focus on infrastructure and laying the foundation which would allow the future RWA ecosystem to flourish. This includes onramps, offramps, provider integrations, a tokenisation-as-a-service platform, DEXs, and more.

Then, it’s important to take a phased approach to listing key assets slowly, ensuring liquidity is bootstrapped properly. Once these look solid, Mantle focuses on listing as many of these assets as possible, giving users plenty of choice.

Once quantity is not an issue, the focus shifts to quality: execution, utility, and composability. This includes ensuring execution through deep onchain and offchain liquidity, integrations, and the possibility to move, trade, and borrow using those assets.

Only once all these tassels are in place does the focus shift to user acquisition and distribution.

These are obviously not set in stone: user acquisition will be part of the process throughout, for example, but there is a sweet spot where it is convenient. Inviting users with high incentives into a desert ecosystem can do more harm than good, because they will farm incentives and not convert.

Using Mantle’s xStocks launch, we show this process in practice: they first listed only 10 assets on Fluxion, Mantle’s native DEX. The phased release ensured proper AMM depth.

Secondly, onchain liquidity was complemented by an atomic RFQ system via xChange (xStocks’ own platform). This addition is fundamental to ensure good price execution, the first element of comparison of many approaching RWAs from a TradFi or institutional lens.

RWA assets need comparable execution to their TradFi equivalents if they want to compare. Otherwise, any other value provided is an accessory while the asset’s core value is missing.

The last part of the xStock campaign on Mantle, live since the end of July, is an incentive campaign through xPoints to bootstrap adoption.

This brings us to another aspect to consider: active holders and user acquisition.

User Acquisition for RWAs

Accessing a wide range of assets onchain without restrictions offers incredible benefits, especially compared to TradFi. To boost accessibility and distribution, Mantle works closely with Bybit, offering its products to the exchange’s user base.

However, once Nasdaq introduces 24/7 trading, competition will shift from plain accessibility to settlement, liquidity, and composability.

Before we dive deeper into user acquisition using Mantle as a case study, it’s important to note that there are several distinct niches within RWA users:

1. Cryptocurrency users who have never traded TradFi assets: tokenisation has brought onchain stocks, funds, and other money markets that give cryptocurrency users exposure to assets previously restricted to TradFi operators.

2. TradFi retail users who now have access to more possibilities with the assets they have previously traded ‘traditionally’.

3. TradFi institutional users looking for regulated and compliant solutions to improve the capital efficiency of the assets they have traded ‘traditionally’ onchain.

These vary in degree based on ecosystem-specific focus, but it’s a useful exercise for user granularity. Remembering how everyone is competing for the same users makes differentiation pivotal.

Different levels of holders are expected among RWA assets, given their inherent profile.

While the Mantle Index Four Fund holds most onchain RWA value, it has only 6 holders because of its institutional nature.

Meanwhile, xStocks has seen strong retail growth, rising to over $4.4 million since its March launch.

Retail user acquisition, especially for equities, has been a key focus in recent months.

The top assets currently owned by onchain users are:

• Agora aUSD

• Ondo USDY

• Tesla xStock

• CRCL xStock

• NVIDIA xStock

• Alphabet xStock

Aside from onchain user growth, there is a simple explanation for this development. Mantle benefits from a unique relationship with Bybit, one of the bigger CEXs.

As part of this, Mantle assets benefit from a unique distribution network on Bybit, with over 40 million users. In particular, the two have been working more closely as part of Mantle’s RWA focus. For instance, Bybit just expanded its Dual Asset support for 10 tokenised equities from xStocks, including TSLAx, METAx, CRCLx and HOODx. Dual Asset is a structured product that lets users buy or sell cryptocurrencies at a target price while earning yield.

This is extremely telling about Mantle’s utility-focused approach: 96% of the RWA value sits in yield-bearing assets, with over half in active strategies, 25% in asset-backed credit, and 14% in US treasuries.

This is also a strong differentiator for Mantle, positioning it as a network where tokenised equities can move between CEX liquidity, onchain venues, and DeFi.

A tokenised equity sitting inside one app is just meant to provide access to a product. If it can move into DeFi or a CEX for lending or to earn yield, it becomes efficient capital.

For now, stocks represent an easy way to keep users engaged by listing ‘hot’ tickers, such as SKHYX in July and the more recent Jersey Mike stock listing after its IPO. Listing mid-cap consumer stocks is a useful test of whether demand for these assets can materialise onchain.

However, stocks are but one side of the coin, with many other assets available. For example, Openstock’s pre-IPO vault had over 49% of its first-day deposits coming from Mantle. Also, Fluxion just supported RWAlpha income strategies, making it the first venue on Mantle where users can access yield products via tokenised equities.

Mantle also recently joined the Global Dollar Network (GDN), an initiative operated by Paxos, around USDG, a regulated stablecoin now available on Mantle, alongside AUSD, USDe, USDY, and USDT0.

By combining its own onchain users with external distribution channels, Mantle can get its foot in both shoes, target CEX audiences, and ensure easy integration of its yield products, as shown by the Dual Assets from xStocks.

Conclusion and Food for Thought

Early tokenisation rewarded the ability to bring assets onchain.
The next phase will reward the ability to make those assets useful.

A ‘useful’ RWA ecosystem creates two benefits at once.

First, they give the chain access to liquidity that previously existed outside the ecosystem. Tokenised stocks, money-market funds, credit products and active strategies can bring external capital into onchain applications. That capital may come from users who want TradFi exposure, institutions looking for crypto-native distribution, or asset managers looking for faster settlement and broader reach.

Second, productive RWAs can create sticky liquidity. A user who only comes to buy a tokenised stock may leave after the trade. A user whose tokenised assets can be routed into strategies, used in DeFi, posted as collateral or paired with stablecoins has more reason to stay.

Capital becomes stickier when it has more jobs to do.

Before concluding, we want to leave you with some questions, which could potentially lead to more meaningful metrics to evaluate an RWA ecosystem:

• Can users move the asset between exchanges, wallets and DeFi venues?

• Is there real secondary liquidity, or only theoretical availability?

• Can the asset be used as collateral under conservative risk parameters?

• Are there active strategies built around the assets?

• Are oracles, custody and legal wrappers clear enough for institutional use?

For users, the RWA stack must solve four jobs: access, movement, liquidity, and use.

Access means the user can reach assets that were previously difficult to buy. That could be a U.S. stock, an exchange-traded fund, a money-market fund, a Treasury-backed product, a pre-IPO allocation or an offchain strategy.

Movement means the asset can leave the app where the user first bought it. If the asset is technically onchain but cannot move freely, cannot reach wallets, cannot enter DeFi and cannot be used across venues, the product is closer to a TradFi balance than an asset truly owned by holders.

Liquidity means the user can enter and exit with acceptable depth and spreads. Asset availability without liquidity is a weak form of access, which cannot compare with TradFi execution.

Use means the asset can sit in a strategy, be paired against other assets, earn yield, or act as collateral.

For institutions, the RWA question is different. They already have access to many assets. Their problem is distribution, settlement, liquidity, reporting, custody, compliance and integration with crypto-native demand.

The institutional value isn’t just cheaper access; it’s faster distribution into a market that already understands these assets, plus the ability to connect issuance with liquidity, custody, cross-chain movement, and DeFi use.

The future of RWAs is no longer about asset listing, but about making these assets productive and moving toward borderless access to capital that can actually move, settle, trade, collateralise, and integrate with the rest of finance onchain.

written by @francescoweb3

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Disclaimer: This article was produced in collaboration with Mantle. Castle Labs applies the same standard to sponsored content as in our independent research. We strive to be accurate, unbiased, and educational. Commissioned partnerships provide resourcing and distribution, not editorial control.

Perpetual futures (perps) have become one of the strongest instruments for digital asset trading. They are capital-efficient and allow users to gain price exposure without holding the underlying assets.

Initially, perps competed within the same arena, focusing on cryptocurrency assets and liquidity.

As perps expanded to more assets, especially Real World Assets (RWAs), the competitive landscape has broadened, leading to different approaches to an ever-shifting market.

The category is already expanding into equities, commodities, indices, foreign exchange, pre-IPO markets and other assets that do not naturally fit the crypto-native exchange model.

RWAs, in fact, differ significantly from crypto-native assets when it comes to listing them as perps. Listing these markets through a normal orderbook requires bootstrapping liquidity venue by venue, often through subsidies, incentives, and external market-maker relationships.

Inherently, perps that wanted to list RWAs had to find solutions that allow 24/7 trading beyond traditional market hours, ensuring enough liquidity for new and bootstrapped markets.

Furthermore, perps are not the ideal instrument for RWA trading.
The unpredictability of funding rates is a major concern for RWA perps.

Among those working to solve these problems, Variational just released swaps, their solution to support an ever-growing list of markets without rebuilding each market and liquidity from scratch, with predictable costs for traders.

Contrary to what the name suggests, this isn’t about AMM swaps. Swaps already exist in traditional finance (TradFi). For Variational users, swaps are a new way to trade RWA with predictable costs and liquidity sourced directly from TradFi.

This report starts by highlighting the growth of RWA perps and their rising market share, then dives into swaps, compares them with perps, and explains what makes them unique.

We then translate this implementation into practical user advantages by comparing order execution across different perps venues.

RWA Perps: From Niche to 1-in-8 Dollars of Onchain Perp Volume

RWA perps have gone from a small category to a structurally significant share of crypto trading in under a year. In October 2025, this category did under $1 billion in volume, while in August it did over $120 billion, increasing 120 times in a few quarters.

The category hit its first inflexion point in October last year when TradeXYZ launched as a HIP-3 deployer on Hyperliquid. Since then, it has grown continuously and peaked at 20% of onchain perp volume in July and averages around 12-13% most months, meaning close to one in every eight dollars traded in onchain perps is coming from RWAs. Moreover, over the last few months, it has also established a base volume level of $100 billion since June.

Though the category has grown massively, it’s also highly concentrated. As of today, total RWA perp OI sits at $4.9 billion, and the top 2 protocols in the category, TradeXYZ and Variational, represent almost 90% of the OI, followed by GMTrade, Lighter, Ondo, and others.

We expect the category to grow even more from here, and Variational swaps will be a major contributor. In the section that follows, we differentiate swaps and perps and explain why the former is a superior way to trade RWAs onchain.

Swaps or Perps?

This section defines swaps as a new primitive, highlighting the difference between them and perps as trading instruments.

At their core, both of them are “linear derivatives”, meaning their payoff is a linear function: the price movement of an asset translates into a dollar value generated by the contract.

However, perps and swaps differ at their core in what they are tracking.

Perps were created to closely track an asset’s underlying index price. As a consequence, they use funding rates to encourage rebalancing and closely follow the index price of spot assets.

Instead, swaps are used to “track the total return of an asset over time”.

This is reflected in differences in terms of funding rates. Compared to traditional perps, swaps only pay fees once a day at market close (5 pm EST) on positions they hold.

Instead of depending on supply and demand, as with perps funding rates, swaps fees are better conceptualised as a carry cost, calculated based on “the real cost of financing the underlying asset in traditional markets”.

For equities, this means the overnight interest rate of the index currency (e.g. SOFR for USD). For forex, the interest rate difference between currencies overnight, adjusted by a spread.
For metals, the implied cost of borrowing or lending against USD overnight.

These rates are strictly related to TradFi, as they are actual financing terms based on market rates that Variational receives from its TradFi liquidity partners.

Last but not least, swaps also allow users to receive dividends: long positions receive the dividend amount and short positions pay it.

Initially, swap markets will use isolated margin and will have initial opening and closing hours. Variational expects these markets to run 24/7 over time, with cross-margin across the platform.

The first swap markets to go live are US100, US500, XAU, XAG and USOIL. Since launching at the beginning of the month, these markets have already accounted for $3.8 billion in volume, with peak OI of $245 million.

Swaps are a necessary evolution from perps for Variational, considering that just two months after going live, TradFi perps already represented over 50% of volume and OI.

Instead of relying on supply and demand and frequent funding costs, Variational focuses on tapping directly into TradFi liquidity, turning unstable funding rates into predictable carry costs that can be annualised and easily forecast, making it easier for institutional investors to approach RWAs.

To sum it up, both swaps and perps give exposure to underlying assets.

Swaps source liquidity from a network of TradFi partners, and funding is replaced by a daily fee, which can be compared to a stable carry rate, “primarily benchmarked to USD borrow costs”.

Usually, this results in longs paying between 4-6% annually and shorts receiving 2-3% annually on live swap markets.

An important caveat before moving forward: swaps do not operate in isolation. To fully understand them, the next section dives into the Omni Liquidity Provider and how it works in symbiosis with swaps.

Omni and Swaps

Most perp exchanges need to bootstrap liquidity inside their own venue. That works for majors, but breaks down as soon as the venue tries to list more assets. Every new market needs makers, inventory, incentives, risk limits and enough two-sided demand for a deep orderbook.

A major differentiating factor for swaps is how they source liquidity, which is also why they can offer such improved execution.

Variational avoids the issue of ensuring enough liquidity by using a request-for-quote (RFQ) execution and a vertically integrated liquidity provider: Omni.

The Omni Liquidity Provider (OLP) is Variational’s own integrated market maker.

OLP faces the liquidity providers in Variational’s RFQ directly, bringing that liquidity onchain. As OLP is the counterparty to all trades on Omni, initial swap markets launch with a capped OI of $10 million (quickly raised) to give the team time to test OLP’s hedging strategies. The OLP manages and hedges risk using external liquidity from centralised exchanges, decentralised exchanges, and TradFi sources.

Variational aggregates swap liquidity from TradFi venues, so these instruments will initially follow traditional market hours, with 24/7 trading expected once more liquidity venues are aggregated and as traditional markets continue to move towards it.

The benefits of this approach are evident in how Variational can launch new markets without building an orderbook from zero. Instead, they only need a price feed, reliable partners in their RFQ system and a hedging strategy for the OLP.

Instead of suffering from liquidity risk, this design has trade-offs in pricing transparency and risk management.

In the next section, we see whether that’s the case by comparing order execution costs across Variational swaps and other perps trading venues.

Swaps greatly reduce execution costs on Variational, with costs up to 8x-12x lower than the most liquid onchain venues for TradFi perps.

If you have been following our research, you should know by now that this is the most important aspect that anyone trading RWAs is wary of. While RWAs have many advantages, including transparency, global accessibility and execution, these onchain assets are ultimately evaluated on whether their execution is comparable to, or better than, their TradFi representation.

A Comparative Analysis of Execution Costs of Swaps and Perps

Perps are better suited for 24/7 crypto-style markets where funding is set by exchange supply and demand. Swaps, by contrast, suit traditional assets where financing costs, dividends, and external liquidity matter more.

The strongest claim around Variational swaps is not just that it offers more markets, but that it can offer better execution.

To measure this carefully, we compare Variational’s swaps execution costs with major onchain venues that list TradFi perps. Our platform sample includes the main onchain perp trading venues such as TradeXYZ, Lighter, and Ostium.

Methodology

As part of our market sample, the analysis compares the US100, US500, XAU, and XAG markets, with the counterparts on other exchanges. As venues differ in how they execute orders, execution costs are measured differently.

For orderbook-based venues like TradeXYZ and Lighter, we fetch the book live, sort it, and walk through it, reflecting the market orders sitting on the book. For quote-based venues like Variational and Ostium, we take the published quotes at different sizes for the analysis.

We measure the execution cost by averaging the cost of positions in both directions, long and short. This gives us a better picture of the quotes and the book’s actual state.

The Analysis

Some venues, such as Lighter and Variational, don’t charge any trade fees, so their execution cost is calculated entirely from the spread. Other platforms charge fees, which increase execution costs.

The first market we analyse is US100.

Lighter is the cheapest venue for smaller sizes at $1k and $10k, charging 0.18 bps, but its execution cost scales quickly, rising from 0.36 bps for 100k to over 9.94 bps for a $1 million trade. Ostium and TradeXYZ are the most expensive venues for small sizes, with fees of 5.32 bps and 4.67 bps, respectively, due to their fee structure.

In contrast, Variational Swap costs scale slowly, from 0.26 bps for a $1k trade to 0.47 bps for a $1 million trade, making it 12 times cheaper than TradeXYZ (5.74 bps) and almost 21 times cheaper than Lighter (9.94 bps).

A similar trend is observed in other markets, such as US500.

In this specific case, Variational is the cheapest venue at every size, including $1k and $10k (0.415 vs Lighter’s 0.433 bps).

The margin between the two platforms is smaller at the bottom and grows to 5x at $1 million. This represents a significant difference, with $79 vs $395 in execution cost. Tradexyz and Ostium charge 5.84 bps and 4.60 bps, respectively.

Next, we analyse Silver (XAG) across platforms.

Variational is the cheapest venue at $1k (0.12 bps) and $10k (0.38 bps), but its execution cost scales at $100k, growing past Lighter and then costing more at larger sizes. A $500k order on Variational would cost 5.14 bps, compared to Lighter’s 4.31 bps, a ~20% difference. XAG is currently the thinnest swap market live and lacks the flat-quote profile held in other markets. We expect the results to generalise to other markets as XAG grows.

Next up is the Gold (XAU) market, which behaves similarly to the US100 and US500 indices.

For smaller order sizes of $1k and $10k, Lighter is the cheapest alternative, with opening costs of 5 and 60 cents, respectively. Instead, Variational takes the lead at larger sizes of over $100k, where it costs only 0.68 bps, costing 65% lower than Lighter. Variational also maintains its lead for orders up to $1 million, with 1.66 bps in fees, well below its competitors: Ostium is the closest at 4.63 bps, while Tradexyz charges 6.54 bps and Lighter skyrockets to 8.74 bps.

In most markets, Variational was the cheapest venue for larger sizes, while Lighter led for smaller sizes like $1k and $10k for assets like Gold and US100.

Conclusion

The onchain trading landscape continues to evolve.

RWAs and TradFi assets now have an increasing share of perp volume

While there is strong appetite from onchain natives, the novelty of these assets and the accessibility benefits of being onchain mean the market is far from efficient enough to attract institutional traders with size.

Perp protocols have to continuously strike a careful balance between listing new, attractive assets and ensuring enough liquidity to execute efficiently. Furthermore, perps aren’t attractive to RWA traders because funding rates are unpredictable and can affect a trade’s bottom line.

Variational swaps are an interesting way to address both problems and benefit retail traders and institutions alike.

The former can benefit from predictable funding and a clear understanding of the real cost of holding exposure through a swap position. The latter can rely on low execution costs, predictable funding rates, and a close link to the underlying market.

This is proven by how fast swaps are growing: they already drive over 50% of Variational daily volume and over $220 million in OI.

This is mostly driven by the US100 market, which, as of the 7th of September, comprised over 50% of all swap volume and 30% of OI.

For the first markets listed, funding rates show longs paying between 4.6% and 5.7%, while shorts are getting around 2.4% annually

Until now, trading most RWA markets at scale and getting good execution was hard. Swaps bypass the need to bootstrap liquidity and offer TradFi depth for any market, redefining the perp trading venue as an onchain derivatives protocol that can aggregate liquidity wherever it already exists and settle that exposure transparently.

This model has clear advantages. It can support more markets, avoid the slow liquidity-bootstrapping problem, and offer users exposure to assets that are difficult to list through onchain orderbooks, with predictable costs.

By doing so, swaps also create a cleaner structure for RWAs, where funding costs and trading hours reflect the underlying market rather than a perp template driven by demand and supply.

The trade-off is that the model places more importance on OLP. Users don’t rely on a broad public orderbook but on Variational’s pricing, hedging, risk management and ability to maintain competitive quotes across hundreds of markets through its RFQ. All of this makes execution quality the core thing to prove.

Our analysis confirms that for most sizes, Variational is the cheapest venue for the current listed assets, costing as low as $47 for a $1 million trade in the case of US100. Though, in some cases, like Silver, it also costs more in execution due to a lack of volume, resulting in $787 to execute a $1 million trade, 20% higher than Lighter.

As the platform doesn’t charge any fees, it further reduces execution costs, making it one of the most cost-effective venues across the board to trade TradFi markets onchain.

written by @francescoweb3 and @Noveleader

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Disclaimer: This article was produced in collaboration with Variational. Castle Labs applies the same standard to sponsored content as in our independent research. We strive to be accurate, unbiased, and educational. Commissioned partnerships provide resourcing and distribution, not editorial control.

Welcome to another week of Castle Chronicle.

Last week brought a flood of launches on Robinhood Chain, with DEX volumes and chain revenue going through the roof. Some of these projects are launchpads trying to create a financial flywheel by pairing tokens with stocks, short and long leveraged positions, or buy fees.

While we cover what’s happening on Robinhood Chain, also expect to read:

• Maple expansion to multiple strategies to diversify underlying yield

• The Growing Conditional Liquidity in DeFi, ft. 3Jane and Fixed-Rate Lending

• The $320 million white-hat hack where hackers returned 85% of the funds

• On our Radar: Pendle on Robinhood Chain, Midas solmF-ONE, Zcash new highs, CRUMB on Robinhood, and more.

This week’s newsletter is brought to you by NoRekt - borrow USDC against ETH, protect your loan from liquidation, and get up to $225 in ARB rewards

The Memes and Stocks Season on Robinhood

Robinhood DEX volumes continue to spike, and so do the chain’s average fees. The chain now charges 6x the fees of Ethereum mainnet. Setting fees aside, most current volume is memecoin-based, but as expected, it would churn; it didn’t.

Over 95% of this DEX volume currently goes through Uniswap, and the protocol routes fees to $UNI buybacks. So far, the Robinhood chain has contributed ~$8.7m toward $UNI buybacks and burns since the fee switch activated on July 27. In the same period, $UNI is up 88%.

Another interesting trend that gained pace last week is the memecoin-and-stock pairing for liquidity provisioning; as a result, stock trading volume also spiked, reaching over $700 million in a day at its peak. The biggest winner here is $AI paired with NVDA, trading at $230 million at the time of writing. It’s particularly interesting because 80% of buy fees go toward collecting NVDA stocks, stored in the community vault.

As for launchpads on the chain, Pons has been the real winner, owning over 90% of the market share ($PONS +65% 7d), while a few others like Long, a launchpad that pairs memes with tokenised stocks, and TradePools from Uniswap make up the rest.

Several products have launched on Robinhood recently, trying to create a flywheel around liquidity provisioning by pairing it with stocks or charging fees that lead to tokenholders. Some interesting ones include PareStocks, which splits tokenised stocks into price exposure and dividend exposure, similar to Pendle. Other interesting projects are HookrFun and Shroom Network.

Blocmates covered the majority of them in their recent article, recommended reading.

Maple Expanding Into Three New Strategies

Maple now manages over $4.8 billion in AUM, but most of the yield comes from overcollateralised institutional lending. To diversify the yield sources, Maple is now expanding to three new strategies:

1. Direct Lending against institutional credit and rated securities: Maple will lend against portfolios of asset-backed and mortgage-backed securities.

2. Asset-backed securitisation: Maple will lend to SPVs holding loan receivables from established fintech lenders.

3. Basis Trade: Maple will run hedged spot-futures strategies, earning from the spread between spot and futures running on liquid venues like CME.

These strategies will start in syrupUSDT and then expand to other pools. To start, each allocation will be capped at 5% of the overall deposit base for initial monitoring.

These new allocation strategies are based on large, liquid TradFi markets that are currently not tapped at scale onchain. This could be the opportunity to bring that yield to onchain depositors.

The Conditional Liquidity DeFi

Last week, 3Jane introduced Levered Callable Capital (LCC). 3Jane underwrites uncollateralised loans to users against verifiable portfolios, including DeFi positions, credit scores, bank assets, and more. When users deposit into the protocol, the capital isn’t lent out instantly; it takes time, so the capital stays idle in the pool. LCC solves this problem.

LCC lets depositors post a fraction of the net liquidity commitment they are providing while earning yield on the rest. Whenever the capital is required users can provide the needed liquidity.

For example, an LP can deposit only $75k in margin (aETHUSDC) to back $1m in callable liquidity. While the $75k stays locked, the rest of the funds can earn yield elsewhere, while the user earns 125 bps on the full $1m commitment.

So in this case, the user gets yield from their margin ($75k on Aave) and 125 bps on $1m.

This DeFi primitive is also increasingly used in Fixed-Rate Lending to solve the cold-start problem. In Fixed-Rate lending, a major problem is that while the orders are fulfilled or accepted by the counterparties, the capital sits idle, earning no yield.

Protocols today solve this through conditional liquidity that acts as intent towards the placed order, and liquidity is called only when an order is matched. While the match is found, the capital can earn yield in variable-rate pools.

We covered this in detail in our recent article covering Morpho Midnight, Kamino, and Jupiter Offerbook.

Liquid BTC $320 million hack

On Sunday, white-hat hackers hacked Blockstream’s Liquid Network and withdrew 4k BTC ($320 million) from the Liquid Federation wallet that backs L-BTC.

After the hack, the ethical hackers asked to fix the bug and patch the nodes so they can transfer the funds back to Liquid Network.

Once the nodes were patched, the hackers returned the funds, but they didn’t return everything, keeping ~600 BTC ($47 million) for themselves. By doing so, they are keeping 15% of the funds as the bounty, which is relatively high considering the amount. Since then, Liquid Network hasn’t commented anything on how the remaining funds would be compensated to users. The situation is still developing, but given the scenario, it doesn’t seem hackers are returning funds anymore.

On our Radar

• Pendle is live on Robinhood and went live with sNET; $PENDLE emissions hit a new all-time low of ~884k PENDLE/year.

• Midas launched solmF-ONE, a Solana-native version of mF-ONE, giving Solana users onchain exposure to Fasanara Capital asset-backed credit.

• Hunter Biden is launching $LAPTOP memecoin, and the reactions to this are bad, as it seems like another extraction attempt siphoning liquidity from onchain users.

• Crumbs is launching on Robinhood, converting every shopping experience into a portfolio gain so users get $AAPL when they shop at Apple.

• $Zcash pumped past $1k as the Grayscale spot ETF gained inflows.

That’s a wrap!

See you next week.

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In our newsletter, we may discuss projects or tokens in which we hold positions. While we aim to provide informative content, our views are not financial advice. Please conduct your research and consult professionals before making investment decisions. Crypto markets are volatile, and past performance doesn’t guarantee future results. Invest responsibly, and be aware of the risks. Your capital is at risk, and we do not accept liability for any losses.

This excerpt is from our research on Fixed-Rate Lending: Market Structure and Protocol Design, highlighting new and emerging designs in the category.

Download the complete report here.

Today, the lending category has active loans of $28.5 billion, and almost all of that demand comes from variable-rate lending. This works fine in periods of stability; however, during stress events, as utilisation curves move, borrowing rates can spike. This surge in rates forces some borrowers to exit or deleverage their positions, making the overall credit market inefficient.

DeFi money markets, in fact, solved one problem traditional credit cannot offer by providing near-instant borrowing against collateral.

One problem remains: knowing the cost of debt before the loan is over.

That’s what many products are focusing on today: moving toward fixed-rate, fixed-maturity credit products. In such a market, lenders get a fixed yield and know exactly how much they will make on their deposit, and borrowers know how much they will pay.

The demand for such markets can be distributed across 3 major entities:

1. Date borrowers: Funds, treasuries, RWA issuers, basis/carry desks that need debt maturity to match an asset maturity, redemption window or strategy horizon.

2. Certainty Borrowers: Loopers, levered yield users and traders who may not care about a precise maturity, but need stable borrowing costs so their spread doesn’t contract.

3. Lenders/Curators: Vaults, market makers, and allocators that want to choose duration, collateral, and return rather than accept whatever utilisation is produced.

Earlier iterations of fixed-rate lending faced three major problems:

1. Liquidity Fragmentation: Fixed-rate markets fragment liquidity across maturity, rate, collateral and duration. That makes matching harder than in a single variable-rate pool.

2. No Early Exit: Once the loan period starts, the lenders can struggle to exit before maturity unless there is secondary liquidity, a redemption path, or another buyer, which isn’t the problem in variable-rate lending.

3. Cold-start problem: Lenders don’t want to keep their collateral locked and earn no yield until it matches with a counterparty.

With more institutional allocation and more sophisticated strategies like looping, the user base has evolved, increasing demand for fixed-term markets. One of the main issues with onchain lending is the uncertainty of variable rates; with fixed-rate lending, users know their yield and cost upfront. Additionally, it also provides a better UX because it forces protocols to price duration, collateral quality, exit liquidity and refinancing risk directly.

In this piece, we cover the design adopted by variable-rate lending incumbents, including Morpho, Jupiter, and Kamino, which together account for $6.83 billion in active loans and have recently entered the fixed-rate and fixed-term market, keeping the problem set in mind.

Morpho Midnight and Tenor Finance

Morpho, a variable-rate incumbent, launched Morpho Midnight in July. It is an intent-based zero-coupon lending protocol in which lenders and borrowers express their intent, and their positions are represented by debt units (an obligation to repay one loan token per unit before maturity) and credit units (a claim on repaid loan tokens). Midnight tackles the fixed-rate problem by making the loan tradable, providing duration flexibility and predictable underwriting for institutions. The rate is determined by the price of fixed-maturity credit and debt units traded by borrowers and lenders.

In Midnight, lenders and borrowers post “offers” that do not lock capital but are intentions to lend or borrow in a specific market at a specified price, maturity, and collateral configuration.

Capital is sourced only at settlement (callback), solving the cold-start problem, as lenders commit capital only once a match executes, improving capital efficiency. This also helps with attracting more liquidity, as put by the Morpho team:

“By allowing users to earn a variable rate on protocols like Morpho Blue, you can remove the opportunity cost usually borne when waiting for offers to be matched and create more demand to make offers, increasing the total liquidity available to users.”

Another problem Fixed-rate markets face is capital fragmentation, as each maturity, collateral type and rate band can become its own market. In Midnight, this capital is not sourced at intent, and users can post multi-market offers: “Since the same capital can be offered across multiple markets, the total liquidity available to users from a single maker = available capital x number of markets.”

Since launch in July 2026, Midnight markets have now reached active loans of $3 million. While this number is small, the team expects this to change soon, as “it also inherits Morpho’s existing network effects and ecosystem. For example, Morpho Vaults hold over $4 billion in capital today. This capital can start quoting on Morpho Midnight as soon as the vault adapter is released, and play a major role in building deep liquidity.”

The most interesting problem Midnight solves is early exit. In older or less liquid fixed-term markets, borrowers and lenders often had limited exit options before maturity. Midnight improves this by making positions fungible: lenders can sell credit units, while borrowers can buy debt units to reduce their outstanding obligation.

While Midnight can be interpreted as an underlying architecture for fixed-rate loans, an access layer is already being built on top of it: Tenor Finance. DeFi Frontier refers to Tenor as the “HIP-3 of Midnight”.

Tenor essentially gets all the features of the base layer, Morpho Midnight, and builds additional features on top of it:

1. Auto-Renewal and Fallback Options: Tenor introduces auto-renewal of the position to prevent post-maturity liquidation. It utilises independent keepers to roll the loan into a new fixed-rate term before maturity. If no fixed-rate match is found, it can simply fall back to the variable-rate pool on Morpho Blue.

2. Onchain OTC Agreements: Tenor enables users to request quotes and broadcast bespoke OTC offers. These offers can be shared with whitelisted counterparties, allowing direct negotiations.

3. Organisation Tooling and Gated Access: Tenor provides organisation accounts with role-based permissions to institutions. Through these accounts, they can deploy custom, gated credit markets that can restrict who can borrow or lend based on specific compliance or KYC requirements.

Tenor reduces maturity friction by adding auto-renewal and fallback options, so fixed-term positions can continue more smoothly if matching liquidity exists or if fallback conditions are met. On top of this, the customisability makes it more institution-friendly; in the long run, the team expects the platform to be used by “asset managers on one side and businesses on the other side.”

Jupiter Offerbook

Jupiter’s offerbook by Jupiter Exchange entered public beta in June 2026, around the same time as the release of the Morpho Midnight whitepaper. Jupiter Lend, a variable-rate product launched last year, was Jupiter’s first attempt to get into the lending category. Now, with Offerbook, they are entering fixed-term markets.

Offerbook is an intent-based lending protocol which features no price-based liquidation, enabling long-tail asset fixed-term lending.

Loans on the platform are shorter-term, usually 1 to 30 days, and at maturity, if the borrower doesn’t pay, the lender simply claims the collateral and no liquidation occurs. This type of market enables any long-tail collateral to be used, whether it is NFTs, RWAs, or any other asset with no active price discovery, provided lenders are willing to underwrite it. This is a unique offering because it replaces continuous price-based liquidation with maturity-based collateral transfer and helps create specialised markets that support assets that would otherwise be difficult to support.

On Offerbook, users can post intents for their loan or borrowing request, and they appear in the application; liquidity is sourced when the offer is accepted. Since the user accepts when a match occurs, they are free to use their funds elsewhere until the matched order executes addressing the cold-start problem. This opens opportunities for both lenders and borrowers to earn yield until they find a match of their exact terms.

Since its launch, Jupiter Offerbook has now reached active loans of $450k. While their model is unique, it would be hard to prove its market and generate demand, as its scalability is limited by lenders’ willingness to underwrite the collateral directly.

Kamino

Kamino recently released the whitepaper for its Fixed Rate Lending protocol. Instead of building a standalone fixed-rate marketplace, it adds fixed-rate reserves inside Kamino Lend. The benefit of such placement is distribution: borrowers see a visible term structure, while lenders can quote specific rates and durations without fully exiting the variable-rate system, making fixed-rate borrowing additive.

Each reserve on the platform is defined by a rate and duration: for example, borrowing USDC at different rates for different durations. All these different rates and durations form a grid.

With this grid, Kamino lets borrowers and lenders express where they want to transact across both price and time. Borrowers post borrow intents specifying collateral, size, maximum rate, and term. Lenders post conditional liquidity specifying the rates, durations, and amounts they are willing to fund. The grid becomes the execution surface: borrowers draw from available fixed-rate liquidity across predefined rates and duration combinations.

Instead of direct matching, lenders quote across a structured grid of predefined rates and durations (e.g., 1-month at 4.5%, 3-month at 5%, and so on), building a visible term structure and yield curve for different assets. By leveraging Kamino’s infrastructure, borrowers can either post an intent and wait for matching liquidity, or draw directly from available fixed-rate liquidity in the grid. On top of this, Kamino can automatically roll a loan into the next term if liquidity permits, similar to Tenor; if no Fixed-Rate liquidity is available, it can fall back to variable-rate. This solves the maturity problem and supports loan continuance, reducing the need for borrowers to manually manage every maturity.

For exits, lenders have to go through a Withdrawal Queue. If a lender cannot exit instantly because liquidity is already deployed, they enter a first-in, first-out (FIFO) queue and are repaid as loans in that reserve mature. This design ensures that the maximum waiting period for a lender is bounded by the reserve duration.

While matching happens between parties, the capital doesn’t sit idle. It keeps earning yield from variable-rate reserves, helping address the cold-start problem.

Closing Thoughts

Fixed rates do not remove any risk that variable-rate lending has uncovered over the years, but they make the cost of debt explicit.

This is what DeFi credit has been missing.

Variable-rate pools are powerful because they make borrowing instantly available, but they compress everything into one utilisation curve. Fixed-rate markets, by contrast, let borrowers price duration, lenders choose term and collateral risk, curators allocate across maturities, and apps package more predictable credit products. We have also started to see the initial iterations of predictable credit products from Aave, which launched Stable Vaults in July.

This matters because DeFi lending is expanding. It now supports looping, basis strategies, treasury management, RWA-linked assets, and consumer-facing applications. These users need more than liquidity: they need clear and fixed financing terms.

We expect competition in this category to grow, with more novel solutions emerging to scale fixed-rate lending.

Current adoption is also relatively low, and variable-rate lending still represents the majority of the market, but the goal is to expand the pie because these products can serve many use cases that current DeFi lending cannot address.

Moreover, these products aim to solve the problems earlier protocols in the category faced, and they also have much stronger distribution because their variable-rate lending counterpart has already matured. For example, capital in variable-rate markets can quote in fixed-rate markets while still earning yield and remaining efficient.

As these products mature, we should see a fair number of strategies which simply weren’t possible before, and a new flywheel in lending.

We cover more protocols and design approaches to fixed-rate lending which are built with the problem set in mind. Find our complete report here.

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This last week was filled with a ton of launches and updates from the projects.

We see assets still holding their value, without any major drawdowns after last week’s surge. This trend appears to continue as broader positive sentiment timidly surfaces.

Some of the biggest updates this week came from Ethena, including USDe backing, ENA buybacks, and more. With that, we also cover in this week’s Chronicle:

• Solana’s Disinflation double proposal passed, which means staking rewards and $SOL issuance will decrease.

• Hyperliquid is in talks with Kraken parent company, Payward, to launch in the U.S. market.

• Revolut launched a Euro-backed stablecoin EURR.

• Rain Card Infrastructure hack, which led to $1.1 million in lost value.

• On our Radar: Robinhood DEX Activity touched its all-time high, with Fomo and Pons revenue peaking as well; Kamino launched a Fixed-Rate market private beta, Wintermute Baskets, and Morpho and In-Kind Redemptions.

More yield for USDe, ENA buybacks, and a Neobank

Equity perpetuals in crypto have grown to over $6 billion in open interest and pay 15-20% in funding on average. Ethena already executes crypto basis, which is part of its portfolio and represents 14.5% of USDe backing, but with equity basis, the yield sUSDe earns can increase due to higher funding rates.

Source: https://app.ethena.fi/dashboards/transparency

Current funding rates across major venues like Hyperliquid, Binance, Bybit, OKX, and Bitget for equity perps average around 15%. However, the net yield boost sUSDe gets depends on Ethena’s strategy execution and the portion of the portfolio they allocate to the equity basis.

Another interesting update around Ethena is about its governance token ENA. Ethena Foundation recently announced four critical changes around the asset that change its dynamics.

1. The foundation bought back seed investors’ ENA.

2. Ethena’s IP now comes under the DAO and is governed by tokenholders.

3. ENA programmatic buybacks based on USDe supply, starting once supply reaches $7.5 billion.

4. Removal of unlock overhang through the release of any unvested VC tokens.

Another cool update came from Ethena today: Ethena Pay, its neobank, launched in partnership with Avax as a settlement layer.

Can my crypto card get hacked?

Most crypto cards use Rain card infrastructure. They had a vulnerability in their outdated Solana contract, which led to a $1.1 million hack of user funds. The biggest impact was on Avici and Tria, neobanks using Rain infrastructure, as their users lost $500k and $430k, respectively.

Though both cards have now refunded their users in full plus 10%, it points to multiple dependencies in the system that could break at any time, leading to user losses.

Crypto card spending is every growing and last month touched $1.1 billion. The category is expected to grow even more because of its large TAM, so protocols need to audit their dependencies better to keep user funds safe at all times.

Solana Disinflation Doubled

Last week, Solana passed a major proposal doubling $SOL disinflation from 15% to 30% per year. The proposal barely passed with 67% “for” votes, above the 66.67% threshold.

This proposal ultimately reduces $SOL issuance and the staking rewards. Solana projects to reach a 1.5% inflation rate as its benchmark rate. This proposal accelerates the road there, targeting H1 2029 instead of H1 2032 and reducing the SOL issuance by 18 million. For staking rewards, it is expected to decline from the current 5.84% to 2.25% by year 3.

Stablecoins beyond USD

The stablecoin category is heavily skewed towards dollar-denominated stablecoins, with over $300 billion in circulation primarily represented by USDT and USDC.

Only 0.5% of the stablecoins in circulation are non-USD-pegged, totalling $1.55 billion, led by A7A5, a RUB-pegged stablecoin, and EURC and EURCV, Euro-pegged stablecoins.

This leaves plenty of room to experiment with non-USD stablecoins. To compete in this market, Revolut also recently launched EURR, which is euro-backed and currently has a market cap of $600k.

We expect non-USD-denominated stablecoins to thrive as well because demand is growing and they currently represent a small market share that can easily expand.

On the Radar

• We launched a report on fixed-rate lending covering different fixed-rate and fixed-maturity products in DeFi at the design level. While DeFi solved the problem of getting instant loans against collateral, it couldn’t solve the problem of knowing the cost of borrowing before the loan is over. Read the full report here: https://docsend.com/v/sjv2g/fixed-rate-lending

• Last week, in the White House, President Trump announced that they are bringing Hyperliquid to the U.S. in a regulated manner. Now Hyperliquid is in talks with Kraken Parent, Payward, to establish a U.S. entity where registered users can trade.

• Fomo touched another ATH revenue of $950k yesterday as Robinhood volumes surged. On top of this, Fomo also touched $1 billion in weekly volume last week.

• Robinhood DEX activity is continuously touching higher peaks, with today’s volume already being over $1.5 billion. This growth is also reflected in tokenised equities on the chain, which are being paired with memecoins and attracting volume through it.

• PONS touched its ATH revenue of $1 million a few days ago. Now it trades at a P/S multiple of 4.2, which is higher than Pump, which trades at 2.64.

• LayerZero announced ATLAS (Aggregated Trading Liquidity and Settlement), which would act as a backend infrastructure handling order matching, clearing, settlement, and risk management in a single venue. Exchanges can build on top of ATLAS, benefiting from its already built-out infrastructure.

• Morpho went live with In-Kind Redemptions, enabling users to exit the vault even when it becomes illiquid.

• Kamino launched its Fixed-Rate Markets private beta. The protocol extends existing variable-rate protocols, making fixed-rate borrowing additive. It introduces a reserve grid that lets lenders and borrowers express intent across rate, duration, and size.

• Wintermute launched Custom Basket Swaps, bringing multi-asset exposure into one synthetic position so institutions can manage entry, resizing, and exit at the basket level.

That’s the wrap.

Meet you next week.

Every week for the last 3 years, we have shared our research for free, directly in your email. Not a subscriber yet? Let’s fix it:

PLUS, don’t forget to join our Telegram channel for the latest updates from Castle and all our research: Link here

In our newsletter, we may discuss projects or tokens in which we hold positions. While we aim to provide informative content, our views are not financial advice. Please conduct your research and consult professionals before making investment decisions. Crypto markets are volatile, and past performance doesn’t guarantee future results. Invest responsibly, and be aware of the risks. Your capital is at risk, and we do not accept liability for any losses.

Link to the report: https://docsend.com/v/sjv2g/fixed-rate-lending

Table of Contents

The past week has been like the October Liquidation Event but for upside.

Many assets are recovering from consistent drawdowns or going sideways. Assets like BTC touched $80k and are up 25% in the past week. Ethereum is up 30%, and Hyperliquid touched its all-time high.

This happened mainly because of the policy shift: the U.S. Treasury announced plans to double buybacks of long-dated bond instruments to manage yields, pushing the debasement trade and prompting investors to buy alternative assets. On top of this, President Trump met with prominent crypto figures at the White House, pushed Congress to fast-track the Clarity Act, and reaffirmed U.S. government plans for its digital asset strategic reserves.

After this, ETF inflows touched a week high since October 2025 as BTC saw a net inflow of $1.91 billion and ETH $692 million.

And there we had it, the prices surging all the way up:

Not only BTC and ETH caught the bid, but most assets which are aligned with their project’s growth grew as well. Also, in the White House, Trump said they are trying to get Hyperliquid in the U.S, which means we are getting permissioned perps soon, which is also the reason HYPE is touching its ATH. With AQAv2 this week, we can expect more from the asset.

In this week’s chronicle:

• TradeXYZ got a new competitor, Entropy, which is already the second-largest HIP-3 deployer.

• Coinbase Tokenised Equities launched on Base and will soon be utilised across the ecosystem.

• Kinetiq is soon launching its own L2, Elysium, with HYPE as the gas token.

• On our Radar: HyperEVM DEX activity, Ethena basis trade exposure, Fomo activity, and Lighter Robinhood instance.

TradeXYZ New Competitor

Entropy released its first two markets yesterday: SanDisk and Anthropic as a HIP-3 DEX. SNDK trades as a normal perpetual, while ANTH is a pre-IPO perpetual market. They are more or less launched as competitors to TradeXYZ, which commands over 97% of HIP-3 volume.

Both are gaining good volume, and in 24 hours, both have cumulatively generated over $50 million in volume.

As for the competition with TradeXYZ, Entropy is already the second-largest deployer by market share, and its SNDK market is already commanding 12% of the asset’s volume; the remainder is with TradeXYZ.

We believe this competition is necessary to keep the markets competitive, as TradeXYZ currently leads by a wide margin. Another interesting finding from Shaunda is that there may be some incentives coming up with Entropy.

Coinbase Tokenised Equities on Base

Coinbase tokenised equities went live on Base yesterday, which means the whole Base ecosystem will benefit.

It especially benefits primary DEXs like Aerodrome and lending protocols like Aave, which will launch specialised markets for stock-related lending and borrowing. This is great for Base as a chain as well because these assets bring liquidity, and stocks have embedded dividends and yields that would be exposed to the Base users as well.

@ethplantbaseeth on X also shared forward-looking speculation about how much tokenised stocks will move onchain and how that will translate into DEX trading volume. It largely depends on how much of the U.S. stock market goes onchain.

And since Base, as a chain, is actively involved in tokenising and has a whole ecosystem for further utilisation, it would be interesting to see how tokenised equities grow and get used on the chain.

Kinetiq is back with Elysium

As with any activity surge on HyperEVM, its low throughput leads to higher gas costs, which isn’t ideal for a blockchain and its users. Due to recent memecoin activity on the chain, the same situation occurred again, and gas costs rose.

To address this problem to some extent, Kinetiq (KNTQ) is launching Elysium, an L2 on Hyperliquid. It will use HYPE as a gas token and will still keep it as the centre of the activity. On top of this, this chain is a better arrangement for KNTQ holders and the builder, as sequencer fees are allocated to builders and KNTQ buybacks.

On our Radar

• HyperEVM DEX Activity is rising as multiple memecoins have launched on the chain, and it’s averaging $300 million in daily volume.

• Ethena increased its basis trade exposure to over $400m, up from just 2% to 10% of USDe backing. This could materially boost USDe yield.

• Fomo touched its ATH weekly revenue last week of $3.39 million; its Hyperliquid builder code volume is also growing, with last week generating almost $500m in volume.

• Since the point program started last week, Lighter Robinhood Perps volume has been rising and has generated $3b in cumulative volume so far. Additionally, with the recent market surge, LIT is above its TGE price at a market cap of $850 million.

• While most tokens increased in value, some we are closely monitoring are: $LIT, $ENA, $XPL, $ETHFI and $SLC

• Justin Sun is sending dust transactions to everyone who interacted with Coinbase, Binance, and Hyperliquid, as these exchanges followed EU and UK sanctions to blacklist anyone who interacted with HTX.

That’s the wrap.

Meet you next week.

Every week for the last 3 years, we have shared our research for free, directly in your email. Not a subscriber yet? Let’s fix it:

PLUS, don’t forget to join our Telegram channel for the latest updates from Castle and all our research: Link here

In our newsletter, we may discuss projects or tokens in which we hold positions. While we aim to provide informative content, our views are not financial advice. Please conduct your research and consult professionals before making investment decisions. Crypto markets are volatile, and past performance doesn’t guarantee future results. Invest responsibly, and be aware of the risks. Your capital is at risk, and we do not accept liability for any losses.

Welcome to another edition of the Castle Chronicle.

This week was quite interesting as CT is discussing the relationship between the project and tokenholders, the death of DAOs, Hyperliquid expected revenue flows from AQAv2, and another stablecoin depeg or more so a hedge fund collapse?

In this week’s Chronicle:

• Compound awards itself $52 million through a DAO Vote by representing 50% of the total votes.

• EtherFi is expanding its app features and solidifying the link between its token and project success with buybacks.

• The Neutrl Situation and how they handled it poorly by giving no information to creditors regarding how their strategy collapsed and the next steps.

• The upcoming Hyperliquid AQAv2 activation and expected inflows.

• Mantle RWAs holder count doubled in a month.

• Venice $VVV reached $100 million in annualised revenue.

• On our radar: Increasing competition in HL Spot Equities, $MON buyback program closed, xStocks Hyperliquid launch, and Nasdaq 24/7 trading.

The Spiderman Meme: Compound Awards Itself $52 million through DAO Vote

DAOs are back, and probably not for good reasons.

After the ENS incident a few weeks ago, we have another interesting development this week: Compound announced a new leadership team and a $52 million ‘DAO-approved development plan’ to bring institutional credit onchain, as mentioned in their last post.

However, guess who helped the vote pass?

First, this proposal was submitted on the 3rd of May, so it’s been around for a while. The quorum for the Compound proposal was about 400k.

This went well over, with a total of 1.88 million votes.

However… About 50% of these votes (912.72k) came from the Compound Foundation, effectively awarding this grant to themselves.

The low activity is evident in the number of voters in both directions.

We expect this trend to continue, with every DAO with a meaningful treasury being targeted by either their own teams or surrounding operations.

Is this the last stretch for DAOs?

The last run until all treasuries are empty?

What about alternatives? Among those, Lex Node often mentions cyber corps:

An evolution of the model for decentralised governance is warranted.

Becoming More than a Card

“Users don’t bank where they trade, but they sometimes trade where they bank.” - Eric, Flex

This statement fits most crypto cards, as they add features that abstract major economic activities in a single interface. The application which you use to spend daily is more likely to be used to trade. This is where the recent updates from EtherFi fit, as they introduce tokenised stock trading, borrowing against deposits through Aave, and soon perps.

One of the predictions our analyst Noveleader made for 2026 was the changing onboarding flow and DeFi finding new capital flows.

Neobanks using more DeFi is the first step in that direction.

We rarely see consensus on a protocol’s roadmap and execution, but this week it seems everyone agreed that EtherFi has been one of the biggest surprises of the summer.

They recently held an investor call, sharing many updates:

Based on historical numbers, we can expect over $1 million in monthly buybacks. These buybacks are expected to increase as EtherFi Cash grows its revenue through borrow and perps. Cash already represents >60% of EtherFi net revenue:

Is EtherFi summer going to continue?

Stablecoins are not so Stable

Last week, Neutrl paused minting and redemption after a brief announcement that did not state a clear reason for the issue. It’s been over 5 days since the post, and they haven’t followed up with any explanation or redemption plan.

Now sNUSD, Neutrl yield-bearing stablecoin (YBS), is over 60% off-peg due to uncertainty about what happened to the offchain strategies they have been running.

A hypothesis that made sense came from Ethan (though not confirmed): a possible hole in Neutrl’s OTC Arbitrage strategy and delta-hedged JLP, in which Neutrl allocated ~18% and ~17%, respectively.

In the OTC Arbitrage Strategy, Neutrl buys the locked vested tokens and shorts them until the unlock to remain delta-neutral. However, if market makers artificially pump the token, funding rates can go deeply negative, leading to a loss for Neutrl. Another reason could be the delta-hedged JLP allocation, which they recently allocated to.

In any case, the maximum exposure seems to be ~18% because their other allocations weren’t highly risky.

In the end, it’s also wrong to label any of these assets as “stablecoins” because they are more like a hedge fund running a certain strategy.

Hyperliquid AQAv2 Activation (26th August)

On our radar for the next week is surely the activation of AQAv2 on Hyperliquid, expected on the 26th of August.

This is expected to add buyback pressure from USDC increasingly, capturing value from the stablecoin flow onchain.

Basically, about 90% of the reserve yield on USDC deposits will flow to the Assistance Fund and, as a consequence, purchase HYPE.

This continues to make Hyperliquid less relevant in a single category of fees (e.g., trading fees).

Shaunda from Blockworks shared a chat, which includes potential yield from USDC.

Continuing to diversify revenue helps Hyperliquid become more resilient against each of these.

Curious where Hyperliquid revenue comes from?

We just published this flowchart:

Mantle RWAs: Stockholders 2xed in Last Month

Now on to RWAs.

Mantle has been one of the earliest adopters focused on this niche.

As part of their plan, we have discussed extensively how they have focused on developing a comprehensive infrastructural layer for onramping, offramping, and a wide range of integrations across the ecosystem.

Once the groundwork is done, it’s now time to bring more activity and users.

As part of this strategy, Mantle is focusing on listing mid-cap consumer stocks which are hard to find onchain elsewhere. They just launched Jersey Mike ($JMKEx), which recently IPO’d and is valued at $7.3b, and is now also live, tokenised by xStocks.

As a newly listed mid-cap consumer stock, it is a useful test of whether demand for such assets can materialise onchain.

This seems to be working well so far; by broadening the range of assets listed, Mantle can capture a broader share of attention and interest.

The data is clear: during the last month, tokenised stockholders doubled from 675k to over 1.3 million

OpenRouter and Venice AI

Probably the only person who managed to turn anything OpenSea-related into a success is his early co-founder.

CT rarely comes together, but over the past few days everyone has been complimenting his last venture. OpenRouter, which Stripe just purchased in a $7 billion deal.

Another AI project that’s been widely discussed this week is Venice.

For once, they conducted a tokenomics change:

• Reducing VVV emissions from 3 to 2 million

• DIEM supply (used for API daily credits) rises from 38k to 40k in 4 stages

• Programmatic burns introduced: 5% of every $100 in credits purchased to burn VVV

Personally, I think Venice is an interesting person, but I’m not sure about the relationship between VVV and DIEM, especially with the latter’s rising supply. However, the introduced programmatic burns and more hints of value sinks might account for this.

Venice has an interesting model, and Erik has declared they have reached over $100 million in ARR.

Marc Zeller raised some questions on the relationship between equity and tokens, which Erik addressed in a comment (pretty interesting discussion which can be generalised across more projects):

Looks like he got convinced.

What happened on Solana?

For a brief time, Solana suffered a single provider issue (Teraswitch) that knocked about 28% of the staked SOL in the ecosystem offline.

According to Marinade, this stemmed from a misconfigured route.

As a consequence, Solana came about 86% of the way to a freeze.

This raises questions about concentration, since single providers might hold a high % of SOL staked in the network.

Affected validators were down for about 40 minutes.

However, according to Solana VP of Tech Jacob Creech, the network continued producing blocks and most validators in the delegation program were unaffected; in his own words, a proof of infrastructure diversity and resilience in the network.

Until a couple of years ago, Solana halts were considered somewhat routine, and the network was criticised for this. The fact that it managed to sustain this issue without shutting down is, without a doubt, a step forward,d which validators and the network should be happy about.

On our Radar

• Vitalik on how Ethereum can learn and take from Bitcoin UTXO state to ultimately hyperscale without sacrificing decentralisation:

• Hayden from Uniswap on correlated pairs using RWAs:

• A trend that continues developing is increasing competition in spot equities on HL, also highlighted by EQX Labs buying 3 tickers recently.

• No more sleep: Nasdaq moving to 24/7 trading

• $MON unlocks: Monad proposed a plan to buy investors’ locked tokens at a discount, and they rejected it.

This might mean two things:

1. Investors are bullish

2. The discount was too high, or they are already hedged.
   

That’s it for this week!

It’s a wrap.

Every week for the last 3 years, we have shared our research for free, directly in your email. Not a subscriber yet? Let’s fix it:

Castle Labs

Research and Advisory for Digital Assets

PLUS, don’t forget to join our Telegram channel for the latest updates from Castle and all our research: Link here

In our newsletter, we may discuss projects or tokens in which we hold positions. While we aim to provide informative content, our views are not financial advice. Please conduct your research and consult professionals before making investment decisions. Crypto markets are volatile, and past performance doesn’t guarantee future results. Invest responsibly, and be aware of the risks. Your capital is at risk, and we do not accept liability for any losses.

Selling blockspace is no longer a defensible business for blockchains.

For any blockchain, the core business is selling “blockspace”. But this offering is easily replicated and isn’t a differentiator. Almost every blockchain offers the same thing, and the only differentiating factor left in the conversation is “liquidity”. A chain with an already developed ecosystem and liquidity attracts more builders, which in turn increases the blockspace usage, a simple flywheel the blockchain business works upon.

Over time, as the industry grew technically, blockspace became cheaper, and even with more builders and usage, it contributed little to the chain’s revenue, resulting in an ever-increasing gap between the chain’s revenue and app revenue, making it difficult for chains to defend their valuation.

We covered this topic in detail in our latest report on The Verticalisation Thesis: How Blockchain Revenue Models Are Evolving, where we explored verticalised chains like Hyperliquid and how they maintain exposure to their whole ecosystem. We also highlighted other chains like Arbitrum (Timeboost), MegaETH (USDm buyback flywheel), and CEX chains expanding their revenue streams.

In this piece, we follow up on that report with recent developments within the category, with more chains now addressing the increasing gap between chain fees and application fees and trying to internalise more of the value their ecosystem produces.

We divide the chains we cover into two parts:

1. Ecosystem Expansion: Includes chains like Arbitrum and Polygon. Arbitrum Stack has grown and is now being used by chains like Robinhood, and Polygon is becoming a payments chain.

2. Product Expansion: Covers chains like MegaETH and Sophon, which are focusing on developing applications in-house.

Ecosystem Expansion

One primary way for a chain to increase its revenue is to expand its ecosystem.

Chains like Optimism pioneered this model and expanded their ecosystem through Superchain, where it provided its OP Stack to different Layer 2 (L2) networks and charged a greater of 15% of net onchain profits or 2.5% of L2 revenue. Their model worked pretty well and is now used by multiple L2s. But their revenue fell sharply when Base left Superchain in February this year. Base contributed over 90% of the Superchain revenue, way more than Optimism itself.

A few weeks before Base’s departure, OP token holders also approved a proposal that would accrue 50% of Optimism’s Superchain revenue towards OP buybacks. But as they lost the majority of their revenue in February, these buybacks were not able to accrue enough value to the token afterwards.

While the Optimism model showed cracks, it doesn’t necessarily mean that expanding the ecosystem is inherently a bad choice. Superchain is still used by multiple networks and is a growing Stack adopted by chains like Celo, Ink, Unichain, and others.

Similar to Optimism, Arbitrum has also built its own Stack called Arbitrum Stack, and is a perfect example of how betting on the chain stack can be highly fruitful. Robinhood launched its own L2 using Arbitrum Stack last month and has generated ~$4m in revenue so far, making ~$390k to Arbitrum, following a 90/10 revenue split.

Along with Robinhood, Arbitrum Stack is used by Plume Network, an RWA chain, but Robinhood has been the biggest contributor to their stack growth so far, which currently has over $800m in total value locked (TVL). Additionally, the Robinhood deployment also increased Arbitrum’s ecosystem tokenised stocks footprint, as it is the chain focused on tokenising equities onchain, which stands at $25 million. Within only a month of launch, Robinhood Chain is already half of Arbitrum TVL, which is $1.63 billion.

With this ecosystem expansion, Arbitrum has also launched Timeboost, a policy where users can pay more for prioritised transactions. Since its launch in April 2025, Timeboost has contributed over $7.7 million towards the treasury.

When Arbitrum accrues revenue, it puts it to use. Arbitrum DAO treasury is also home to multiple onchain and offchain deployments, earning a yield on its treasury. On the net deployment of $90 million, it has generated $4 million in interest. This is a strategy many DAOs and treasuries can adopt, as most get stuck holding native tokens that go down over time, impacting treasury sustainability.

Though Offchain Labs, the team behind Arbitrum, announced its buyback program last year, we have not seen a link between the success of the Arbitrum stack and the ARB token, which continues to depreciate in value through constant token emissions and unlocks.

Another chain focused on ecosystem expansion is Polygon, which is aiming to position itself as a payments chain for fintechs and general use.

This positioning makes sense for Polygon as it’s currently used by giants like Stripe to route stablecoin payments, and Mastercard uses it to settle merchant payouts and to power its Agent Pay product. Similarly, other products like Revolut, Paxos, and Cash App use Polygon infrastructure. They prefer Polygon due to its high throughput and ultra-low fees that make interaction with their infrastructure cheap. On top of this, they are working on facilitating enterprise-grade controls that help Polygon become an easier choice amongst large fintech companies.

Polygon has so far processed ~$2.9 trillion in stablecoin volume, with its stablecoin supply currently sitting at $3 billion, growing by over 80% since 2025.

While the chain’s payment usage is growing, the majority of its revenue still comes from its Polymarket deployment. Following this concentration and potential single point of failure, Polygon is constantly pushing to expand to other revenue sources.

Similar to Arbitrum, Polygon distribution has not been reflected in the accrued value of its token, which has performed poorly due to constant emissions, though the chain is constantly making good revenue and is often in the top 3 by chain revenue and buyback tokens, which, however, cannot cancel out the consistent sell pressure on the token.

While ecosystem expansion is great, some chains are addressing the revenue issue by owning more of the exposure their chain produces and directly building the products on their infrastructure.

These are the products we explore in the section that follows.

Product Expansion

A newer way chains are adopting to address the lacking link between the growth of application fees and chain fees is verticalisation, i.e., building the applications themselves.

Applications accrue tons of fees but don’t trickle down to the chain level, a problem actively faced by most chains.

Looking at the last 30 days’ application fees vs chain fees for different chains, the latter accrue so much less value while the revenue their applications are making keeps increasing.

This is expected because the chain fees have reduced over time, as we already established at the beginning of the piece. Chains were initially conceived as infrastructure providers: a healthy chain would have higher application fees but low chain fees, making it an efficient chain for deployment. At the same time, without revenue generated from fees, chains have a hard time sustaining their valuation, tokenomics, and running the business sustainably.

This is why some newer chains like MegaETH, Sophon, and even some older chains like Sei are moving toward becoming application builders themselves to potentially internalise these revenues rather than leaking them to third-party apps.

MegaETH, which launched pretty recently, has addressed the gap in application fees and the exposure the chains have. To address this, they have renewed their team’s focus on building applications on their own chain while still supporting the OMEGA applications (the applications that are only possible to build on MegaETH due to its super low-latency and high throughput). This is quite a pivot from their initial approach on horizontal ecosystem development.

“We’re redirecting the energy we were lending to third-party builders into our own first-party applications: consumer-grade apps, built directly by us, for the people we’re trying to serve.” - Shuyao Kong, MegaETH

Another effort from the MegaETH team is owning the value generated by the stablecoin on its chain. They did this by introducing USDm (MegaETH USD), a white-labeled stablecoin launched in collaboration with Ethena, which deposits in the BlackRock BUIDL fund, yielding them a near-SOFR rate on the chain’s stablecoin supply.

At the current supply of $18 million, it would yield $650k yearly at a SOFR of ~3.6%, a value that goes toward MegaETH buybacks and burns. Nonetheless, this revenue source is highly dependent on a successful ecosystem where the stablecoin is utilised. As it stands, USDm supply is down over 95% from its peak of ~$600 million in May this year due to the chain’s declining usage.

While actively working to accrue more chain revenue, these efforts haven’t been very fruitful, and the chain has struggled in terms of adoption and the token price. Among other things, including communication struggles, a limited ecosystem and indecision around some steps of the launch, one of the reasons behind the sudden drop in usage for MegaETH is the lack of an active incentive program that could attract liquidity (something that its competitor, Monad, is instead doing at full throttle, and is paying off with over $400 million in TVL accrued in the last month alone).

Another chain that is focusing on developing its own applications is Sophon, which shut down its chain operations and has turned into an active builder on the base chain. This is different from MegaETH because Sophon didn’t find any adoption in their chain, and they just decided to close it and move on, pivoting as a builder. The first application they are building is Pyre, a crypto card.

Similar to others, their price action is disappointing due to low chain adoption (now closed) and the failure of their “entertainment and consumer application” thesis, which didn’t attract many builders in the category.

The applications space in crypto is huge, with great opportunities to build and have a huge audience to cater to, making the pivot by these chains sensible. Recent applications such as FWA, Fomo and the most well-known Pumpfun and Polymarket act as best-case scenarios of what this would look like.

Closing Thoughts

There are hundreds of chains offering almost the same thing, blockspace, making them harder to differentiate from each other unless liquidity follows.

This liquidity-as-a-moat works for incumbents, and they keep attracting more builders and accruing chain fees, but for newer chains this struggle continues because to attract liquidity they have to provide incentives, and once that tapers off, liquidity might just leave, as seen in the case of MegaETH.

While liquidity is the differentiator, it’s not enough to justify the high valuation multiples blockchains carry today because the fees they earn are not enough.

Things are changing, and chains are understanding this fact and are actively pushing towards becoming more than chains, either by expanding their ecosystem offerings or by adding value to their own ecosystem by building applications themselves, as we saw in the case of Arbitrum, MegaETH, and others.

This can be extrapolated as a broader return to utility.

The bottom line for any network is to have users and utilisation.

For years, chains have focused on building around it, benefiting from hefty incentive programs and buying loyalty from participants. In fact, chains need applications more than the other way around.

Finally, chains are focusing on solving this principal-agent dilemma by verticalising and building applications themselves.

Chains are becoming more than chains.

Will this pay off?

Competition is on.

written by @Noveleader

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Welcome to another edition of The Castle Chronicle.

While the market is moving sideways, product launches haven’t slowed down, with xStocks launching on Hyperliquid and Uniswap stepping into the launchpad wars.

Apart from this, the topic which is getting the most attention is the newest EIP, which aims to taper ETH issuance to control asset inflation.

In this week’s Chronicle:

• Spot Equities on Hyperliquid and the interview with Matt from xStocks, where we ask him certain questions around their recent Hyperliquid deployment.

• ETH Issuance Reduction (EIP-8363) and Ethereum Updated Roadmap.

• ai16z and the current state of $ELIZA, highlighting their recent lawsuits.

• Launchpad wars on Robinhood chain with Uniswap being the newest contender

• On our Radar: Stacks native BTC yield, Pear Orchard, Pumpfun Hyperliquid domain, and Clarity Act.

Spot Equities on Hyperliquid: An Interview with xStocks

xStocks just announced the launch of a first cohort of spot equities on Hyperliquid.

We had the opportunity to sit down with Matt from xStocks and ask him a few questions about this development.

Our POV is that spot stocks are particularly interesting within Hyperliquid’s concept of housing all finance and having a unique margin account for all of the services offered by the platform.

Using stocks as collateral is a big liquidity unlock which directly improves the capital efficiency of these assets onchain.

For xStocks, this is a massive distribution boost, as Hyperliquid continues to solidify its stance as the main venue to trade tokenised assets, with massive volume and open interest in RWAs. Tradexyz is by far the most successful implementation of HIP-3, with over 4 billion in open interest itself.

How will xStocks compete or complement this offer?

We asked Matt a series of questions around their Hyperliquid deployment, starting with an understanding of the hurdles they faced around this deployment. He added that, “there is no rebasing on Hypercore, which is basically the mechanism that allows all the xStocks to remain anchored to the TradFi price when corporate actions happen, so we had to choose a less elegant solution, but that can work regardless.”

Moreover, we can expect the xStocks deployments to expand pretty soon as the team have “premier partners that will help us shape new use cases like options, carry trade, lending, etc. for xStocks.”

We also asked what sorts of risks traders usually underestimate while trading spot equities; he suggested that “perps are much riskier than the tokenised spot assets. But even after considering it, anyone running two-legged strategies should be aware of manipulations and suboptimal pricing (that happens regardless of the issuer/instrument) during weekends.”

ETH Issuance Reduction: EIP-8363 and Updated Ethereum Roadmap

Last week, a few Ethereum Researchers published EIP-8363, which tapers the ETH issuance to control asset inflation.

There has been a lot of debate around this proposal, and it has drawn strong pushback from parts of the Ethereum community, especially staking, LSTs, and DeFi stakeholders. We aim to highlight both sides of the story, explaining how this proposal touches on a real issue but might not be the most relevant one.

Ethereum Staking has grown over time and currently sits at 33.5% of the supply, with the nominal yield at ~2.3%, and it has steadily dropped over time because of staking dilution. At this rate, this yield dilutes over time until it reaches the floor of 1.5%.

So this is a real issue because the yield has a backstop at 1.5% and continues inflating the supply and providing the incentive around staking, diluting the pool. This is what this EIP suggest as a problem and provides a solution to taper the issuance to 0% after 50% of the supply is staked, removing the protocol issuance incentive to add more stake beyond that point.

While the proposal touches on a genuine economic problem of the network and ETH as an asset, it doesn’t focus much on the ripple effect this proposal brings in across the network. ETH staking yield is essential; reducing it would pressure LST/LRT collateral loops, lending markets and protocols whose demand depends on staking carry. Once the yield drops, this activity also shatters, affecting all the top revenue-generating protocols on the chain.

Moreover, Ethereum issuance is pretty low when compared to other assets, reflecting that ETH issuance might not be the biggest problem to solve at the moment.

Additionally, Vitalik Buterin reiterated the Ethereum Roadmap, highlighting that Ethereum’s core focus is on making the network more private, post-quantum, and lean. Private Ethereum would include building better tooling to hide user activity and balances through privacy pools and hiding a user’s transaction history. For lean Ethereum, the network aims to reduce the execution overhead through the adoption of RISC-V.

ai16z and the current state of $ELIZA

A post by Shaw, the founder of Eliza, officially announced the end of the project.

What was once a project worth billions of dollars is now officially dead.

There is a lot to unpack in Shaw’s post.

We encourage everyone to actually read the post itself aside from this commentary:

For once, it shows how difficult building within AI is.

But not only that, the alignment between a project’s success and how its token performs has been a big vector of discord in the community.

Second, it highlights the issues encountered when dealing with class action lawsuits, which can be argued either protect holders or try to scavenge what’s left of dying projects.

Those who were there during the AI rally over a year ago know that Shaw always had a somewhat complicated relationship with Eliza holders, reflected in his post too.

All in all, after a year and a half from the AI boom, we are left with the remains of projects that were poised to revolutionise the intersection between crypto and AI.

Stories of Eliza serve as a reminder to those who believe it’s easy to build in crypto, and everyone looking at launching a token as the holy grail of making it.

Is any of the projects left going to be rising from the ashes?

Both agentic vaults and broader platforms are failing left and right.

Can Virtual, as the biggest one left, carry the sector on his shoulders?

Or are we going to see a better and stronger intersection with crypto as AI models become more powerful?

Food for thought.

On our Radar

Launchpad Wars

The launchpad wars on the Robinhood chain (RH) continue heating up.

We go back to looking at the situation after Uniswap has launched pool trade, their own launchpad.

There appears to be a steady range of tokens being created on the RH chain.

Uniswap deployment picked up steam during the first week, with an all-time high in token volume after a few days (5-7th of August).

However, the initial wave is already taming down. Currently, Pons still retains the majority of token volume onchain, with about 60% of market share.

Generally, RH chain continues doing well. The partial decline in token volume for this week might also be justified by the euphoric week that NFTs had on the chain.

Led by Stockbrokers and Chainmances, is RH chain bringing NFTs back to life?

Stay tuned for a deep dive into them.

Consumer Apps Volumes

From FWA to now Fomo, it’s consumer app season.

This is reflected in the increasing % of revenues generated by consumer apps, up only.

ADHD Roundup

• This week we published a deep dive into making Bitcoin yield more trustless, particularly interesting for both retail bitcoiners and institutional investors looking for yield on the orange coin. Full report here.

• Did pumpfun just register a HyperEVM domain?

• Circle Q2 revenue exceeded $700 million, and every metric is growing, including transaction volume and USDC in circulation, while the stock $CRCL is down ~20% YTD.

• The ENS saga, which we talked about a few weeks ago, continues with a new vote.

• There is no clarity around the Clarity Act, which is stalling and requires more time. This week we had some drama and some interesting behind-the-scenes discussions. Thread attached:

• Solana account archives are here: welcome historical data!

• Pear Protocol just launched Orchard, a native agentic chat users can leverage directly on the website UI. Additionally, with Orchard, users get access to real-time narrative baskets, trade auto-rebalancing, and a full Pear MCP server. To celebrate, they just launched a competition for the next 24 hours.

While agentic trading is generally frowned upon, we believe Pear trading is particularly interesting as a metric and benchmark-based approach which could actually benefit from agentic support.

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In our newsletter, we may discuss projects or tokens in which we hold positions. While we aim to provide informative content, our views are not financial advice. Please conduct your research and consult professionals before making investment decisions. Crypto markets are volatile, and past performance doesn’t guarantee future results. Invest responsibly, and be aware of the risks. Your capital is at risk, and we do not accept liability for any losses.

The Birth of Bitcoin-Native Finance: Turning Idle BTC into Productive Capital

Bitcoin (BTC) is the 13th-largest asset in the world, with ~$1.3 trillion in market capitalisation, and is increasingly being adopted by company treasuries, ETFs, investment portfolios, and more, positioning it as a “reserve asset”.

Even after establishing its position in the financial market, Bitcoin’s financial utility remains underdeveloped compared with that of traditional assets of similar scale. A BTC holder today primarily holds the asset for pure price exposure, lacking access to any native, underlying yield that naturally accrues value over time. In traditional finance, assets can be securely leveraged to borrow against or generate dividends from corporate cash flows. While Bitcoin can also be used as collateral for borrowing, most current solutions introduce smart-contract or counterparty risk that might not align with the risk profiles of current holders.

As a result, out of the active supply of 20.05 million BTC, only 311k (~1.5%) have access to any yield, including Decentralised Finance (DeFi) lending, staked BTC, BTC deployed on Decentralised Exchanges (DEXs), and vaults.

Ethereum (ETH), the second-largest asset, has built a layered set of financial primitives that convert idle ETH into working capital. Almost 32.5% of all ETH in circulation is staked, earning a native yield of ~2%. On top of base staking sits a second layer of liquid staking: Lido alone represents ~21% of all staked ETH, issuing stETH, a rebasing asset that is usable across DeFi.

This gap is a downstream effect of Bitcoin’s design and the holder behaviour.

1. Bitcoin is a proof-of-work network that has no staking mechanism.

2. Holders’ behaviour is deliberately conservative, meaning those with large holdings would never want to risk their assets for the yield that comes with additional risk, as seen in the centralised BTC lending cascade in 2022, with the collapses of Celsius, BlockFi and Voyager.

In this piece, we aim to highlight the current problems that lead to BTC being underutilised as an asset, while also reflecting on the steady development going forward to solve this exact problem through a case study using Stacks.

The Bitcoin Yield Stack

Only a limited amount of BTC earns any active yield, and almost all of that yield originates in the developed DeFi ecosystems of EVM chains and Solana, because those ecosystems already have financial primitives like lending markets, DEXs, and vaults that can support consistent yield generation. In this section, we highlight the BTC yield stack and the development in its sources over time.

Centralised BTC Lending

Before the onchain ecosystem matured, centralised platforms like Celsius, BlockFi, and Voyager offered BTC yield but sacrificed custody. All these platforms eventually collapsed in 2022 through a nearly identical mechanism: taking legal title to deposited crypto (Celsius’ terms explicitly transferred “all right and title” to depositors’ assets, entitling the platform to rehypothecate them), and re-lending to opaque counterparties. Celsius’ failure was triggered by a liquidity crunch following the Terra/Luna collapse: 75% of the platform’s withdrawals came after this event, forcing it to pause redemptions. Voyager failed when 3AC defaulted on a $350 million USDC and 15,250 BTC loan. BlockFi took the same 3AC hit, then a second one from Alameda Research’s roughly $680 million loan default.

What was common among them was undercollateralised institutional lending funded by retail deposits, with contractual terms that stripped depositors of ownership of the underlying assets.

The DeFi Ecosystem

DeFi is battle-tested in the EVM and Solana ecosystem, which gives users greater confidence in using it. However, to use these products, a BTC holder must first convert native BTC into a representation that the destination chain understands. This includes asset categories such as custodial mints (WBTC and cbBTC from Coinbase), decentralised bridged assets (tBTC), and Liquid Staking Tokens (LBTC). All these categories add a risk layer:

1. Bridge Risk: To mint a representation, a user sends native BTC to an address or custodian that holds it and receives a 1:1 receipt token on the destination chain. For custodial mints (WBTC and cbBTC), the mechanism is operated by centralised operators who are vulnerable to private-key compromise or social-engineering attacks. Threshold’s tBTC has a signer network with no single custodian, though it still carries signer-set and smart-contract risk.

2. Custodian Risk: For assets like WBTC, the custodian, BitGo, shifted from unilaterally holding all three keys of WBTC’s 2-of-3 multisig to a multi-jurisdictional split across BitGo Inc (US), BitGo Singapore Ltd. and BiT Global (Hong Kong) in August 2024. Even after this change, the third key remains with BiT Global, a joint venture connected to Justin Sun’s Tron ecosystem, in which BitGo is only a minority shareholder, making it still a key risk for the asset. On the other hand, cbBTC is backed 1:1 but held entirely by Coinbase, a single custodian that can freeze or seize funds under its user agreement.

3. Smart Contract Risk: Using any DeFi protocol exposes depositors to smart contracts. There have been multiple instances in which protocols have been hacked, and there is simply no resolution. In the November 2025 Balancer hack, liquidity providers (LPs) suffered significant losses after ~$128 million was drained from Balancer V2 pools, despite the protocol having undergone multiple audits.

Even after years of battle testing, DeFi protocols are not the perfect place to park capital.

In the recent kelpDAO rsETH exploit, over 8.6k BTC left the protocol amid fears of contagion in the first six hours. In the kelpDAO hack, the attacker deposited rsETH as collateral and borrowed a large amount of wETH against it. Since all the wETH liquidity was siphoned off, lenders began using their deposits as collateral to borrow in other stablecoin markets. To avoid becoming part of this contagion, users simply decided to withdraw their assets. These withdrawn assets represented ~12% of BTC-based assets deployed on the protocol.

It was a major breach of confidence, as Aave is the largest lending protocol, and an attack on an external asset sent the protocol off a cliff due to factors including its pool-based design and a gap in governance oversight during asset onboarding to E-mode, which pushed its LTV to 93%. Post this, Aave’s market size is down by over 50%.

Bitcoin L2s and Staking Protocols

The second route to BTC yield runs through Bitcoin L2s and staking protocols, such as Babylon, Lombard, Stacks, Rootstock, BOB, and others cumulatively accounting for ~$4 billion in total value locked (TVL).

Of these, Babylon represents the most value locked. It is primarily a staking protocol in which BTC holders lock their assets on the L1 itself, thereby securing Proof-of-Stake (PoS) networks with Bitcoin’s L1 security guarantees. In return, these users earn yield through the chain’s native tokens, whose security they help maintain.

To obtain liquid representations, holders simply deposit either native BTC or WBTC in Lombard, thereby receiving a liquid, yield-bearing representation of the asset, LBTC, making Lombard a liquid staking protocol.

Nonetheless, these assets still expose the BTC holders to slashing risks.

The remaining locked value comes from BTC L2s aiming to bootstrap their own chain, which has historically been more difficult because it requires bootstrapping activity on the chain, attracting builders, stablecoin rails, great UX, and providing incentives to retain capital.

Current gap and its trust assumptions

Cumulatively, all these routes of earning yield reflect that the market has demand and infrastructure, but they don’t essentially sit in the same place. EVMs have deep liquidity and applications but force custody/bridge risk. Bitcoin L2s have stronger philosophical alignment with BTC holders but lack yield variety and UX to retail capital. Centralised lending is structurally broken post 2022 collapse.

Each of these deployments carries a distinct trust assumption:

• Wrapped BTC trusts a custodian, and/or bridge signer set, plus the wrapper and downstream smart contract risk.

• Babylon native staking trusts a covenant committee and an M-of-N multisig (currently 6-of-9, including 3 signers from Babylon Labs, 1 from CoinSummer Labs, RockX, AltLayer, Zellic, Informal Systems, and Cubist) that co-signs unbonding and slashing transactions.

• Stacks sBTC bridge trusts a 15-member set of institutional signers, including Figment, Chorus One, Stacking DAO, and more. For the bridge to function, it requires 70% (11-of-15) of signers to participate honestly, with system safety holding as well and allowing no withdrawals, even if 33% of the signing voting power is honest, i.e., 5-of-15.

The unmet need is an approach that keeps Bitcoin’s trust model as intact as possible while still delivering the applications and liquidity that make capital productive.

Bitcoin-Native Finance

Bitcoin-native finance refers to financial products that use BTC as the primary asset while keeping settlement, security, and asset movement as close as possible to Bitcoin’s base layer, minimising additional trust assumptions.

Bitcoin-native finance cannot be achieved on the L1 itself because of Bitcoin’s own design:

• Bitcoin Script can enforce simple spending conditions but is not Turing-complete and cannot execute arbitrary complex logic or loops, so it cannot express the state machines DeFi protocols need (AMM curves, health-factor checks, liquidation logic, and more)

• UTXO model has no shared, persistent state. Bitcoin scripts do not maintain state beyond the current transaction, whereas a lending market or an AMM requires exactly the shared, mutable state the UTXO model cannot provide.

• Blockspace is scarce and slow. With roughly 10-minute block times and genuinely scarce block space, high-frequency DeFi actions cannot be executed on the L1.

• There’s no native BTC yield mechanism to build derivative products upon because the chain is proof-of-work.

• Bitcoin cannot verify external chain state, so moving BTC into any programmable environment requires custodians or signers.

Given these constraints, fully Bitcoin-native finance isn’t achievable. Every product on the market today relies on some trust assumption beyond Bitcoin’s consensus itself. To solve this problem, a certain set of protocols is building as close to Bitcoin as possible.

• Babylon requires no bridging at all: the staked BTC stays in timelocked Bitcoin UTXOs, but assumes the risk of its covenant committee and of the finality providers it delegates to secure external proof-of-stake chains, introducing slashing risks.

• BOB pairs Bitcoin finality with a full EVM environment via BitVM-style bridging: In practice, it currently settles on Ethereum and treats full Bitcoin security as a phased roadmap.

• Stacks anchors its execution layer’s finality directly to Bitcoin consensus while accepting a signer set for its BTC-backed bridge asset, sBTC, which requires 70% (11-of-15) to move funds.

Among the current solutions, some have already reached a good scale. Babylon (staking protocol), Lombard (liquid staking protocol), and Solv (yield generation), each at the TVL of $2.6 billion, $800 million, and $480 million, respectively.

These protocols have gained traction for their strong composability with the rest of DeFi, enabling users to earn more on top of the base yield the asset accrues.

Yield comes from different sources. LBTC from Lombard does it through staking, sourcing yield from the Babylon network, which secures PoS blockchains. solvBTC from Solv generates yield from delta-neutral strategies, lending, liquidity provisioning, staking, and Real-World Assets (RWAs).

While currently there is no complete Bitcoin-native solution, today this means:

• Getting yield directly on the Bitcoin L1 itself, without giving up self-custody and introducing any new risks.

• Getting a liquid representation of the committed BTC, if the user requires it.

• Having full transparency on the risks involved with each of these steps.

A series of questions users should ask in order to understand whether a solution is Bitcoin-native:

• Does the solution allow self-custody?

• How decentralised are the bridge signers?

• Where does the yield actually come from?

• Can a holder exit or demand, or is there a lockup?

In the following section, we discuss how to answer these questions using the case study of Stacks and how it is building towards Bitcoin-native finance.

How is Stacks building towards BTC Native Finance?

Stacks is a BTC L2 that anchors its execution to the Bitcoin base layer. It is currently at ~$90 million in onchain TVL, with an additional $190 million in sBTC. It is one of the most complete attempts to combine all the pieces of a Bitcoin-native stack in one place:

• Bitcoin-anchored execution layer

• A trust-minimised BTC bridge

• Native BTC-denominated staking

• A liquid-staked representation (sBTC to go live with self-custodial staking)

• Live DeFi applications (Zest, Bitflow, StackingDAO, Hermetica, etc.)

Bitcoin-anchored Settlement

Underpinning both sBTC and the broader chain is a finality model anchored to Bitcoin. Since the Nakamoto upgrade in October 2024, every Stacks miner’s block-commit transaction anchors prior tenure’s full chain state to a Bitcoin transaction, so reversing finalised Stacks tenure would require reversing the corresponding Bitcoin block. Stacks blocks therefore acquire full Bitcoin finality roughly one Bitcoin block after their tenure closes.

sBTC: trust-minimised BTC movement

sBTC is the mechanism that enables BTC to move between L1 and Stacks without a traditional custodian, serving as a bridged representation of Bitcoin on Stacks, which currently has a TVL of ~$190 million.

All the bridged BTC sits in a single peg wallet, a Bitcoin Taproot address, whose movement is controlled by a 15-member, community-elected signer set requiring a 70% (11-of-15) threshold to move funds, as highlighted in the sections above.

Native, self-custodial Bitcoin staking

Stacks recently proposed a Proof-of-Transfer (PoX-5) upgrade that lets BTC holders earn BTC-denominated yield while their BTC stays locked on Bitcoin L1 (expected to go live in late August). For this to work, Stacks utilises a standard OP_CHECKLOCKTIMEVERIFY timelock that allows BTC to remain committed and yield-bearing while staying in the holder’s own custody; the lock is enforced by Bitcoin consensus itself, requiring no trust in a custodian, bridge, or signer set.

Yield in PoX-5 is sourced from the Stacks consensus mechanism as miners bid BTC to mine Stacks blocks. We also covered this mechanism in detail in our previous research on the PoX-5 upgrade.

Since January 2021, this mechanism has already distributed over 4200 BTC to STX stakers. Now BTC stakers will be able to earn yield through the same mechanism.

Participation in BTC staking will require a protocol bond that locks BTC on L1, along with an STX position equal to at least 5% of the BTC value, for a six-month term. The paired BTC-STX bonds form a senior tranche with first claim on each cycle’s miner-BTC pool, targeting 3% APY. The remaining yield is distributed amongst STX-only stakers, forming the junior tranche, and the reserve fund, which accrues excess miner revenue. The reserve fund is used to pay yield in future cycles where miner revenue might be short and unable to fulfil the yield obligation.

Additionally, there is no binding exit, and holders can exit with their BTC in the time it takes for a couple of Bitcoin blocks by giving up the remaining term yield, while the paired STX are locked for the full term. In this model, there is no slashing risk involved, meaning stakers won’t risk losing their funds.

Making BTC productive natively is one of the first steps in the Stacks roadmap; the team is also actively putting research efforts into self-custodial bitcoin borrowing. Through this, users will be able to use BTC as collateral in lending protocols like Zest on Stacks while their BTC never leaves the L1. Stacks constantly verifies the bitcoin collateral on the L1 by reading the Bitcoin state, allowing borrowers to access stablecoins like Circle’s USDCx and Hermetica’s Bitcoin-backed USDh to further produce yield on their assets while still earning the staking yield from PoX-5.

stBTC and the application layer

The BTC that is staked on the L1 with STX is productive in practice, as it earns a base yield and is redeemable at any time. But the same BTC, while staked, cannot be used elsewhere, lacking composability. A possible solution to this is a Liquid Staking Asset (LST) for those seeking DeFi use cases.

StackingDAO is set to launch one such product, stBTC. It is a liquid, staked Bitcoin token, a Bitcoin analogue of stETH.

The major benefit of staking through stBTC is that the BTC holder doesn’t need to source the 5% STX pairing themselves. StackingDAO supplies it from the STX already backing its stSTX and stSTXbtc products, so the holder earns BTC yield on BTC with no STX exposure while remaining in the senior tranche and retaining the highest rights to the yield.

In their model, a user deposits native L1 BTC or sBTC and receives stBTC, whose value autocompounds as sBTC rewards accrue from the PoX-5 mechanism, paid at the end of each cycle. A portion of these rewards goes to the STX backers who lend stSTX and stSTXbtc for the STX pairing. The remaining sBTC is reinvested into the pool backing stBTC (auto-compounded), increasing the stBTC/sBTC ratio.

Additionally, for withdrawals, stBTC exits are facilitated via a reserve buffer for a small fee, or via a one-cycle cooldown using a withdrawal NFT if the buffer is drained.

The applications into which all this value flows are DeFi applications.

Zest is the largest DeFi application on the chain and the lending market. Zest enables its users to deposit BTC-denominated collateral (sBTC, STX, stSTX) and borrow stablecoins with risk-isolated markets. Zest also announced its ‘Stacks Vaults’, which will go live alongside Stacks’ BTC staking. The first vault will be a fully automated stBTC looping strategy, targeting a 6-8% APY, the first example of liquid staked BTC being made productive through Stacks’ finance stack. Followed by them is another lending protocol, Granite. Granite lets its users borrow stablecoins against BTC/sBTC collateral with isolated exposure.

Hermetica issues USDh, a Bitcoin-backed, basis-trade synthetic dollar.

Bitflow is the main DEX on Stacks and recently launched their ‘HODLMM’ which offers concentrated liquidity pools for tokens like STX, sBTC, USDCx, USDh and more. This provides traders and LPs alike the tools they are usually familiar with on Ethereum or Solana.

Top-of-funnel model

Bitcoin Staking is top-of-funnel for Stacks; it attracts BTC capital seeking yield without giving up custody. Once bonded, that capital becomes legible to the surrounding app layer: Zest for borrowing, Bitflow for swaps, Hermetica for structured basis-trade yield, and StackingDAO for liquidity once stBTC goes live. Use of those apps drives chain activity, generating transaction fees that eventually become a meaningful, self-sustaining source of consensus yield alongside the minder-bid PoX pool.

Closing Thoughts

The Bitcoin idle capital problem is real and structural.

Bitcoin lacks a native yield mechanism, and every route built to compensate for that, whether it is wrapped BTC, BTC L2s, or CeFi lending, has come with certain trust assumptions.

There is adoption of these routes, and BTC currently represents ~7% of the DeFi TVL ($5.2 billion). But given its size, it’s underrepresented. Most of the BTC today lacks productivity and remains an asset to hold for price appreciation.

Stacks has been steadily building for many years now to reduce these trust assumptions, and with its upcoming PoX-5 upgrade, Bitcoin holders can natively earn yield from Stacks blockchain miners who bid BTC to mine Stacks blocks.

Whether their model becomes the most adopted or utilised depends on how closely their ecosystem grows alongside native BTC staking, because for the yield to sustain (3% APY), miners have to constantly bid. For now, this has been proven, with 5+ years of activity since the Stacks mainnet launch.

Nonetheless, BTC remains a reserve asset and is being widely adopted by institutions. The increase in its productivity would only expand the asset’s ability to consistently be part of more balance sheets and be lucrative for new holders.

written by @Noveleader

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Welcome to another edition of The Castle Chronicle.

This marks the beginning of August, usually the slowest month of the year. This, of course, does not apply to drama, which seemed to abound this week.

Between Coldcard being hacked, putting self-custody and its meaning to the test, and FWA rugging token holders, we really can’t catch a break.

Amidst the more sensational headlines, much stronger fundamental updates such as Solana’s tokenomics improvements risk getting lost.

In this week’s Chronicle:

• Solana’s proposal to cut emissions and double annual disinflation from 15% to 30% to reach the net inflation rate of 1.5%.

• The Coldcard Vulnerability and how frontier models helped find a 5-year-old bug.

• An attack on Umbra Treasury and how it never materialised due to the MetaDAO model.

• FWA keeps 100% of Accrued Fees so far to the protocol.

• How is Robinhood Chain doing?

Tokens Either Die Young or Live Long Enough to Become Deflationary

Let’s start on a positive note: Solana just put a proposal to a vote which would cut emissions and double ‘annual disinflation’ from 15% to 30%.

L1 tokens are dinosaurs, and we have very rarely seen this kind of proposal recently, signalling a potential broader shift in the market.

This is a massive step forward for a token which has often been criticised for its emissions, which currently has an inflation rate of around 3.7%, equalling over $1.5 billion in SOL distributed to stakers yearly. Solana is now making its token more appetible with a better monetary policy, if you will.

The proposal on the governance forum is SIMD-0550.

0550 is a proposal to reduce inflation by an additional 15%. Solana projects to reach a 1.5% inflation rate as its benchmark rate. This proposal accelerates the road there, with a target for H1 2029 instead of H1 2032.

This proposal will also reduce SOL emissions by over 18 million SOL before reaching the 1.5% inflation rate.

The impact on staking rewards is expected to be as follows:

• Current APY: 5.84%

• Year 1: 4.34%

• Year 2: 3%

• Year 3: 2.25%

We refrain from commenting at this moment on how changes in APYs will affect staking dynamics. For now, this change is expected to slightly impact validator profitability. However, given that Solana already had a target set for 1.5% inflation, this was due to happen anyway.

The Coldcard Vulnerability: No One is Safe

While there is no stopping hacks this year, many of them were related to private key compromise through social engineering or at the infrastructure level. But at the end of the day, you feel safe because most of your funds are in a hardware wallet.

This assumption broke last week with the Coldcard hack.

A critical security flaw was uncovered in Coinkite’s Coldcard hardware wallets, enabling an attacker to drain roughly $89 million in Bitcoin from over 4500 bitcoin addresses.

The exploit stemmed from a 2021 firmware build configuration bug that disabled the device’s hardware random number generator. Instead of producing standard 128-bit or 256-bit cryptographic randomness, wallet generation fell back to a predictable algorithm. This compromised the device’s private key entropy, dropping it to a vulnerable 40-bit or 72-bit range. Attackers exploited this by regenerating candidate seed phrases and brute-forcing the private keys to sweep funds.

The most brutal aspect of this attack was that the bug was live for over 5 years and it was never noticed by the code maintainers. Also, as Galaxy traced the wallets from which these funds were stolen, most of them were retail, holding smaller amounts of BTC, ranging from 0.1 - 1 BTC.

This attack also ignited a debate in the security space, as frontier AI models could be leveraged in this scenario because finding this bug was tedious and only LLMs could reduce the time to such findings.

As they can be used in attacks, they can also be used in defence. So every protocol that secures users’ funds behind code should use these models to protect their users by auditing their code with them.

Umbra Protects its Treasury from a Malicious Governance Proposal

On the 1st of August, a malicious governance proposal, UMBRA-004, was created on the governance forum.

The proposal aimed to steal over $1.5 million from the Treasury. The attacker attached enough stake for the proposal to reach the minimum staking amount and go live.

The proposal eventually failed, as the treasury was defended through voting on decision markets, taking positions against the attacker’s proposal.

This is an interesting example of both the risks of decentralised governance and the often underestimated impact of coordination between an aligned user base - and this is also thanks to the MetaDAO model.

Umbra now has to carefully assess the potential for future, better organised threats against its treasury, which is very appealing considering the modest size of the protocol.

Relying on markets to secure governance works as long as the incentives are aligned. This precedent highlights a different kind of market-based governance defence, where participants price and reject a malicious treasury action.

Why We Can Never Have Nice Things: FWA Directs 100% of Accrued Fees ($3m) To Protocol

In last week’s edition, we introduced FWA and how it had grown to account for over 10% of total fees paid on the Ethereum mainnet.

Yesterday, the company announced that the previous fees accrued by the protocols will not be used for buybacks but rather for the protocol itself.

This received backlash, considering that just a few days before the CEO had gone on an interview declaring: “how much of the fee that is currently going to tokenworks should go to buybacks? and that can be anywhere from zero to 100%. will it be zero? no. will it be 100%? no. my gut says down the middle.”

It turned out to be zero.

While token buybacks are not the holy grail of crypto, they are the easiest way for people to monitor whether the team has skin in the game. With time, they have become proxies for token holder revenues, though unjustly.

Considering that a lot of FWA supply is already being minted, reducing incentives to spin the gacha to get tokens, this is another potentially negative setback for broader protocol usage, especially on the day of unlocks.

Protocols should aim to make money.

However, they should aspire to do so without stirring their community or stifling growth.

Users will always want most revenue to be used for buybacks or to go to them.

Teams want it all.

A middle ground should have been the obvious answer: now FWA risks just becoming a fun experiment that lasted a week.

From the last post, it emerges FWA is committed to purchasing tokens for around 300 ETH from their revenues (about 10% of total fees raked).

We will continue monitoring the situation and see how things evolve.

Post-Hype Update on Robinhood Chain

Finally, we deserve a little more air time for Robinhood Chain. After flooding our home page with massive hype, RH Chain is now suffering a period of adjustment.

This comes after memes have cooled down, reflecting a slowdown in DEX and launchpad volumes.

However, RH is already broadening its offer to become a more complete ecosystem, as part of its onboarding of several blue chips, signalling a search for maturity.

Taking this all into account, daily transactions are still on a positive trend and at an all-time high.

Currently, there is a fair 50/50 balance between new and returning daily wallets, showing both consistency and that the RH chain is not slowing down in terms of attracting new users.

The initial weeks of development of a new ecosystem are most interesting to observe from a research perspective.

For now, we believe that Robinhood has voluntarily led its ecosystem to be sort of a live experiment and see how market dynamics work. Armed with these insights and data-driven knowledge, we expect them to capitalise on what has made RH chain so appealing while also further leveraging both its huge distribution and monetary and strategic capabilities to bring a wide range of products to further differentiate the eco from others.

On our Radar

• Monad’s TVL more than doubled in July, from $350 million to $830 million, primarily driven by deployments like Aave, Pendle and Euler.

What’s particularly interesting about Monad is the focus on making these assets productive, with over $370 million in active DeFi TVL, one of the highest.

• Discussions like the one surrounding FWA show how the token question mostly remains unanswered for protocols. Just last week we released a report on (what we believe is) a broken link between protocol revenues and token performance.

Four questions you should ask about a token include:

• What are the protocol’s revenue sources and their sustainability?

• How do they distribute this revenue to tokenholders?

• How much of the token value goes towards emissions?

• Is there any existing dual token-equity structure?

Read the full research: https://research.castlelabs.io/p/the-broken-link-between-protocol

Mike from Blockworks appreciated our comments, highlighting the importance these aspects have on investor confidence.

• For those of you interested in the perps space or on how RWA products can get better distributions, tomorrow, Wednesday at 1 pm UTC, we will sit down with the CEO of Variational to discuss these subjects! Make sure to join us:

Set a reminder for it:

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To make our content closer to you, we’d love to hear directly about anything you particularly enjoyed or anything you think we should cover.

Feel free to DM us on X, or reach out through our Blog, LinkedIn, or individual team members.

Thank you for your support as always.

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In our newsletter, we may discuss projects or tokens in which we hold positions. While we aim to provide informative content, our views are not financial advice. Please conduct your research and consult professionals before making investment decisions. Crypto markets are volatile, and past performance doesn’t guarantee future results. Invest responsibly, and be aware of the risks. Your capital is at risk, and we do not accept liability for any losses.

Since the beginning of the year, crypto protocols have cumulatively made $7.42 billion in revenue.

Even after generating astonishingly good numbers, most tokens in crypto struggle to reflect their protocols’ success.

Not all revenues are the same.

This is a result of how the industry was built from the beginning, but the situation is evolving, and so are the questions being asked by investors when evaluating any token, focusing on the product’s revenue generation, spending, and tokenholder value accrual, marking a shift from gambling to investing.

At most times, tokenholders are looking to find the answer to the following:

1. How does the protocol generate revenue, and is that sustainable?

2. How do they distribute this revenue? And do tokenholders accrue value from it?

3. How much of the token value goes towards emissions, including inflation, unlocks, and incentives?

4. Is there any existing equity distribution that grants greater rights than those of the current holders?

Answering these four questions weighs the project in the eyes of any investor, but most projects can’t answer them definitively. Every token has a different value accrual mechanism, and some simply don’t have any. Even when there is a direct value shared with tokenholders, the token might not perform as expected.

Take the example of PumpFun: since its token launched, the protocol has generated ~$450 million in revenue (1-year timeframe), but the token is in a never-ending downtrend due to a combination of factors, including the token’s unlock velocity, failed airdrop expectations and more.

In this piece, we highlight the different ways top protocols generate and distribute revenue, accounting for emissions and incentives to show the nuances investors should consider when evaluating a protocol or token.

Crypto Revenue Sources and Allocation

The base question before getting into the argument about value accrual to tokenholders is quantifying the revenue generated by major products and how it is distributed. For this analysis, we consider six protocols (Aave, Aerodrome, Hyperliquid, Pump, Sky, Uniswap), which collectively generated $726 million in revenue during H1 2026.

While higher revenues can be a sign of a sustainable business, seeing them in isolation isn’t enough. For one thing, to account for short-term fluctuations, revenue is better measured across different timeframes to assess its sustainability, so below we also compare Q1 and Q2 2026 revenue and measure the change between them. For most protocols, the delta was negative, reflecting weaker performance in Q2 due to overall market conditions.

Turning to revenue sources, Hyperliquid derives revenue from trading fees on its perp exchange (native + HIP-3), spot markets, ticker auctions, priority fees, and HyperEVM gas fees.

Aerodrome is a Decentralised Exchange (DEX) that generates revenue from fees on swaps and external voting incentives (bribes). Similarly, Uniswap charges fees on swaps contributing to its revenue.

Sky generates revenue from its different products: stability fees are charged on collateralised DAI/USDS loans, liquidation penalties, Peg Stability Module (PSM) trading fees, and interest earned from Direct Deposit Modules (D3Ms) and Real-World Assets (RWAs).

Continuing the list, Aave generates revenue from the interest rate spread (paid by borrowers), flash loans, liquidation penalties, and stability fees from its native GHO stablecoin. Pumpfun generates revenue from trading swap fees and graduation fees charged when newly created tokens reach a target market capitalisation.

Once we have highlighted how these protocols source their revenue, we now compare them with token emissions to explore whether and how they balance. While a protocol tokenholder’s revenue can be high, if token emissions are equally higher, the value of the accrual process reduces. A protocol could have $100 million in revenue, but that number means something completely different if it does so by minting $200 million in tokens a year. In addition, token emissions are also important to highlight because they show how much value is going toward inflation, token unlocks for the team or investors, and, most importantly, incentives.

The revenue allocation of most protocols is usually split between tokenholders and the treasury. The details come down to specific protocol mechanisms and the governance in place for handling this division.

To demonstrate how emissions affect any token, we subtract emissions from Holder Revenue. For Aerodrome, Sky, and Uniswap, the net token flow becomes negative after this, even with revenue allocated to holders, indicating that these protocols are giving away more in emissions to maintain current revenue levels, reducing the net value flow to holders.

Currently, tokenholders accrue value in two major ways: Buybacks and Fee Distribution.

Buybacks

Buybacks are one of the easiest ways for projects to distribute value to tokenholders, albeit indirectly, by using revenue to buy tokens and burn them.

Buybacks usually return tokens to the protocol treasury for future incentives or even staking rewards; for example, Aave directs buyback tokens to the treasury.

To be more aligned, most protocols burn these assets, reducing the supply. Lighter, for example, burnt ~15.6 million LIT tokens it acquired through revenue (6.6% of the supply) worth $36 million.

Hyperliquid performs a buyback and burn programmatically and has, to date, burnt over 47 million HYPE tokens, about 4.72 % of its supply. Uniswap performed a 100 million UNI token burn in December 2025 and has, to date, cumulatively burnt 107 million UNI tokens (~11% of the total supply), sourced from the fees it enabled.

Burning isn’t necessarily present in all tokens and is highly nuanced in the way burns are carried out. In the past, for example, BNB used to run quarterly burns. However, these were often less effective than users expected, as they burned non-circulating tokens and thus had no real impact on market dynamics. Users have to look at the fine print on burns: where are the tokens getting burned from? Circulating supply or not?

Every project performs buybacks differently. Maple Finance holders recently voted for a buyback program that scales with revenue and increasingly allocates more to the tokenholders as revenue grows. This was an update to their MIP-019, which previously set aside 25% of revenue for buybacks. At the given H1 2026 average revenue of $1.15 million, the buyback would be scaled down to 10%, which, as a holder, might not be the best news, but it passed with 99.97% of votes “for”.

Additionally, tokenholders can choose to stake their tokens with the protocol and earn staking yield from the treasury. After its recent tokenomics update, Lighter is targeting a staking yield of 6%, which, at the current staking level of 125 million tokens, would distribute 7.5 million LIT tokens yearly.

Similarly, over 430 million HYPE are staked, earning yield from the future emissions reserve at an estimated 2.1%.

Buybacks and burns alone won’t save a project from down-only tokenomics or declining revenues, and should be considered within a broader framework across the buy and sell sides of every single protocol. However, they can be leveraged to drive ecosystem growth and bootstrap liquidity while tapering slowly over time, leaving time for organic growth. Burns have a similar mechanism where they can use platform activity to counter inflationary tokenomics.

Fee Distribution

Other protocols, such as Aerodrome and Curve Finance, distribute fees directly using a ve-tokenomics (Ve) model. In this model, holders stake their tokens and convert them into vote-escrowed tokens (e.g., veAERO or veCRV).

It creates economic value for holders through different mechanisms:

1. Protocol Trading Fees: These protocols route 50-100% of the fees to ve token holders.

2. Boosting Yield: Holding these tokens also increases yield for Liquidity Providers (LPs) in the pools on these exchanges.

3. Bribes: Protocols pay cash incentives to ve holder in exchange for their governance votes to steer future rewards towards their specific liquidity pools.

Ve protocols are, in fact, characterised by an inherent design that drives strong emissions, which partially explains their high fee distribution growth through inflation.

Using these methods, these protocols have so far generated over $2.75 billion in tokenholder revenue, primarily driven by Hyperliquid and Uniswap (due to a 100m UNI burn in December 2025).