Bitcoin is going from strength to strength, breaking $80,000 overnight, closing April +12%, and recording the highest monthly ETF inflows this year ($1.98B). Whilst Ethereum is lagging behind, it did achieve its first net positive inflow month since October 2025, drawing in $365M.

After an April that scarred the industry, with the worst month of exploits since 2022 totalling $651M, May has gotten off to a stronger start. In fact, just yesterday, Haun Ventures announced a new $1B fund focused solely on rethinking finance, and a16z announced a new $2.2B crypto fund. This came after the most anticipated TGE of the year in MegaETH and a week when several new derivative products opened for trading, including the long-awaited HIP-4.

We’ll start this edition with these new derivative markets, then move to Aave’s legal battle for Arbitrum DAO, more details on VCs raising funds, a recap on MegaETH’s launch, and a look at RWAs and DeFi.

Onchain derivatives are eating finance

Haun Ventures’ $1B fund’s thesis focuses on three pillars: new financial infrastructure, new assets and markets, and an agentic economy. The first two are rooted in fewer intermediaries, the removal of legacy constraints, and the creation of borderless, always-on, programmable markets. And that’s exactly what got shipped this week:

• Hyperliquid opened HIP-4, its outcome markets in limited form

• Trade XYZ launched pre-ipo perpetuals, adding to their dominating product offering

• Ostium reinvented its liquidity engine, directly accessing tradfi liquidity with decentralised execution.

• Risechain, the gigagas L2 launching their flagship perp DEX, RiseX

Each of these targets the pillars above by removing barriers and enabling access to infrastructure, liquidity, and new markets. Let’s take a deeper look at each.

HIP-4 goes live

Over the weekend, Hyperliquid pushed HIP-4 to mainnet, limited to a single BTC binary event per day.

HIP-4 are Hyperliquid’s outcome markets. They are designed to be a general-purpose primitive, useful for prediction markets and options-like instruments, among others. Outcomes expands the platform, bringing an alternative form of derivatives trading that does not include leverage or liquidation risk, while composing directly with other features, unifying margin across spot and perps accounts, and connecting to the HyperEVM.

Whether this will be seen as a sufficient differentiator from Polymarket and Kalshi, and what kind of user it will attract, remains to be seen. We expect Hyperliquid’s core user base to remain loyal and a portion of Polymarket users to migrate, given that 14% of Polymarket’s top traders are already on Hyperliquid, with those overlapping wallets generating $1.43 billion in Polymarket volume and running $189 million in perp notional on Hyperliquid.

We expect to see more markets listed soon, potentially around the price of hype and later multi-outcome markets, before full permissionless deployment. Potential deployers include TradeXYZ, Kinetiq x MarketsXYZ, OutcomeXYZ, and Nova Markets.

Find all resources surrounding HIP-4 in this thread, along with our previous report.

TradeXYZ launches IPOPs

After dominating perpetual equities and commodities, Trade XYZ are going after pre-IPOs. This time, instead of unlocking 24/7 trading for users, they are opening up a market that was gated, slow and inaccessible on private secondaries. Their first IPOP market is Cerebras (CBRS), the AI chip maker that just filed its S-1 with the SEC, targeting a mid-May IPO.

We’ve seen the first iterations of this onchain from Ventuals and others, but Trade XYZ’s release introduces a new pricing mechanism derived from the internal market itself, enabling price discovery on the platform that is uncorrelated with the stock’s estimated valuation. This is an update on current Pre-IPO perps, which anchor the market price to the underlying using a fair value estimation.

This new market from TradeXYZ is due to make some waves, just like they did with perpetual equities and commodities. We predict this will bring real attention from those outside crypto, as these companies are among the most-watched by investors, allocators, and traders worldwide, and Trade XYZ already has the distribution to target them. In the first week alone, TradeXYZ has been dwarfing the volume at Ventuals. Although Ventuals appears to be in a much steadier state, with lower volumes and a stable OI, suggesting users are sitting on their positions waiting for the IPO.

Later this week, we will release a full report on Pre-IPO perps: the evolution, the venues, the mechanisms, the trade-offs, and what this means for the broader offering of onchain derivatives. Be sure to subscribe and follow on X ahead of time, and follow Atomist for teasers.

Ostium as the gateway to liquid markets

Last week, Ostium had its largest protocol upgrade to date and the first of its kind for onchain trading infrastructure. Previously a self-contained system, Ostium now connects to the deepest pricing and liquidity at some of the world’s most liquid traditional markets. They achieved this by working with a hedging network of market makers, prime brokers, and other major institutions.

Traders can expect larger trades, tighter execution, predictable fees that reflect those of these liquid markets, and access to more markets and assets. LPs, on the other hand, are no longer directly exposed to trader PNL. Instead, the directional risk is hedged offchain. Whilst OLP, Ostium’s onchain liquidity provider vault, becomes the senior tranche, with a dedicated junior buffer sitting below, programmatically hedging and absorbing any gains or losses first.

To demonstrate the impact this upgrade is already having, a single $2.2 million trade longing the US100 at 100x leverage had a price impact of 0.0038% last week, and traders are making eight-digit trades with very little slippage.

Instead of creating onchain markets, Ostium has chosen to build a layer that allows access to traditional exchanges worldwide directly onchain. Despite allowing deep liquidity access at competitive pricing and low slippage, it is bound by the restrictions of these traditional markets. As such, Ostium is not open 24/7 for commodities, FX, and equities.

RISEx posts $100M volume in its first week

Despite launching on an invite-only basis, weekly volume at RISEx has hit $100M, with cumulative volume exceeding $150 M since launch and a peak open interest of $2.1M. The order book for the DEX lives entirely onchain, with the same execution environment as every other contract across RISE (more on that below). In pre-launch testing, the team achieved 5 Ggas/s, 50k TPS, and a 1ms order book update. From looking at rollups.wtf, we can see the actual live data with RISE burning more gas than Ethereum and all other L2s combined, all originating from one app.

Whilst this speed and gas consumption are astonishing, it’s what the shared state unlocks that can truly be a game-changer here. Through this shared state, AutoYield allows idle margin to earn yield via Yearn-managed vaults, and LP positions and lending deposits can be used as margin.

We’ll be watching to see how RISE grows over the coming weeks as they come out of invite-only, iterate on their product, activate their wider ecosystem, and polish the user experience. See their full launch philosophy here.

Get access now with code: ATOMIST1 at https://rise.trade

Castle’s derivatives thesis

It’s clear that onchain derivatives are becoming critical infrastructure for finance worldwide, removing intermediaries, breaking down borders, and allowing people to access always-on, programmable markets wherever they are.

We’ve been writing about derivatives for years, ever since we published our flagship piece on GMX V2, which at the time was a groundbreaking new architecture for perp DEXs onchain. Much has changed since then with the arrival of Hyperliquid and the emergence of new L2s, opening up the possibilities for what can be achieved completely onchain. You can find some of our derivative pieces throughout the years below:

• 3 July 2023 — Deciphering GMX v2: The Next Wave of Decentralised Perps: Oracle-priced AMM mechanics, GLP to GM/GLV transition, fee restructure, CLOB versus AMM models.

• 10 November 2023 — Demystifying Options: A 0 to 1 Guide about DeFi Options: DeFi options primer covering Lyra, Aevo, Panoptic, Synthetix-as-hedge, options AMM landscape.

• 23 February 2024 – Unlocking Hyperliquid: A Deep Dive into its Future and Fair Valuation: Hyperliquid as dApp-chain, $1.1B FDV thesis, valuation against dYdX and GMX comparables.

• 19 September 2024 – The Evolution of Prediction Markets: Polymarket and Azuro deep dive, history from Augur onwards, sector growth and PMF.

• 28 April 2025 – The Ultimate Guide to Farm the Hyperliquid Ecosystem: HyperEVM farming meta, KittenSwap, post-airdrop positioning across the Hyperliquid ecosystem.

• 10 September 2025 — USDH: A Hyperliquid Aligned Stablecoin: Native Hyperliquid stablecoin design and perp collateral implications.

• 2 October 2025 — Prediction Markets: A Differentiated Hedging Tool: Prediction markets as hedging instruments, low-risk DeFi framing, Limitless and the broader landscape.

• 23 December 2025 — Secrecy and Grand Designs: Variational deep dive (RFQ perp DEX with Omni as internal market maker), CLOB versus RFQ structures across Hyperliquid, Lighter, Aster.

• 12 January 2026 — Prediction Markets Have Never Been This Strong: Sector volume and trajectory thesis.

• 3 February 2026 — Making All Markets Hyperliquid: HIP-4 binary outcome markets, Hyperliquid as universal market layer.

• 6 February 2026 — Don’t Trade Cryptos, Trade Rates: Pendle Boros, yield-rate derivatives, funding-rate trading.

• 19 February 2026 — Hyperliquid is Not a Company: Jeff Yan EthCC interview, protocol-not-company framing.

• 25 March 2026 — The Evolution of Commodities: Onchain commodities, gold and silver perps, the oil markets thesis.

• 1 April 2026 — 432 Hours of Hyperliquid Oil Market Data: Empirical analysis of Hyperliquid oil perpetual data.

Aave files emergency motion to vacate restraining notice on Arbitrum DAO

Aave Labs has hit back at a restraining notice issued by Gerstein Harrow (a law firm representing victims of previous DPRK thefts) against the Arbitrum DAO, filing an emergency motion to vacate. The notice has effectively put Arbitrum DAO and its delegates in a tight spot on whether to approve the release of frozen funds back to DeFi United, the contributor coalition working to make rsETH holders whole, bring rsETH back to peg, and remove the risk of bad debt across Aave.

The Arbitrum DAO currently has an offchain temperature check live, which is due to pass. However, we know firsthand that many delegates are wary of voting due to legal concerns around liability. This extends even to abstaining on such a proposal, especially for the onchain execution vote that follows.

Aave Labs’ filing here is a great step towards working with the courts and, hopefully, can lead to clarity before the onchain vote in the coming week.

a16z & Haun Ventures raise billions as crypto VC funding hits a new monthly low

Deployed VC capital in crypto hit its lowest monthly point since July 2024, with $659M in funding across 63 rounds. Despite this, Haun Ventures’ new fund may signal a brighter future. They’re focusing on new financial infrastructure, new assets and markets, and the agentic economy, particularly mentioning prediction markets and perpetual futures. These are all theses we deeply believe in at Castle. To add fuel to the fire, a16z also announced a $2.2B crypto fund today.

Could this signal a bottoming in the market and in the industry? Or do we have longer to wait yet? We expect this transition to continue, as crypto VCs of the past fail, fold, or pivot, and newer, more finance-oriented VCs enter crypto, seeing huge opportunity for disruption, as the financial rails, markets, and assets of tomorrow are built onchain.

MegaETH after the dust has settled

Just five days after TGE, MegaETH has flipped Ink, Monad, OP Mainnet, Plasma, Sui, and Avalanche in terms of TVL surpassing $700M. Despite this, the token fell from an open of $0.18 to $0.12, a 38% drop. MegaETH has been pushing to differentiate itself, both in its architecture with real-time sequencing and in its launch and token unlock strategy, utilising a new approach with KPIs linked to emissions for both users and the team.

Feedback from the market has been mixed on the quality of the apps, but one thing is for sure: USDM, MegaETH’s native stablecoin, has been growing rapidly, surpassing $500M over the weekend and ticking off one of the first KPIs in Flux. With Flux, users can stake their MEGA tokens in reward contracts that unlock as KPIs are met. There are currently 677 million MEGA committed to this effort from users, with 5.3 billion tokens up for grabs as KPIs get ticked off.

The eight-week incentive campaign across the apps in the terminal has kicked off. Usage across these apps, alongside ecosystem-wide metrics such as USDM supply and collateral in lending markets, is worth tracking. Remember, no incentive campaign tokens are released until the end of the eight-week period, so no fresh supply enters the market during this period. Whether this will lead to an upward price movement back to the opening valuation remains to be seen.

What's happening in RWAs?

Real-World Assets (RWA) currently sits at an onchain value of $30.92 billion and is one of the categories that have seen only an uptick in value over time, unlike other crypto categories. This growth reflects a consistent interest in growing RWA onchain. There are multiple players involved in this significant value, including BlackRock, Franklin Templeton, and many other TradFi institutions.

RWAs or tokenised assets are just a way to bring exposure to certain assets onchain like U.S. Treasury Debt, Private Equity, Commodities, Private Credit, Real Estate, and more, basically everything which cannot be produced onchain.

Ultimately, RWAs bring new yield sources onchain. Onchain yield sources are fairly limited, with the core being staking rewards, lending markets, perpetual vaults, and funding rate arbitrage, all of which are net crypto exposure, but RWAs change this.

Offchain yield sources are mature and offer a better risk-to-reward ratio than onchain yield because, with the latter, a user is exposed to hacks, contagion risk, smart contract risk, and many other risk profiles at once, whereas with RWAs, this risk exposure is reduced. Now, RWAs are not risk-free either, but if we consider lower-risk assets like U.S. Treasury Debt, they perform better, especially given that the onchain yields have declined over time and are highly seasonal.

But the real edge is in leveraging RWA yields, which isn’t possible offchain at scale, but DeFi unlocks it through lending protocols.

RWA looping is harder to scale because it can’t be redeemed instantly due to liquidity constraints. To get value out of it, it must go through the full redemption process, which can take a lot of time, making liquidations harder in lending protocols.

This poses a huge challenge and is also why DeFi TVL didn’t follow the RWA trajectory.

But things are changing as protocols like Redstone have built out a reliable liquidation flow enabling RWA looping at scale. They do this by introducing auction-based liquidations and connecting positions to KYC-verified solvers, who take on the underlying asset offchain and close the position onchain.

RWA growth in DeFi and its scale have been limited, as only $2 billion of tokenised assets are currently used across DeFi, which is ~6-7% of the total RWA value. This equation appears to be evolving as the industry focuses on improving the liquidation flow for these assets.

The recent drop in active RWA DeFi TVL, as seen in the chart above, is due to Kelp’s rsETH hack, which prompted users to withdraw assets from lending protocols.

• Arbitrum DAO onchain vote on DeFi United disbursement: Snapshot closes May 7, with onchain opening shortly after.

• HIP-4 weekly volume and OI: Day 1 cleared ~$6m notional on BTC daily binaries, around 0.7% of daily prediction market activity.

• MegaETH’s Growth and KPI targets: First KPI ($500m USDM) ticked. ~677m MEGA committed, 5.3b up for grabs across the eight-week campaign on DefiLlama.

• TradeXYZ CBRS-PRE and the second IPOP.Cerebras IPO is set for May 30. We’ll be watching for IPO pricing, CBRS-PRE conversion at listing, and the second IPOP market.

A much stronger close this week, and a positive start to the new month. 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.

For the last cycle, crypto has been strengthening its infrastructure, but the core audience remained the same.

MegaETH looks to be the first serious bet against this pattern.

Today is TGE day, coming 80 days after mainnet went live.

Refreshingly, the 10 apps that helped reach the KPIs don’t necessarily fall under crypto as a category: they go beyond it to serve a broader audience and can be categorised as consumer applications.

We highlight this as the consumer-layer opportunity: Crypto has always struggled with adoption and with gaining net new entrants for the applications we have built.

Most of the time, this requires education: Users need to be introduced to things slowly, and consumer layer applications perfectly fit for this use case as they generate economic activity, attract new entrants, and give a way for those who are interested to explore more of crypto without necessarily knowing what happens in the background or at a technical layer.

Only once they are consumer app users do they then start exploring crypto as a whole.

This is a change from the previous ecosystem launches, where the opposite argument was often made. Get users in a crypto ecosystem, and then they will explore apps.

While the transition from Level 2 to Level 3 in the image above might not occur as some users simply don’t wanna use DeFi, this novel approach can help expand crypto’s potential user base.

To help the chain tap into a new layer of users, MegaETH launched MegaMafia, an accelerator program designed to incubate and bootstrap native ecosystem applications.

We also covered some of the MegaMafia apps before:

This is one part of the equation where MegaETH did things differently, the other being their KPI-driven TGE.

MegaETH went live with its public mainnet on February 9th, 2026, and introduced three KPI milestones, hitting any one of which would trigger TGE. The idea was to demonstrate real usage rather than launching with an empty chain, by gating the launch on usage as well as deployment alone:

• The first required 10 live applications from the MegaMafia, as well as hitting >100k transactions across >25k unique wallets

• Hit $500 million in USDm market capitalisation (the chain’s native stablecoin) and 25% of it deposited into smart contracts

• Three apps to earn $50k in daily fees consistently for 30 days.

After 73 days of going live, they hit the first milestone, and TGE is happening today, 7 days after KPI completion.

The Way to Terminal

After TGE, Mega is running an incentive campaign to distribute about 2.5% of the MEGA supply.

To streamline interaction with the MegaETH ecosystem, they launched Terminal.

https://terminal.megaeth.com/

Season 1 started on 28th April and will run till 23rd June, 8 weeks. This season’s wave 1 ends with the TGE, and more apps will appear on the terminal to explore today: currently, only six are listed.

Beyond exploring apps, two things on the Terminal are worth checking out: Boosters and Clan.

• Boosters apply if you hold a fluffle NFT, participated in the echo round, or were previously active on the chain.

• Clans require users to pledge to one of the six listed NFT collections. As the clan reaches more pledges, holders of the clan NFTs get a boost in their points.

The apps that triggered the TGE, mapped onto consumer applications, tap into habits and things most people already interact with: collecting cards, trading sports cards, and shared culture.

You can also check the complete MegaETH ecosystem here:

https://rabbithole.megaeth.com/

A Numbers Game

The MegaETH ecosystem has ~$105 million in total value locked (TVL). 91% of this TVL is represented by three apps: Kumbaya (DEX and Launchpad), Aave (Lending), and World Markets (DEX). This concentration is expected as we are only 80 days into the mainnet, and Terminal has only just kicked off. As other apps get more users, this concentration is expected to change.

USDm is Ethena’s whitelabel stablecoin for MegaETH, backed by T-bills. Since the incentive campaign announcement, the USDm market capitalisation has risen to ~$167 million as users rushed to try the live applications, now covering one-third of the $500m USDM KPI.

At the current supply with a treasury yield of 3.5-4%, it generates about $6 million in annual yield, which will be used to buyback MEGA, contributing to its flywheel. As USDm grows, the yield it generates increases, eventually contributing to more MEGA buybacks, and, with that, interest and demand for the chain grow, helping USDm grow even further. This is an additional source of revenue for the ecosystem embedded from Day 1, unlike other chains, which route most of the value generated through stablecoins to issuers like Tether and Circle.

Closing Thoughts

Wave 2 of Season 1 begins today, post-TGE, and more apps will appear on the terminal for exploration.

The category of applications on MegaETH is not part of the general chain’s ecosystem structure. They tried to expand into the consumer market and serve a new set of audiences. From a broader perspective, this is good for crypto, as it will help onboard net new entrants and align with current trends across consumer applications such as prediction markets and broader hyperfinancialisation. Previously, chains usually tried too hard to sell DeFi, which has failed. MegaETH’s approach is at least different.

We also talked about the target audience for MegaMafia projects in the past, as they are building heavily for Gen Z:

Mega is by far one of the most interesting events happening in 2026.

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BTC has continued to grind higher over the week, whilst ETF inflows top $750M for the third week in a row, logging their first eight-day inflow streak since October. Then, on Friday, BlackRock’s IBIT options open interest ($27.6B) overtook Deribit’s ($26.9B) for the first time, indicating growing institutional appetite for accessing regulated crypto derivatives directly in the U.S.

Life onchain has not been the same story. DeFi fought back after a month of exploits that culminated in the $292M Kelp hack last weekend, leaving Aave with $200M+ of bad debt. In just five days, DeFi United, led by Aave, raised more than 132,000 ETH to backstop the hole. 14 core ecosystem participants got involved, donating or lending large sums, with a sea of smaller donors, too. The relief fund can easily cover the bad debt with defiunited.eth sitting at over $300 million. DeFi will survive. This time, at least.

In this week’s edition, we’ll look more closely at DeFi United, its contributors and their own exposure, along with what would have happened had this not come together. Then we’re on to big growth figures on Solana across ETF flows, and its onchain RWAs. We’ll dive into three major centralised exchanges forging towards an agentic future and what we at Castle see playing out here, before preparing for one of the most anticipated events of the year: the MegaETH TGE, due in two days. All this and lots more, with our analyst also highlighting what Polygon might look like if Polymarket were to depart.

DeFi United crosses $300M

On Sunday, Consensys and Joseph Lubin pledged up to 30,000 ETH, pushing the total relief over 300 million. Contributors surfaced from across DeFi, with Aave DAO (25k ETH), Ether.fi (5k ETH), Stani personally (5k ETH), Lido (2.5k ETH), Kelp DAO (2k ETH), and Golem Foundation (1k ETH) all contributing alongside a 30k ETH 3-year loan from Mantle. These, combined with the 30,000+ ETH held by the Arbitrum DAO after the Security Council’s freezing last week, along with personal donations from Emilio Frangella (500 ETH), VP of Engineering at Aave and Ernesto & BGD Labs (350 ETH). We even saw the Ethereum Foundation cooperating in such a moment, swapping 21,269 aWETH for wstETH as part of Lido’s deleveraging work.

The real question to ask is: How did this happen? How did such a Herculean effort of recovery succeed? The awkward answer is that Aave is too big to fail. It’s too important to too many people that market participants do not lose faith and trust in Aave. This is highlighted by Aave’s Umbrella module, which, while sitting at $54 million in WETH, will not be activated in this recovery effort. In fact, throughout its history, Aave’s insurance protocol has never been used, and, most likely, in order for Aave to remain a beacon of safety and trust, it never will be.

The contributor map also provides some flavour. Below, we look at each contributor, whether they donated or loaned ETH, and what general exposure or alignment they might have to this bad debt.

From top to bottom:

• Consensys and Joe Lubin (30k ETH): whilst Linea and MetaMask were not directly affected. Consensys is deeply rooted within Ethereum, and allowing this contagion and cascade to play out would have hit the ETH market cap heavily and negatively impacted onchain activity for some time

• Mantle (30,000 ETH, 36-month loan): mETH sits in the LRT category on Aave, and Mantle was facing a 71.45% WETH shortfall under the scenario where losses were confined to L2s. In this set-up, they’ve managed to engineer a commercial outcome. The loan interest is Lido APR + 1%, with $11M of AAVE tokens and 5% of Aave revenue as collateral, and 130k AAVE delegated to the ecosystem for participation in governance.

• Aave DAO Treasury (25,000 ETH, pending vote): obviously, Aave is the protocol with the bad debt, and as such, would be expected to be one of the largest contributors. It has chosen to backstop itself, whilst leaving Aave’s Umbrella module intact. In addition to this, Aave now has an active proposal to pause token buybacks, after only just implementing them last year.

• EtherFi (5,000 ETH, pending vote): weETH alone accounts for 57.9% of Aave’s WETH borrowing. If the LRT loop trade on Aave dies, EtherFi’s central venue falls with it.

• Stani Kulechov (5,000 ETH, personal): As the face of Aave Labs, Stani’s reputation depends on a positive outcome here.

• Lido (2,500 stETH conditional + up to $3M EarnETH vault burn): Lido’s EarnETH vault held 9% rsETH exposure, and EarnETH depositors faced up to 9,000 ETH in losses if the relief vehicle didn’t close. The 2,500 stETH is conditional on the full deficit being covered.

• Kelp DAO (2,000 ETH): The protocol central to the exploit and that minted the unbacked token.

• Golem Foundation & Project (1,000 ETH): No direct LRT exposure. The closest thing to a true ecosystem-solidarity donor on the list.

• Emilio Frangella (500 ETH, personal): Aave Labs’ VP of Engineering. Personal donation. Team-aligned, reputational.

• Ernesto Boado & BGD Labs (350 ETH): Ernesto is CEO of BGD Labs, the protocol’s previous service provider. Despite BGD Labs leaving Aave, they still showed up to donate here.

• LayerZero (amount TBD): The compromised bridge.

• Ethena (amount TBD): USDe and sUSDe loopers on Aave were directly affected by the WETH liquidity freeze, and USDe’s collateral basket holds LSTs and LRTs.

• Ink Foundation & Tydro (amount TBD): Tydro is a friendly Aave fork on Ink.

Solana captures both ETF and RWA flows

Whilst Ethereum was scrambling to save its DeFi ecosystem from catastrophe, Solana has been hitting positive headlines since the Drift exploit earlier in the month. In the past 12 months, RWAs on Solana have grown from $170M to $2B (excl. stablecoins) as holders on the chain crossed 192,000. Meanwhile, SOL ETFs cleared $1B in cumulative total net inflow in the last two weeks, with large positions held by Goldman Sachs, Morgan Stanley, VanEck, and market makers such as Jane Street.

Despite Solana being on top this week, the Solana Foundation showed its class by lending USDT into Aave for the first time ever in support of the recovery efforts and brought $AAVE onto Solana for trading.

DeFi United.

CEXs going Agentic

Three major exchanges last week deployed products that enable agents to access their platforms, signalling a clear trend towards a change in the user experience on trading platforms. Coinbase shipped Agentic Market on Monday, April 20; Bybit MCP followed on Wednesday, and Binance Agentic Wallet shipped on Friday. Whilst each enables a different level of access for agents and payments, the direction is clear. Agentic Market in particular embraces x402 to provide live pricing, volume data, and integration guides for thousands of services, completely without API keys, accounts, or logins.

We unpacked the broader thesis and why this is just the beginning of agentic finance in a report last week.

MegaETH TGE in 2 days

With the launch of Brix last week, KPI 1 on the road to TGE was completed, requiring 10 apps from the Mega Mafia incubator programme to go live.

TGE is now just two days away, with speculation rife around opening valuations. The circulating supply is reported to be 6-7%. 1% from the Echo round, 1.25% from Fluffles, around 2% from the public ICO, plus whatever market makers and exchanges may receive. At pre-market, $MEGA is trading around $0.18, putting it at roughly a $1.8B FDV; meanwhile, Polymarket is pricing a 90% chance of launching with an FDV over $1B, matching the ICO price.

Polygon without Polymarket

Polygon made $5.65 million in chain fees in 2025. In 2026, they have already surpassed this number, making $13.5 million since the beginning of the year. A large share of the fees comes from Polymarket after they enabled fees through additional contracts on their platform in early January, clubbed with their rising volumes. This is also reflected in the fee spike below in the first week of the year.

To manage this spike in gas usage on the chain, Polygon went live with the Dandeli hard fork on January 9th, 2026, increasing the chain’s throughput to 20 mgas/s. This managed the sudden surge, and fees stabilised for users across the network.

But recently, Josh, VP of Engineering at Polymarket, highlighted that they are considering a chain migration, which could enable cheaper block space, faster transactions, and lower block times for instant settlement. This has sparked a long-overdue conversation around Polygon’s overdependence on the app.

Over the last 30 days, apps on Polygon generated ~$30M in revenue, with Polymarket accounting for 71% of that total. The top three apps account for ~95% of total app revenue, indicating a high concentration of revenue among a few apps. Additionally, this concentration has increased over time.

In comparison, the top three apps account for 42% on Ethereum, 57% on Base, and 46% on Arbitrum, indicating a more distributed revenue profile across those ecosystems. While app revenue concentration alone isn’t sufficient to evaluate a chain’s performance, it provides useful context for understanding where economic activity originates and how dependent the ecosystem is on a small set of applications.

In terms of gas usage, over the last 24 hours, two of the largest gas spenders on the chain were the Polymarket fee contracts, followed by Quickswap, reflecting the activity concentration.

If Polymarket leaves, this revenue leaves Polygon.

The estimated decline in fees is around 60-70% and would leave Polygon with ~$40k in daily fee losses. In the last 30 days, the chain made ~$2m. Removing Polymarket, this number comes down to around $800k, bringing the annualised fees generated to ~$10 million instead of ~$25 million with Polymarket.

On the other hand, Polygon is positioning itself more as a payment network, with a current stablecoin supply of $3.57 billion. Last month, payment apps on Polygon did $2 billion in volume, led by Tazapay, Paxos, Coinflow, and others. Polygon also has a great representation in P2P transfers for micro, small, and medium-sized payments, often competing with Ethereum and Solana.

Given these numbers and the different sources of activity and revenue on the chain, Polygon is performing well. But nonetheless, losing the most revenue-generating app on the chain has a significant impact.

What we can speculate on next is where Polymarket may move to, and whether they want their own sovereign chain to control, such as through the Arbitrum, Elastic (ZkSync), Polygon CDK stacks, or simply migrate to a faster chain like MegaETH or Monad. If they’re going to move, they’ll move to their own stack, in our opinion.

• MegaETH TGE on Thursday, April 30, the first real test of KPI-gated tokenomics at launch

• Aave DAO, Mantle, EtherFi, Arbitrum DAO, and others have governance votes, confirming whether DeFi United’s pledges deploy as expected

• Consensus Miami opens May 5, where crypto, finance, tech, and policy announcements are to be expected

This time DeFi was united, next time it won’t be so easy. See you next Tuesday.

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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.

Chapter 1: Everything is going Agentic

Only a few years remain before Artificial Intelligence (AI) systems surpass humans in most cognitive tasks. With the advent of computers and AI, our civilisation might no longer be a human’s world.

AI is good at researching, code generation, software development, planning, video and image editing/generation, and multiple other tasks. One of the things humans are not very comfortable letting go of is finance. Within this context, the narrative of agentic payments has grown too large to ignore. This is not an abstract forecast, but an industrial reality poised to reshape how money moves.

The AI agents market is valued at $7.84 billion in 2025 and is projected to reach $52.62 billion by 2030. McKinsey estimates generative AI could add between $2.6 trillion and $4.4 trillion annually to global GDP.

And yet, these agents are limited by structural flaws that prevent their full absorption into the financial world.

Paying for things is one of these. Brian Armstrong predicts there will soon be more AI agents than humans making transactions on the internet. Despite how bold that sounds, agentic payments have been largely speculative in their early form.

The problem is structural and encompasses legal and technical constraints:

• Proof of Personhood: The entire architecture of traditional finance assumes users have real identities that can be verified through Know Your Customer (KYC), a requirement that doesn’t apply to AI agents.

• Architecture for Humans: Legacy financial systems were designed around humans and include settlement cycles, banking hours, geographic routing constraints, layers of intermediaries, and more, all of which limit the transactions an AI agent can perform.

• Gated Access: The financial infrastructure treats access itself as something to be granted. Products like prime brokerage, institutional custody, and derivatives clearing are simply unavailable to entities below a certain size.

This article touches on two main aspects of the agentic economy:

• How can we transition the current stack to make it agentic-first?

• Which network will be established as the mainstream infrastructure for agentic payments?

The transition is already in process, with three converging standards:

• One for payments (x402)

• One for trust (ERC-8004)

• One for commerce, that together form the first complete financial system designed for machines. (ERC-8183)

Few businesses are positioning themselves for this future, and the Ethereum ecosystem is one of them and the strongest candidate because of its censorship-resistant and secure nature.

What follows is a map of the infrastructure being built, the competitors racing to respond, and a deep dive into the tech stack, making EVM-compatible chains the primary candidate to become the settlement layer of the future trillion-dollar agentic economy.

Chapter 2: Ethereum’s Agentic Financial Stack

The transition to make blockchain networks agentic-first is already in progress.

Three EVM standards are converging into a complete, permissionless financial system for machines, covering the three important aspects of finance: Movement of money, trust, and the commerce lifecycle.

The crypto agentic sector went through its crest and trough, and it’s currently trading at a ~$2.9 billion market capitalisation, down from a peak of $15-$20 billion.

While these numbers might look a little disappointing, the initial wave was mainly driven by speculation and the newness of this narrative. However, as always happens, tech takes some time to catch up. This is finally happening, with new standards like ERC-8004 gaining momentum. In terms of agent deployments, over 98k have already been deployed via ERC-8004 across 10+ EVM chains since it went live at the end of January this year.

Additionally, products like x402 from Coinbase have had a lifetime trading volume of over $48 million since their launch in May 2025, with peak volume in Q4 2025. These numbers plummeted as soon as they grew because users were speculating in the agentic economy, and multiple products gained traction they didn’t deserve in the first place. Now, when the numbers are a little more balanced, it reflects the real adoption metrics.

In this section, we discuss three core standards or protocols that work together to make agent commerce possible at scale.

x402: Payments

x402, the “internet payments standard”, developed by Coinbase, revives the long-dormant HTTP 402 status code, reserved since the earliest days of the internet but never implemented. It creates the payment infrastructure for machines by embedding payment gates directly into web communication. Any server can require payment, and any client can pay in a single HTTP request-response cycle.

The mechanics are simple: A client requests a resource, and the server responds with HTTP 402 and payment instructions. Then, the client signs a stablecoin payment and resubmits. Afterwards, the facilitator settles onchain and the server delivers. There truly is no human in the loop. The facilitator never custodies funds, but the agent authorises what to pay, and the facilitator handles how.

Since its May 2025 launch, x402 has processed over 50 million transactions. In December 2025, Coinbase released V2 with features like:

• Wallet-based identity and reusable access sessions, smoothing the user experience, providing benefits like lower latency, fewer round-trips, and cheaper repeated calls.

• Modular architecture makes the V2 a plug-and-play platform by clearly separating the protocol specification, its SDK implementation, and facilitators.

• Unified Payment Interface with multi-chain support, legacy payment rails like ACH, SEPA, or card networks.

• Automatic discovery enables the sellers to publish the APIs once, while facilitators stay synchronised without developer intervention.

Recently, x402 underwent an upgrade to the Upto scheme. While the older versions were good, it was running on a pay-per-request model, which isn’t ideal cause it requires knowing the cost upfront, which doesn’t work with LLMs, for example, with Upto, a client can authorise a maximum amount, and the server can settle for the actual amount used at the end of the request.

Cloudflare co-launched the x402 Foundation and integrated it with its Agents SDK and MCP servers so AI agents can pay in batches, subscriptions, or daily rollups, ideal for things like “pay per crawl.” This is interesting because agents won’t need to settle immediately, and the batch transaction allows payment once all required data has been fetched. Moreover, cloud providers like AWS demonstrate how to use services like Amazon Bedrock and CloudFront + Lambda@Edge to implement x402 payment flows, enabling agents and APIs to perform automated, pay-per-use USDC transactions over HTTP.

Galaxy Research documented that initial x402 activity was primarily speculative, with teams using the standard to mint and purchase memecoins, thereby driving transaction counts and volumes in late October, accounting for more than 50% of the volume until December 2025.

In the last few weeks, the average transaction count has remained at ~200k, signalling that activity has now stabilised and that the organic adoption curve is forming, with speculation no longer leading.

ERC-8004: Trust

x402 solves the payment problem, but the agents still have no way to know whether the counterparty is legitimate. This is where ERC-8004 (went live on mainnet in late January) steps in. It addresses the trust issue by extending the Agent-to-Agent (A2A) protocol with a trust layer that allows participants to discover, choose, and interact with agents. ERC-8004 introduces three registries:

• The Identity Registry gives every agent a persistent onchain identity, an ERC-721 token with capabilities, endpoints, and trust models. It is similar to a KYC badge for machines, enabling any other agent to look it up, cryptographically verify ownership, and know exactly what they are dealing with before engaging in any real interaction.

• The Reputation Registry records cryptographically verified feedback after each interaction. Over time, this creates a performance history that accompanies agents, enabling other agents to decide whether to use their services.

• The Validation Registry coordinates third-party verification with economic stakes. It’s a cryptographic or economic proof (ZK and TEE attestations) that an agent’s outputs are correct and not merely dependent on past clients’ ratings. This part of ERC-8004 is currently not live and is in discussion with the TEE community.

In terms of adoption metrics, it is live on 10+ EVM mainnet chains, with ~98k agent registrations; the largest number of ERC-8004-enabled agents is registered on Base, followed by Ethereum and MegaETH.

ERC-8183: Commerce

There is a gap between payments and trust that neither x402 nor ERC-8004 closes on its own. An agent can pay and verify identity, but what happens if the work is never delivered, the deliverable is wrong, or the provider disappears after receiving funds in a particular instance?

In traditional commerce, this is handled by chargebacks, escrow, and dispute resolution, none of which exist natively onchain until ERC-8183. Co-developed by Virtuals Protocol and the Ethereum Foundation’s dAI team, ERC-8183 defines a single core primitive, the Job.

The Job is deliberately minimal. Three roles are involved: Client, which creates the job, defines the task, and may lock funds in an onchain escrow (depends on the implementation). The Provider submits a deliverable, typically a hash pointing to offchain content on IPFS or Arweave. The Evaluator evaluates the work done. For subjective work such as writing or design, an AI agent can be used to read the submission and compare it with the original requirements. For deterministic tasks like computation or proof verification, it can be a smart contract encapsulating a ZK verifier that automatically calls complete or reject. For high-value or high-risk work, a multi-sig wallet can be a part of the implementation. Every Job flows as:

• Open

• Funded

• Submitted

• Terminal (Completed, Rejected, or Expired).

As the specification states: “A payment moves money. Commerce is everything around the payment that makes it trustworthy: what was agreed, whether the work was done, who verified it, and what happens if it was not.” ERC-8183 also introduces hooks, optional smart contracts for bidding, reputation-gating, fund transfers, and privacy-preserving jobs. This is the onchain equivalent of the authorisation-and-capture model that makes card commerce possible, where the authorisation part is responsible for checking whether the client has sufficient funds, capturing the funds, and then transferring them to the merchant, thereby completing the transaction.

Each complete Job produces a verifiable onchain record of interaction, submission, and evaluation that feeds directly into ERC-8004 reputation registries, meaning commerce activity compounds into trust development, helping to attract more relevant work.

The Loop

The three standards form a self-reinforcing cycle of commerce where the agents can be discovered through ERC-8004, and their previous work can be verified, and a new Job can be assigned based on that through following the ERC-8183 standard, giving more reviews for the agents and their work being verified, creating a loop that keeps on generating good work.

The first working demonstration of the full economic loop already exists. In early 2026, a robot dog built by OpenMind plugged into a charging station and paid for its own electricity in USDC.

• OpenMind’s OM1 operating system treated spending as a standard robot capability

• x402 handled payment negotiation over HTTP

• Circle’s Nanopayments protocol batched thousands of offchain authorisations into single onchain settlements.

The robot did not need an account, a credit card, or a human. It signed an authorisation, and the payment was settled. Therefore, what appears as a concept is actually a working proof of concept.

The Ethereum Foundation has formally incorporated this infrastructure into its 2026 roadmap through the dAI team, led by Davide Crapis, with the explicit goal of transforming Ethereum into a global settlement layer for AI.

Chapter 3: The War of the (Paying) Machines

Recently, multiple competing visions for machine payments were launched, reflecting that the major industry players want to be part of this developing economy:

• Visa released Visa CLI, letting AI agents trigger card payments from a terminal without embedding or managing API keys.

• Stripe and Tempo launched the Machine Payments Protocol alongside Tempo’s mainnet, a privacy-enabled payments-focused L1. Its co-founder, Matt Huang (Paradigm managing partner and Stripe board member), told Fortune that agentic payments are still very early. Launch partners include Anthropic, OpenAI, DoorDash, Shopify, Revolut, and both Visa and Mastercard. The card networks are collaborating with the infrastructure that challenges them.

While there are many competing offerings, some of them work in complementary ways, such as x402 and Stripe Agent Commerce Protocol (ACP). x402 is a standard for payments between software, best for use cases like API calls, data feeds, LLM interaction, and many more cross-software interactions. Stripe’s ACP is more relevant in e-commerce, enabling AI agents to purchase items from merchants without removing core requirements such as fraud detection, dispute resolution, refunds, regulatory compliance, and customer support. They do this through Shared Payment Tokens (SPTs), which provide merchants with limited authorisation to charge a payment via their preferred infrastructure.

Galaxy illustrates how they can work together with a travel agent example: x402 pays for weather and airfare APIs, and ACP handles the flight booking (regulated, human-approved). ERC-8183 addresses the gap between them by providing an escrow-and-evaluator model that is a programmatic replacement for chargebacks.

Even with many products being built in the agent payments category, products using the onchain rails will prevail because they are cheaper than card providers like Visa and Mastercard. In February, Citrini Research crystallised the structural argument: AI agents, programmed to minimise costs, will systematically avoid 2–3% interchange fees when stablecoin transactions on L2s cost fractions of a cent.

Chapter 4: If onchain, then which chain?

If the agentic economy will transact on crypto rails, the question becomes: which crypto rails?

Ethereum is the largest smart-contract-enabled blockchain with deep liquidity and security. To address its scalability problem, many alternative L1s emerged, promising faster execution. The usual rooted assumption in crypto is that a newer, better chain will eventually gain decent market share and attract users. For agentic finance, that assumption might be wrong, and there are reasons why Ethereum and its L2s will hold great market share.

• The first non-negotiable is security. An agent managing a portfolio, executing trades, or holding funds in escrow on behalf of a client needs the most pristine settlement layer available. Ethereum’s consensus layer has operated without a successful attack since launch. The ERC-8004 singleton contract sits on Layer 1 because enterprise-grade agents require that level of economic security as their anchor, even as high-frequency consumer activity settles on L2 networks where fees are negligible.

• The second is composability. A trading agent does not operate in isolation. In a single transaction chain, it might interact with Aave for lending, Uniswap for swaps, Chainlink for price feeds, and Morpho for yield optimisation. That depth of programmable financial infrastructure simply does not exist elsewhere.

• The third is standards convergence, which is the argument competitors will find hardest to replicate. ERC-8004, ERC-8183, x402, Google’s Agent-to-Agent protocol, and the Model Context Protocol via Cloudflare are all deployed on EVM-compatible infrastructure.

It reflects the choices of the institutions building the stack. Coinbase’s entire x402 architecture runs on Base, an Ethereum L2. The Ethereum Foundation’s dAI team exists with the explicit mandate to make Ethereum the AI settlement layer. Crapis (lead dAI) estimate that within three to five years, the majority of Ethereum traffic will come from machines. Nethermind, a core Ethereum infrastructure company, is building ChaosChain, a protocol for agentic accountability built around ERC-8004, A2A, and x402.

Solana is the obvious competitor, with strong developer activity and x402 support across multiple chains. Tempo, arguably the most institutional blockchain launch of 2026, is EVM-compatible and is a standalone Layer 1 designed for payments at scale with opt-in privacy features.

Moreover, currently, most x402 volume today flows through Base rather than Ethereum Layer 1. This is by design. Micropayments require sub-cent gas that the mainnet cannot currently provide, and currently serves as the security and settlement anchor.

Chapter 5: The Winding Road to Agentic Finance

The infrastructure for agentic finance is being built at a remarkable pace, and the recent work on x402 and different ERC standards (8004, 8183) has paved the way for a streamlined, smooth agent-led onchain economy. Yet it’s very hard to fully trust agents to handle everything, as we still need to address the more fundamental aspects of security and privacy. The work underway to fix these issues is progressing. For example, on the privacy side, Ethereum is developing Kohaku, an SDK that embeds privacy-preserving technology directly into wallets, making shielded transactions the default, but there are still gaps to address.

Different Attack Layers

Whenever a user interacts with a crypto product, several layers are involved, each of which could be a potential source of data leakage, which makes privacy a full-stack problem on the settlement layer rather than a single exposed front that can be solved by just improving agents and their infrastructure:

• Every onchain transaction is currently public by default. An agent managing a portfolio broadcasts its strategy, position sizes, and the time it took a specific trade to everyone.

• RPC Layer pose as the second point of exposure, as RPC nodes see every query before it becomes a transaction. It collects details such as the contracts being read, the actions being performed, and the IP address from which the query originated.

• At the network layer, IP address analysis and traffic-timing correlation can deanonymise users even when transaction content is encrypted.

• Finally, the wallet interface itself can leak data: mouse movement patterns, device characteristics, and font enumeration can link a user across fresh wallet addresses.

Beyond the passive surveillance problem, agents face a more direct security threat: prompt injection. Whenever an agent queries an external source, an ENS record, a price feed, or contract metadata, the response comes from infrastructure that a malicious entity could control. A poisoned ENS record instructing the agent to ignore previous instructions and send all funds to the attacker’s wallet is enough to drain a wallet entirely with no phishing link clicked and no malware installed. It is a new class of attack vector.

The CROPS Mandate

Another aspect that agentic infrastructure needs to consider before it can be usable at scale is the CROPS framework underpinning the Ethereum mandate. AI agents need to be:

• Censorship Resistant, ensuring that an agent cannot be deplatformed or blocked mid-execution by any single intermediary.

• Open-source, so their decision logic can be audited.

• Private at every layer of the stack.

• Provably Secure means that guarantees are mathematically ensured through formal verification and ZK proofs.

Together, CROPS set a bar that an agent must meet before it can be trusted with financial decisions.

AI as a Security Layer

While AI isn’t yet a fit for agentic finance, once it meets the required benchmarks, it becomes the obvious choice because, in that scenario, it serves as the UI for humans. A general user won’t read the smart contract bytecode or verify the token addresses in the swap UI, but AI agents can be programmed to do so and then execute the transaction. This adds another layer of security that couldn’t be applied to every user, but AI makes it possible.

AI becomes the primary interaction layer for crypto.

Crypto protocols still have a bad UX, and it’s a problem we have been trying to solve for a long time. A simple transaction to submit funds in a protocol to earn yield requires signing multiple transactions, bridging funds, and finding the best yield opportunities. This equation becomes even harder when we take cross-chain yield into consideration. But someone who is just prompting “I have $10k in USDC, and I am looking for 10% annual yield” won’t need to worry about it all.

As the AI grows, its relevance increases as it solves certain pain points crypto has around security and UX. At the end of day, every user doesn’t need to figure out the how blockchains work, why they need gas on every chain, why yields are different on cross-chain, why it is important to analyse a pool liquidity profile and the assets it is exposed to before depositing funds while all of this can be programmed into an AI agent which can be used by multiple users.

Chapter 6: Closing Thoughts

The agentic economy is here, and the continuous efforts by the Ethereum ecosystem to advance multiple standards to make agentic finance more secure and trustless reflect that the agent-led future is not far away.

The case for Ethereum as the settlement layer of the machine economy rests on three arguments:

1. Security: Ethereum has had no downtime since its inception in 2015 and has a large set of active validators that contribute to the chain’s decentralisation and censorship resistance.

2. Composability: Ethereum is the DeFi hub and home to substantial liquidity. Multiple relevant, large-scale protocols are deployed on Ethereum, making it an efficient venue for any agent to find and deploy high-yielding strategies.

3. Standards Convergence: x402 handles the movement of funds, ERC-8004 handles the trust layer, and ERC-8183 ensures work is delivered, all present in EVM-compatible infrastructure. And the stack is still being extended: ERC‑8211, published in April 2026 and co‑developed by Biconomy and the Ethereum Foundation, adds dynamic, constraint‑guarded execution that lets agents adapt multi‑step DeFi strategies to live onchain conditions in real time. Together, the four standards cover the full commercial lifecycle: identity, payment, commerce, and execution.

But none of it is sufficient until we address security and privacy requirements and treat it as a full-stack problem. Ethereum is on its way to solving these problems through its roadmap, and the AI space is generally skewing towards open-source code.

This is one of the most active areas within crypto: Visa, Mastercard, Stripe, and a new generation of payment-focused L1s and L2s are building parallel infrastructure that addresses the machine payments user case through different architectural choices, including routing agent payments through existing card rails, or building purpose-built chains optimised for payment throughput rather than general smart contract execution.

While the competition is growing, Ethereum’s edge is unlikely to be replicated, given the combination of programmability, security, and an open ecosystem of composable standards that no single entity controls. For the set of agentic finance that requires trustless settlements, geographic regulatory independence, and DeFi interactions, cross-border commerce, the permissionless and censorship-resistant prevails.

The most likely near-term outcome doesn’t include a single winner but multiple winners, as L2s might be better for x402 payments where fees are negligible, and speed is adequate, while higher-value running relies on human supervision and Ethereum serving as a security anchor for all of it. As Ethereum grows, it will become more private over time, and its transaction fees will decrease even further; both are part of the current roadmap leading to many agents using the L1 itself.

written by @TradFiHater and @noveleader ✍️

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Welcome back. This week, DeFi’s composability thesis is being tested in public.

Friday started with optimism:

• A sharp short squeeze occurred after Iran declared the Strait of Hormuz fully open

• As the bitcoin price moved up to $78k, we saw one of the biggest short liquidations in 2026 ($762M)

• The S&P 500 reached all-time highs, and the crypto Fear and Greed Index climbed out of extreme fear for the first time in weeks

Then on Saturday, Kelp DAO was drained for $292 million in the largest DeFi exploit of 2026, and DeFi TVL dropped nearly $15 billion in 48 hours, with Aave losing $9.4 billion in deposits.

By Sunday, Iran had closed the Strait again, and Bitcoin had returned to $75k.

We’ll start with this Kelp hack, what it exposed, where the contagion has spread and where the responsibility lies. Then we cover one of TradFi’s biggest acquisition weeks in crypto, Hong Kong licensing banks to issue stablecoins, and Noveleader’s take on low-risk DeFi when security is under more scrutiny than it has been in years. We also got on the record with Fluid, who shipped a product while the rest of DeFi was scrolling for updates on X.

Inside the $292M Kelp hack

On Saturday (18 April), North Korea’s Lazarus Group is believed to have compromised two RPC nodes within LayerZero’s Distributed Verifier Network (DVN), whilst DDoS-ing the remaining nodes, forcing a failover to the compromised nodes. These compromised RPCs had been installed with malicious versions of the node software, essentially replacing the programmes these nodes run with versions that forge cross-chain messages, leading to Kelp’s bridge minting 116,500 rsETH, or 18% of the circulating supply. The software then self-destructed inside these nodes, wiping all binaries and logs.

RPCs are data feeds that provide LayerZero’s verifier with updates on each blockchain. The verifier trusts those feeds to determine whether a cross-chain message is legitimate and takes action accordingly. The LZ verifier signed a message claiming that rsETH was burnt on Unichain, even though it never actually happened, causing the OFT bridge to mint. After this unbacked mint, the attacker deposited these funds into protocols such as Aave, Compound, and Euler, borrowing WETH and other assets against them, while also selling some of it on Uniswap and Fluid DEX pools, bringing the net extracted value to ~$245 million.

After the attack, Aave is left with a large amount of bad debt, and Kelp DAO has a ton of new, unbacked tokens in circulation, pushing the net collateralisation of rsETH to ~83%.

The damage compounded fast. With liquidity depleted and withdrawals impossible, lenders started borrowing against their own locked deposits to reduce exposure. This increased borrowing demand drove stablecoin pool utilisation to 100% and pushed stable borrowing rates even higher.

Aave’s role in this story is not just as a victim. Last year, a governance proposal raised rsETH LTV to 93%, leaving only a 7% buffer on a receipt token backed by a single-verifier bridge. Not one comment in the forums was raised about the risks of this one-of-one DVN.

The two groups that will take the biggest hit are Aave users and rsETH holders. To close this saga, Kelp likely needs to choose between:

1. Socialising the loss among Aave users (an 18.5% haircut)

2. Concentrating the impact on L2 holders (a 73.54% haircut, but just for L2 holders).

In the first case, combining the Umbrella pool and the protocol treasury, selling AAVE tokens, and taking out a loan would cover the bad debt (~$216 million), whereas in the second case, the situation becomes more difficult. For now, the path to resolution is still unclear.

The L2 equation changed after the Arbitrum Security Council recovered 30k ETH (~$70 million) from the attacker by upgrading the inbox contract on Ethereum with a function that could impersonate the sender. Now on L2, if Arbitrum prioritises its Aave market users, two scenarios play out:

1. If the case of loss socialisation, there will be no bad debt on Arbitrum.

2. If the impact is concentrated on L2 holders, the bad debt is reduced by 80% ($88 million to $17 million)

LayerZero claimed this attack succeeded directly because Kelp chose to run a one-of-one DVN configuration, despite LayerZero’s recommendations to use a multi-verifier configuration, whilst Kelp is preparing a memo blaming LZ, suggesting that a 1-of-1 DVN is the default configuration.

To make matters more interesting, LayerZero were running the DVN themselves and allowed several other clients to run a similar setup. Dune conducted an open analysis of DVN security configurations across all active OApps on LayerZero over the last 90 days. They found that 47% of OFT contracts (~2,665) run on 1-of-1 DVN, 45% on 2-of-2, and ~5% on 3-of-3.

This is now the second nine-figure DeFi exploit in 18 days attributed to North Korea. Drift Protocol lost $285 million on April 1 via social engineering. These are amongst various other attacks this month:

• CoW Swap: DNS hijacking ($1.2M)

• Zerion: team member’s device compromised via AI-driven social engineering ($100K)

• Fake Ledger app: malicious app on Apple App Store, $9.5M from 50+ victims

• Hyperbridge: $1.2B in counterfeit DOT created, sold for $237K

Whilst these attacks were structurally different, both nine-figure exploits bypassed smart contracts and targeted the team’s opsec or the infrastructure surrounding the protocols. The trend emerging this month is clear: security audits need to extend well beyond the core contracts. In line with this, we have also been seeing multiple calls for further defensive mechanisms within DeFi, learning from our TradFi counterparts by using and standardising rate limits, throttles, and circuit breakers.

Now, as with any crisis, there were those who moved fast and benefited. Fluid launched an aWETH Redemption Protocol that matched users stuck with ETH collateral in frozen Aave markets against Fluid’s own wstETH and weETH collateral positions. The inverse positions cancel each other out, giving trapped users an exit. Agra, whose order book exchange for tokenised fixed income launched in open beta weeks earlier, offered the same exit through a different mechanism, a rate-based order book where trapped depositors could sell their yield-bearing positions at a discount to buyers willing to take on the duration.

Fluid, working with Lido, EtherFi, 1inch, and other protocols, helped users swap ~84k aETH in collateral.

More TradFi entrants to crypto

While DeFi spent the weekend firefighting, TradFi spent the week buying in:

• Charles Schwab launched Schwab Crypto, offering spot BTC and ETH trading to retail clients. They have $12.2 trillion in client assets and will charge 0.75% per trade, with Paxos handling sub-custody and execution.

• Deutsche Börse took a $200 million stake in Kraken at a $13.3 billion valuation, deepening a partnership announced in December 2025 that covers regulated crypto trading, derivatives, tokenised assets, and institutional custody.

• Goldman Sachs filed for a Bitcoin Premium Income ETF, a covered call structure that sells options with 40-100% BTC exposure and distributes the premium as monthly income.

• Kraken’s parent, Payward, is acquiring Bitnomial, the only crypto-native US firm holding all three CFTC licences required for a full-stack derivatives business, for up to $550 million in cash and stock. The deal gives Kraken the regulated infrastructure to offer spot margin, perpetuals, and options to US clients.

CLARITY Act markup expected this month

The other story in the regulated world this week is the CLARITY Act, and its window is closing fast. The Act serves as a broader piece of legislation to the GENIUS Act, which, whilst establishing the full reserve and regulatory framework for payment stablecoins, banned passive yields on them. JPMorgan says negotiations are nearing a breakthrough, as disputes have dropped from 12+ to only 2-3 core issues, and White House crypto advisor Patrick Witt confirmed the yield compromise is holding: passive yield would remain banned, while activity-based rewards tied to payments, transfers, and platform usage could be permitted.

A markup is expected as early as this month, with the Senate floor vote projected for May, but the time pressure is on. Galaxy Digital’s head of research, Alex Thorne, warns that if the bill doesn’t clear the banking committee by the end of April, the odds of it passing this year would become extremely low. This is a topic several stablecoin issuers will be waiting on to plan the next steps in their roadmaps, with fears that missing this window could delay any legislation until the 2030 elections.

Hong Kong grants first stablecoin licences

The Hong Kong Monetary Authority (HKMA) has granted stablecoin issuer licences to HSBC and Anchorpoint Financial (a joint venture among Standard Chartered, HKT, and Animoca Brands). Both will issue HKD-denominated stablecoins fully backed by cash and short-term government bonds, with HSBC planning to embed its stablecoin into PayMe, a Hong Kong-based P2P and business payments app, by late 2026.

There are, however, restrictions that come with this jurisdiction, as expected. No interest is permitted in relation to the issuance of stablecoins under the Ordinance, and licensed stablecoins can only be transferred to identity-verified wallets with travel rule compliance exceeding HK$8,000 (~$1,000). On the flip side, the HKMA effectively deprioritised its retail CBDC efforts after an 11-group pilot found the retail case to be weak.

Hong Kong, and by extension China, is making its first formal steps into stablecoins. They’ve seen the success of US-denominated stablecoins and want a piece of it, but on their own terms. The yield ban and identity-verified wallets tell you everything about how tightly this will be regulated, controlled, and monitored.

DeFi Risk Equation

from the Castle team on where DeFi yield sits right now.

Interacting with any yield source comes down to the risk the depositor is assuming.

Given the current state of DeFi, an obvious question comes to mind: “Is any yield enough if it comes at the risk of losing your principal?”

DeFi risk has increased exponentially this year and last year as many blue-chip DeFi protocols handling large sums of value have been hacked, starting with GMX v1, Balancer v2, Resolv, Drift, and now KelpDAO + LayerZero. This year alone, crypto hacks have led to losses of over $750 million.

Meanwhile, DeFi “risk-free” yields have been underwhelming, remaining between 2% and 4%, and compete with the Secured Overnight Financing Rate (SOFR), which currently sits at 3.65%, a benchmark that closely tracks risk-free returns on U.S. Treasuries. For most users, keeping capital in DeFi doesn’t make much sense when they can earn similar yields elsewhere with almost no tail risk. DeFi yields are also highly market-dependent: in good markets, they beat SOFR, but during drawdowns, they fail to do so, making them inconsistent.

With yields at an all-time low and the risk of keeping money in DeFi at an all-time high, users are rushing to exit DeFi altogether, and low-risk DeFi is taking a back seat. In the last 2 days, DeFi TVL plummeted by 15% from ~$100 billion to currently ~$85 billion, with Aave being the biggest contributor, losing $9 billion in TVL, a 34% drop, a direct effect of the recent bad debt accumulation on the protocol.

On a positive note, these cases give DeFi an opportunity to evolve by incorporating stronger security practices and considering additional safety mechanisms, such as circuit breakers. In this rsETH exploit, the attacker was not only able to deposit a large amount of rsETH and borrow against it almost instantly, but also to mint a large amount from a chain that actually had very little rsETH.

Protocols can, for example, introduce a phased increase in LTVs for users based on collateral age, so that malicious intent can be detected early before a large loss occurs. They can set withdrawal limits for newer entities and tie borrowing privileges to user history, so higher privileges come with longer use of the protocol.

We reached out to both the Fluid and Agra teams after watching them ship over the weekend.

Fluid didn’t have the aWETH Redemption Protocol planned. “We saw the urgent need from the DeFi ecosystem and the opportunity, and we decided to take it,” the team told us. When we asked whether this was the start of an ongoing demand for secondary credit markets in DeFi, they pointed to TradFi. Products like credit default swaps exist for exactly these situations in traditional markets, and he expects DeFi to develop its own equivalents. Due to recent exploits, the team told us they were “used to these crisis situations.”

Agra, on the other hand, was already live and waiting. They spun up a new market on their existing infrastructure, as the crisis became their biggest onboarding event to date. “We saw bids from both whales and onchain asset managers,” the team told us. “Asset managers were bidding aEthWETH at a ~5% discount to par, which reflected their underwriting of how Aave would socialise bad debt and where aEthWETH sat in the credit stack.” All were net new users.

Before this incident, secondary market liquidity for credit was something they had to argue for. Now they are seeing their conversations change from “why does this matter?” to “how do we establish this for our protocol?”

This weekend was one of the first examples of secondary markets for credit appearing onchain and seeing meaningful volume, even if it came from distressed conditions. For both Fluid and Agra, the crisis served as a live stress test of their products, giving both teams real data to iterate on. We see this as a natural evolution in DeFi’s product offering. We’ll be watching how these markets develop from distressed conditions into normal trading, and what that unlocks for both the assets being issued and the users looking to manage duration and risk.

• Aave bad debt resolution. The path forward is still unclear. Socialising the loss across all users (an 18.5% haircut) or concentrating it on L2 holders (70%+) are the two options being discussed. The applicability of the Umbrella mechanism is also up for debate, as stkAAVE holders are watching for potential slashing.

• Kelp DAO’s response. Kelp is reportedly preparing a memo contesting LayerZero’s framing. rsETH holders on 20+ L2s are still waiting to find out whether their tokens are backed. Net collateralisation is sitting at ~83%.

• What will happen to protocols running single-verifier configurations? Dune’s analysis found that 47% of OFT contracts (~2,665) run on 1-of-1 DVN. LayerZero has announced it will no longer sign for any project using this setup. Expect verification-as-a-service to become a more discussed category.

• CLARITY Act markup. If the Banking Committee clears it this month, the bill is alive. If it slips, it may be dead for 2026.

• Iran ceasefire expires April 22. One to watch, but realistically, the situation is so opaque that nobody knows what’s going on.

Another tough week, but with it comes opportunity. See you next Tuesday.

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 week of extreme fear for Bitcoin!

We have now been in the extreme fear zone of the Fear and Greed Index for over 47 days, the longest stretch since mid-2022.

In addition to this, the situation in the market is extremely dire:

• Markets priced out every rate cut for 2026

• There is a war in the Middle East

• A new U.S. naval blockade in the Straits of Hormuz

Despite sentiment at lows, Bitcoin is trading at $75k today, up 1.5% over the last 24 hours, whilst crypto ETFs pulled in $1.32 billion in March, breaking a four-month outflow streak.

We’ll start this 167th Edition of The Chronicle with the main events of the week: dive into crypto VC, WLFI vs Justin Sun and Morgan Stanley entering the BTC ETF race.

Then we have a lot of original content: our analyst sharing his take on prediction markets and an interview with 1inch’s co-founder.

Ethena slashes perp exposure from 90% to 11%

Ethena, the issuer of USDe, just made the most significant change to a stablecoin’s reserve structure in years, cutting its exposure to perpetual futures from 90% to 11%.

This is a huge pivot for Ethena: they are aiming to replace it with institutional lending products through Anchorage, Maple, and Coinbase Asset Management, as well as RWAs and structured credit, paving the way towards becoming a prime brokerage.

USDe grew to $10 billion in TVL faster than any other stablecoin in history on a fairly simple yet elegant model: Hold spot crypto whilst shorting perps and capture the funding rate.

This strategy thrived in 2024 and 2025, when the market was leveraged long, and funding rates were positive. As the cycle turned, funding rates went negative. This resulted in USDe supply dropping from nearly $15 billion at its peak to under $6 billion today.

The new Ethena will look quite different: TradFi allocators aren’t seeking exposure to the funding-basis trade; they want access to the products they’re used to, and that’s what Ethena is building.

The same applied to other DeFi protocols, with similar steps aimed at being more appealing to institutions.

Undeniably, this will cause some friction between the previous core user group and the future one during this migration period, as the USDe example shows us.

The risk profile of this product has fundamentally changed: Perp funding rates carry crypto-native risk, whereas institutional lending and structured credit carry counterparty and credit risk.

USDe holders will have to decide which risk profile they are aligned with.

WLFI vs Justin Sun is heading to court

Now onto the weekly drama!

Turns out, World Liberty Financial deposited 5 billion of its own governance tokens into Dolomite, a lending protocol co-founded by a WLFI adviser, and borrowed $75 million in stablecoins against them. This has drained the Dolomite USD1 lending pool to near-100% utilisation, trapping ordinary depositors who can’t withdraw until WLFI repays.

Justin Sun, once one of WLFI’s biggest backers, went public, accusing the project of extracting value for insiders.

WLFI’s response, “See you in court”, is already a meme.

“Aave Will Win” passes the DAO vote

Now onto DAO governance. The Aave drama has been going on for months. Is it finally over?

The “Aave Will Win” proposal passed this week with a significant majority, formally restructuring Aave Labs as a DAO subsidiary and redirecting product revenue to the treasury.

This follows V4’s mainnet launch on March 30.

Since this proposal’s creation, we have seen three large service providers leave Aave, all of whom were instrumental in the development and growth of Aave V3. To date, BGD Labs, ACI, and Chaos Labs have all departed.

What’s next for Aave?

90% of crypto VCs have disappeared

Tom Dunleavy posted data this week showing that active VCs deploying capital dropped from over 5,300 in 2022 to fewer than 400 today, and predicted that fewer than 20 firms are writing early-stage cheques.

For those interested in the matter, Krate27 compiled a spreadsheet of remaining active funds from the thread responses.

This behaviour is not surprising, just as we are seeing consolidation across protocol teams and products, the capital behind it all is also consolidating

Morgan Stanley launches a Bitcoin ETF and undercuts BlackRock

Morgan Stanley launched MSBT, becoming first US bank-affiliated asset manager to issue a spot Bitcoin ETF.

The ETF launched on NYSE Arca with ~$34 million in first-day volume and a 0.14% expense ratio, roughly half of BlackRock’s IBIT.

Now, Morgan Stanley’s advisors managing $9.3 trillion in client assets can recommend an in-house product rather than sending flows to a competitor.

INFINIT brings prompt-to-DeFi to BNB Chain

INFINIT launched its Prompt-to-DeFi Strategist Challenge on BNB Chain, where users create yield strategies in plain language, and AI agents handle the execution.

They recently expanded their partnership with BNB, integrating Venus Flux, Aster, PancakeSwap, Pendle, and Lista.

If you want to try building a strategy yourself, they currently have a challenge where anyone can create strategies live athttp://app.infinit.tech/en/prompt

Amundi’s tokenised fund hits $400M in three weeks

Amundi, Europe’s largest asset manager at €2.3 trillion AUM, launched a tokenised overnight fund on Ethereum and Stellar via Chainlink. In just three weeks, it became the fastest-growing tokenised fund on record, growing to $400M in AUM.

Tokenised Treasuries now total nearly $13 billion, indicating a clear shift from experimentation to production among these asset managers and funds.

Seeing Things Inverted

Noveleader from the Castle team on a trend worth watching.

Prediction Markets are growing exponentially; they are breaking their own records and reaching ever-higher volumes every month.

Last month, they did $25 billion in volume, and these instruments don’t even have leverage; they are simply the tools to express one’s opinion about anything. I agree we do have certain bots we deploy on the markets around BTC price that sometimes try to leverage the latency arbitrage of these markets, and sometimes deploy an actual strategy.

In TradFi, people are not stopping either, and 0DTE is gaining popularity. While I don’t have the latest stats, these options instruments are now a major contributor to volumes, and the numbers are just increasing from here.

Very few people would shed some light on this, but this is the point we call Hyperfinancialisation. I talked about it in one of my pieces last year, and things are becoming way worse.

This is sad, and the trend is not just noticeable among PMs or 0DTEs; it is also evident in the increasing volume of perpetuals, futures, and options. The innate nature is to gamble now to make it in life in a shorter span of time. Honestly, there is no one to blame. Inflation sucks; houses are getting more expensive by the tick of the clock; rent isn’t cheap; and it takes years to get out of college tuition debt, only to wrangle into a mortgage afterwards.

There is no solution unless the system completely evolves, and until then, the numbers associated with any form of gambling or speculation will keep rising, uninformed investors will keep losing money, and things will keep getting expensive.

Welcome to the state of Hyperfinancialisation, where everything will eventually become a market.

Why 90% of DeFi liquidity is doing nothing

At EthCC, we sat down with Sergej Kunz, co-founder of 1inch. One thing he said stuck with us and connects directly to what we’ve been talking about in this edition.

“80-90% of liquidity in traditional AMMs is idle. Protocols competing on TVL are competing on quantity, not quality.”

His point is simple: a million dollars in a Uniswap pool can’t simultaneously earn yield elsewhere. It’s locked, doing one thing. Multiply that across the entire industry, and you have billions of dollars sitting dormant while protocols fight to attract more of it.

1inch’s answer is Aqua, an intent-based liquidity protocol. Instead of locking capital in smart contracts, users sign intents expressing willingness to provide liquidity at specific terms, and market makers settle against them. Your assets stay in your wallet. One pool of capital works across multiple strategies simultaneously.

“Curve and Balancer will need to adapt or disappear,” he told us. He’s already in direct conversations with both teams about becoming strategy providers on Aqua rather than competing with it. Aqua is globally patented, backed by $700K in audits, and he estimates 18-24 months before the flywheel kicks in: enough market maker liquidity settling intents at competitive prices to pull real volume from traditional pools.

But the bigger point was about what accelerates that timeline. “AI agents will drive the next big thing in DeFi adoption. UX is the real bottleneck, not liquidity.”

1inch already has a live MCP server that lets agents execute swaps.

Sergej believes in AI agents so much that he’s built his own, replacing OpenCLaw with his own harness using Claude and Cursor, running it on a Mac Mini at home for self-custody. It executes cross-chain swaps autonomously, and he’s extending it to manage Aqua liquidity positions. It’s great to see him applying self-custody compute in the same way we demand self-custody wallets.

If DeFi’s interface problem gets solved by agents rather than better frontends, the protocols with the best infrastructure APIs are the ones that win.

Aave V4 went live on March 30, but with deliberate training wheels: conservative supply and borrow caps across all three Hubs, with the DAO gradually increasing limits as the system proves itself in production. So don’t expect a sudden TVL migration from V3, but watch out for the changes on Aave Pro.

Ethena’s transparency dashboard currently shows that 89% of backing is in liquid stablecoins, positioning it for the transition to the new reserve structure. All new reserve initiatives are being independently assessed by the Ethena Risk Committee, with analysis published publicly. Worth following if you hold USDe or are evaluating the new risk profile.

The CLARITY Act Senate markup is targeted for late April, which will determine how yield can be distributed to stablecoin holders, something all asset issuers, exchanges, and distribution platforms are keeping a keen eye on.

Rough weeks make for good stories later. That's it from us. See you next Tuesday.

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.

The digitalisation of banking has been one of the defining trends of the last decade.

From online banking to mobile banking, to neobanks, a term originally described digital-only banks with no physical branches, built from scratch rather than adapting legacy systems.

Nowadays, they all co-exist with the legacy banking sector.

Some neobanks have been extremely successful, including Revolut, which started as a foreign exchange card for travellers and evolved into a multi-product financial platform that now serves over 50 million users globally, with $4 billion in annual revenue.

The global neobank market is valued at $148.9 billion and projected to exceed $4.4 trillion by 2034. Revolut’s transaction volume approached $1.3 trillion in 2024, proving that new entrants can compete with well-established banking monopolies.

Traditional neobanks promised to replace legacy banking but ended up running on the same rails: the same correspondent banks, the same settlement delays, the same custodial model, just with a better experience, using an app.

The underlying infrastructure is the same one that makes banking a hassle, dealing with intermediaries, agents, and compliance officers, regardless of how sleek the mobile interface looks. When Silicon Valley Bank collapsed in March 2023, it reminded its clients how precious a physical banker can be when a crisis looms and things go south. Without a reliable physical fallback, banking remains a remote, impersonal activity, much like DeFi hacks and exploits, which are more often than not left unresolved.

Dozens of crypto banks are live, while stablecoin supply has exceeded $308 billion. The clearest proof that this market is monetisable is RedotPay. Founded in Hong Kong in April 2023, the stablecoin-based payments fintech now processes over $10 billion in annualised payment volume. It raised $194 million in 2025 alone. By February 2026, Bloomberg reported that RedotPay was preparing a US IPO targeting a valuation exceeding $4 billion, with JPMorgan, Goldman Sachs, and Jefferies advising. According to data, RedotPay had $91 million in crypto card volume for November 2025 alone, second only to Rain at $240 million.

The architecture is closer to Revolut’s crypto top-up than to anything described below. RedotPay proves the demand exists. The protocols examined in this piece are building the architecture that could change banking.

The maturation of DeFi infrastructure has created the conditions for a new kind of bank, one where users could store, spend, grow, and borrow assets onchain, without intermediaries.

Crypto cards give users the feeling that they finally own their money without outside control, and increasingly, the infrastructure backs it up.

This article explores how these onchain banks differ from each other, and whether they offer the same guarantees, protect against operational risk, and satisfy compliance requirements, because offchain neobanks are radically different from onchain banks, and the comparison is almost misplaced.

From Neobanks to Onchain Banks

A neobank is a digital-only bank with no brick-and-mortar branches, built from scratch rather than adapting legacy systems. They exist on cellphones, within finger’s reach, but there is no physical presence except in corporate offices.

The evolution of the banking sector follows a clear (though slow) trajectory, with each generation building on the last, mirroring the technological paradigm of scientific discovery. However, crypto banks are far from the neobank model, and we will see how they differ from their elders.

Same Same but Different

1. Web2 neobanks like Revolut, SoFi, and Nubank are mobile-first interfaces built on legacy banking infrastructure. Developing countries have benefited from digital banking services in remote locations where traditional banks such as HSBC cannot open branches. These platforms developed access and practicality, but not self-agency.

• They are still custodial, with the bank holding the user’s money on its own balance sheet.

• They are still dependent on correspondent banks for cross-border settlement.

• They are still geographically limited by licensing regimes: Revolut has spent years and hundreds of millions of dollars acquiring banking licences jurisdiction by jurisdiction.

Built for convenience, the model remains centralised, controlled, and far from private in practice.

2. Web2/3 hybrids like Xapo, Nexo, and Matrixport represent the first attempts to bridge traditional and crypto banking. They offer fiat and crypto in one application, but the underlying model remains largely custodial. Users can hold Bitcoin alongside pounds and euros, but the platform controls the keys and manages the assets. In the backend, these platforms run omnibus custody, in which they pool user funds, use centralised order books for crypto trading, and settle fiat via the same correspondent banking rails as Web2 neobanks. The difference from Web2 is asset class access, not architecture.

These platforms share similarities with centralised exchanges: even if the user can view their assets, those assets are held by a third party. If the platform collapses for structural or financial reasons, as happened with FTX, users lose their assets.

As such, Web2/3 hybrids inherit the counterparty risk of centralised platforms, the same risk model that produced Celsius or BlockFi, while offering only slightly more functionality than a standard neobank by supporting cryptocurrency assets.

3. Onchain banks like ether.fi Cash, Tria, and Superform represent the architectural turn. Built on smart contract wallets, integrated with DeFi protocols for yield on deposits, and connected to Visa and Mastercard through card infrastructure providers, they are composable and yield-bearing by design, with varying degrees of user custody depending on the product.

Users’ assets are held in smart contracts that guarantee self-custody, not on the platform’s balance sheet. Yield is generated through transparent DeFi strategies, not by banks rehypothecating deposits. Spending happens through onchain settlement routed to Visa or Mastercard. As Blocmates put it: “You do not store money with them; you use money through them.” The distinction is fundamental: it is the difference between trusting an institution and trusting a smart contract.

Both have different risk profiles, but a smart contract offers the benefit of eliminating human input entirely. If anything goes wrong with the platform, the user retains control over their funds at all times.

4. B2B onchain banks represent the furthest extension of the thesis. Dakota is building crypto-powered neobanking for businesses, offering corporate treasury management, payroll in stablecoins, and cross-border payments without correspondent banking delays, with deposits backed by US Treasuries, zero transaction fees, and yield generated through Treasuries and DeFi strategies.

The distinction is structural: with a traditional neobank, assets sit on the bank’s balance sheet. With a crypto-powered neobank, assets sit on a transparent, verifiable ledger, and the user retains ownership. Each generation has moved closer to direct user control: from digitising the interface, to adding crypto asset access, to eliminating intermediaries entirely. If this model proves to be adopted by businesses, and if it can satisfy the regulatory demands of governments and consumer expectations of safety, the entire financial stack can be deployed onchain.

But the question is not just whether onchain banks can supersede, or at least compete with established outfits. It is how they work in practice, starting with the most basic use case: buying a coffee at the local shop.

How Crypto Cards Get You a Coffee

One of the main value propositions of crypto neobanks is that they let you use your crypto for everyday purchases with a crypto card.

Crypto card spending has grown exponentially to $406 million in monthly volume as of November 2025, the highest on record, with Visa’s stablecoin-linked card spend alone reaching a $3.5 billion annualised run rate.

In this section, we explore the different crypto cards underlying infrastructures, with a simple example of buying a coffee.

When a user taps a crypto card at a coffee shop, what happens between the tap and the merchant receiving payment?

There are two distinct mechanisms in the market today.

Fiat Settlement

The standard model for spending purposes, used by Crypto.com or Binance Card.

• The user taps the card, and the merchant terminal sends an authorisation request over Visa or Mastercard, identical to any normal card payment.

• The card issuer’s system checks the user’s crypto or stablecoin balance, runs a fraud check, and if approved, automatically sells the user’s chosen asset at the real-time market rate and converts it to fiat. By the time the transaction reaches the card network, it is indistinguishable from any other card payment. Nothing from the merchant’s perspective changes, as he receives local currency as he would have with any other fiat transaction.

• Who handles the conversion depends on the card’s infrastructure: programme managers like Baanx and Bridge convert the crypto to fiat themselves, then pass it to an issuing bank (Lead Bank, Cross River Bank), which settles to Visa. Full-stack issuers like Rain handle the entire chain, liquidating stablecoins and settling directly to the Visa network, which then routes the amount to the acquiring bank in the merchant’s desired fiat currency.

Stablecoin Settlement

Stablecoin settlement is growing rapidly but remains nascent and works differently. Rather than converting to fiat before settlement, the issuer settles its obligations to Visa directly in stablecoins over a blockchain. Visa launched USDC settlement for US institutional partners, allowing participating issuers and acquirers to settle VisaNet obligations in Circle’s USDC on the Solana blockchain.

The benefits for issuers are concrete: faster fund movement and 24/7 inter-institutional settlement on blockchain rails, without any change to the consumer card experience. Visa’s stablecoin-linked card spend hit a $3.5 billion annualised run rate in 2025, approximately 460% year-over-year growth, but still represents roughly 19% of total crypto card settlement volume. As of early 2026, native stablecoin settlement supports a limited set of assets, primarily USDC and PYUSD on Visa’s side, with Mastercard expanding to include additional stablecoins. USDT, the world’s largest stablecoin by market capitalisation, remains absent from Visa and Mastercard’s native settlement programmes.

Visa is also a design partner for Arc, a new Layer 1 blockchain developed by Circle, and plans to use it for USDC settlement and to operate a validator node.

The payment network layer is dominated by Visa, capturing over 90% of onchain card transaction volume. The divergence reflects different strategies.

Visa partnered early with emerging infrastructure providers like Rain and Reap, capturing crypto-native issuers through a single integration point that gave Visa exposure to dozens of card products, while Mastercard focused on direct partnerships with major centralised exchanges such as Revolut, Bybit, and Gemini.

To date, Visa has facilitated almost $100 billion in cryptocurrency purchases and over $25 billion in cryptocurrency spending, across a network of more than 150 million merchants and 14,500 financial institutions.

Between the user and the network sit two types of intermediaries, and the distinction determines how much margin each neobank captures per transaction.

• Programme managers, companies that manage card programmes on behalf of issuers without holding direct network membership, like Bridge or Gnosis Pay, handle the crypto-to-fiat conversion but depend on issuing banks for settlement to the payment network. Baanx’s Crypto Life is the white-label programme manager behind the MetaMask Card, the Ledger Card, and others.

• Full-stack issuance platforms, like Rain and Reap, hold direct Visa principal membership and own the entire stack: BIN sponsorship, lender of record, and network settlement, all in one product. By consolidating the existing card issuance stack into a single offering, Rain captures much of the value that is often lost to banks and other intermediaries. Rain is reportedly approaching a $2 billion valuation.

This is telling because a protocol built on Rain’s full-stack rails (like Plasma One) retains a larger share of the transaction fee, since fewer intermediaries take a cut, compared to one routing through a programme manager, an issuing bank, and a network.

The architecture beneath the card matters as much as the architecture on the blockchain. The next question is what sits above the payment rails, and how these protocols implement the paradigm of banking on a ledger.

The Onchain Bank Models

This section explores different onchain neobank models using four different protocols using very different approaches as our case study.

Each has made fundamentally different architectural choices, and those choices, depending on their success, will set the standard for crypto banks.

ether.fi Cash, The Onchain TradFi Bank

Ether.fi accounts for over a quarter of total spending volume across all crypto cards.

Cash, ether.fi’s non-custodial crypto card is now its largest revenue line, accounting for approximately 50% of protocol revenue.

What makes ether.fi Cash is architecturally distinct in its custody and wallet infrastructure. The architecture is a Gnosis Safe-based modular system called EtherFiSafe. Each user gets a dedicated multi-signature smart contract wallet with whitelisted modules that enable spending, borrowing, and yield generation from a single non-custodial vault.

This is meaningfully different from Web2/3 hybrids. In a hybrid model like Nexo, the platform holds user funds in pooled accounts. In ether.fi Cash: each user’s funds sit in their own smart contract, including ether.fi itself cannot access the user’s private keys. If the ether.fi platform disappeared tomorrow, user funds would remain accessible in the Gnosis Safe, recoverable via any Web3 interface.

The product offers two spending modes:

• Direct Pay transfers assets from the user’s vault to fund a card transaction.

• Borrow Mode allows users to deposit ETH as collateral into staking or liquid-vault products, then borrow against it via a dedicated Aave deployment. The user spends borrowed stablecoins while their ETH continues earning yield. This is a significant upgrade: no traditional neobank and no Web2/3 hybrid currently offers the ability to borrow against staked crypto collateral and spend the loan directly via a card.

This creates a flywheel: cards drive deposits, deposits drive TVL, TVL drives management fee revenue.

In terms of size, ether.fi reached approximately 300,000 accounts with almost 70,000 active cards,

The migration to OP Mainnet began on February 19, 2026, moving all accounts from Scroll under a long-term Optimism Enterprise partnership. The Visa card launched on February 26 offers up to 3% cashback with Apple Pay and Google Pay integration.

Ether.fi Cash offers cashback ranging from 2% to 3% depending on membership tier, with promotional campaigns pushing total rewards to 5%, a portion paid instantly in SCR or wETH and the rest in ETHFI tokens. The critical difference is in the cost structure of ether.fi. Compared to centralised exchanges that pay rewards in fiat or liquid crypto, thus incurring real-dollar costs, ether.fi funds its rewards through token incentives at near-zero marginal cost of capital. The tradeoff is that rewards are paid in volatile tokens; if the value of ETH or SCR drops 20%, the cashback value drops with it.

Tria, The Self-Custodial Payment Infrastructure

Where ether.fi built a bank, Tria built an operating system.

Rather than competing as a standalone consumer product, it provides the settlement and wallet infrastructure that other crypto banks build on. This is analogous to what SWIFT did for correspondent banking in the 1970s, setting a standard that the industry adopted rather than each bank building proprietary rails.

The core innovation is BestPath AVS, a decentralised settlements marketplace currently being open-sourced, built as an Actively Validated Service on EigenLayer, where solvers, routers, and relayers compete to route transactions across chains. Other neobanks and wallets can plug into BestPath to access cross-chain settlement without building their own bridging infrastructure.

Tria is truly chain-agnostic: a user can hold assets on any supported chain and spend them via a Visa card without manual bridging, swapping, or gas management. The wallet is fully self-custodial with social recovery, no seed phrases, and no gas tokens required.

To date, Tria’s card product has more than $60 million in total volume, settling across Arbitrum, Base, Optimism, Polygon, and Solana, with monthly card spend running at roughly $12 million as of March 2026. The platform serves 500,000+ users.

Beyond payments, Tria’s perpetual product, running on Hyperliquid using builder codes, has crossed $475 million in volume in its first 30 days alone, generating $439K in fees and annualising at $5.3M in revenue from perps alone. Tria now accounts for 0.116% of all global Hyperliquid perpetual volume, a notable share for a product that was just launched in the middle of an explosive market.

BestPath and Tria’s CoreSDKs function as modular developer toolkits for wallet creation, authentication, and payment processing, enabling other neobanks to integrate Tria’s infrastructure without building from scratch.

Additional ecosystems integrating Tria include 0G, Aethir, Sentient, Base, Arbitrum, and Monad.

Superform, The User-Owned Piggy Bank

Superform approaches the neobank thesis from a different angle entirely: yield aggregation with full onchain verifiability.

The architecture uses ERC-7579 smart accounts and SuperVaults that employ dual Merkle validation. What this means in practice is that every yield strategy is cryptographically verifiable onchain. Unlike a traditional savings account, where the bank invests deposits opaquely, or a hybrid platform like Nexo, where yield comes from centralised lending desks, Superform’s vault framework is transparent: users can verify exactly where their capital is deployed across Morpho, Euler, Aave, and Pendle.

SuperVault v2 strategies include SuperWBTC, SuperWETH, and SuperUSDC, offering optimised yield across chains. The validator network adds an additional safety layer: before any yield strategy is deployed, it must be approved by a network of independent validators who stake their own capital as a guarantee of due diligence. If a validator approves a strategy that turns out to be malicious or flawed, they lose their staked capital through economic slashing.

Where ether.fi is a full DeFi bank, and Tria is a payment infrastructure layer, Superform is a savings account, the user-owned piggy bank that earns institutional-grade yield without requiring active management.

Plasma One, The Stablecoin Infrastructure Play

Plasma takes a vertically integrated approach.

Built on its own Layer 1 blockchain with native Tether integration, Plasma controls the full stack:

• The consensus layer

• The stablecoin infrastructure

• The DeFi ecosystem that generates yield

Spending is routed through Rain’s principal Visa membership to the card network.

This vertical integration is the key architectural distinction:

• ether.fi builds on Ethereum L2s and uses third-party DeFi protocols for yield.

• Tria is chain-agnostic and protocol-agnostic, routing across many chains.

• Superform aggregates yield from existing protocols.

• Plasma owns the entire stack, from consensus to card settlement, which gives it more control but also introduces centralisation tradeoffs: the ability to theoretically halt or roll back transactions.

Plasma’s focus is on emerging markets and dollar access, targeting the billions of people who need stable dollar exposure more than they need DeFi composability.

Consumer Protection, or the Lack Thereof

The major downside, aside from regulations, which will be discussed further down, is the uncertainty regarding customer protection with regard to onchain banks.

Traditional banks offer a safety net built over decades of regulation and failure.

Card transactions carry chargeback rights: if a merchant defrauds a cardholder, Visa’s Zero Liability policy reverses the charge. If a bank goes bankrupt, depositors are legally prioritised over other creditors. These protections are enforced by law, and every institution, whether JPM or a small regional bank, must abide by them.

Crypto neobanks offer none of this. There is no FDIC insurance, no deposit guarantee. Blockchain transactions are still irreversible. If funds are sent to the wrong address or stolen in a hack, there is no protocol-level chargeback mechanism. DeFi exploits have drained billions, and there is no meaningful way to recover those funds.

What onchain banks offer instead is a fundamentally different risk model, relying on practical guarantees that the law does not enshrine.

Self-custody is the first line of defence. With ether.fi Cash, a dedicated smart contract vault is deployed for each user, secured by a Trusted Execution Environment (TEE) provided by Turnkey. Even ether.fi itself cannot access the user’s private keys. If the ether.fi platform disappeared tomorrow, user funds would remain accessible in the Gnosis Safe smart contract. However, with power comes responsibility, as this means users bear full responsibility for their funds. There is no helpline for a lost key, no AI agent, no soft-spoken cashier at the counter to receive one’s complaints.

Smart contract audits and bug bounties are the second line. Ether.fi’s contracts are audited by leading security firms, and the protocol runs a bug bounty programme through Immunefi, paying up to $200,000 for critical vulnerabilities. The platform has processed over 80,000 transactions without a security incident as of February 2026, but as ether.fi’s own documentation states, “there always exist risks in interacting with smart contracts“ and the protocol “can make no guarantees that methods are or will remain 100% secure“.

Superform addresses this through its validator network, with economic slashing: validators that approve malicious strategies lose their staked capital.

Plasma’s approach is different again: by controlling its own L1, it builds consumer protection into multiple layers of the architecture.

• At the base, Plasma periodically anchors cryptographic state commitments to the Bitcoin blockchain, inheriting Bitcoin’s security model

• Its PlasmaBFT consensus, a HotStuff-inspired Byzantine Fault Tolerance (BFT) mechanism, ensures the network continues operating correctly even if up to one-third of validators behave maliciously.

• Above the consensus layer, Plasma benefits from native Tether integration with direct issuer oversight, curated DeFi partner onboarding rather than permissionless deployment, and a Bitcoin bridge secured by the same decentralised validator set, with plans to adopt BitVM2 for further trust minimisation.

• Only as a last resort could Plasma’s validator theoretically halt or roll back transactions in extremis, though this creates its own centralisation tradeoff.

Optional DeFi insurance exists but is not standard. ether.fi users can purchase smart contract cover from Nexus Mutual, a decentralised insurance alternative that bundles protection across EigenLayer, ether.fi, Morpho, Pendle, and Uniswap into a single Cover NFT. This is voluntary and costs the user money; it is not built into the product the way FDIC insurance is built into a bank account. Most users will not purchase it because spending more money to protect their funds is discouraging and not easily accepted: less than 2% of total DeFi TVL is covered by any form of insurance, and the entire decentralised insurance sector holds a fraction of the capital locked in lending or trading protocols. Spending additional money to protect one’s funds is a hard sell when users are accustomed to deposit insurance being built into banking products at no visible cost.

Borrow Mode introduces liquidation risk that has no equivalent in traditional banking. If a user borrows against ETH collateral and the price drops below the liquidation threshold, the smart contract automatically sells the collateral to cover the debt. There is no margin call, no grace period, no human intervention. The user must actively monitor their health factor and adjust collateral ratios.

Card-level protections, however, still apply. Because these cards run on Visa rails, users do get Visa Signature benefits: $2,000 price protection, $10,000 purchase protection, $10,000 extended warranty, and Visa Zero Liability against fraudulent charges. These protections come from Visa, not from the protocol. They cover the card side of the transaction, and nothing else.

Therefore, onchain banks eliminate counterparty risk but introduce smart contract risk. On the one hand, the user is no longer exposed to the platform’s balance sheet. As such, their assets cannot be rehypothecated, frozen by a compliance officer, or lost in a bank run. On the other hand, they are exposed to code vulnerabilities, oracle manipulation, bridge exploits, and the consequences of their own errors, which can be catastrophic.

For sophisticated users who understand DeFi, this is arguably a better risk profile.

For the average consumer who expects a bank to step in when something goes wrong, onchain banking is not yet a comfortable substitute, and the gap between DeFi’s transparency and traditional banking’s safety nets remains wide.

The Regulatory Heavy Burden

In the USA, Trump signed the GENIUS Act into law on July 18, 2025, as the first federal legislation on digital assets ever enacted in the United States.

The framework creates three categories of permitted stablecoin issuers:

• Subsidiaries of insured depository institutions.

• Federal-qualified nonbank issuers (regulated by the OCC).

• State-qualified issuers.

Stablecoin payments must be backed 1:1 with US dollars, short-term Treasuries, overnight reverse repos, or specified money market funds. Monthly attestations and redemption rights are mandatory. Critically, permitted payment stablecoins are explicitly not securities under federal law, removing them from SEC jurisdiction.

The FDIC has already proposed application procedures for supervised institutions seeking to issue stablecoins under the Act. For crypto neobanks, the consequences are optimistic: GENIUS Act-compliant stablecoins become the regulation of reference, and the infrastructure implements the Administration’s word, safe from the regulator’s anger.

In the EU, the Markets in Crypto-Assets Regulation (MiCA) is now fully operational, and the Anti-Money Laundering Authority (AMLA) becomes fully operational this year. Europe has over 50 active neobanks, but compliance costs are rising, and it will become increasingly expensive to satisfy regulatory demands that remain, in many cases, poorly adapted for onchain business models. These models face specific challenges because existing AML frameworks were designed for custodial intermediaries, not self-custodial smart contract wallets, creating friction around transaction monitoring, travel rule compliance, and customer due diligence that does not integrate obviously onto decentralised businesses.

Which leads us to the question of legal enforcement.

The enforcement track record should give crypto neobanks pause.

Even established neobanks have faced significant penalties, both in Europe and the USA:

• Monzo was fined $27 million by the FCA for Anti-Money Laundering failures in July 2025.

• Revolut was fined $3.8 million in Lithuania.

• Cash App paid an $80 million settlement across 48 US states, showing that even the New World can and will sanction those who don’t toe the line.

False-positive rates in transaction monitoring exceed 95% at some neobanks, meaning compliance systems flag 19 legitimate transactions for every genuine suspicious transaction. AML transaction monitoring systems use broad rules: Neobank customers trigger those same red flags, and the systems can’t contextualise whether a flagged transaction is a freelancer paying rent or a criminal structuring deposits due to the nature of crypto transactions (offramping, cross-border payments, small transfers).

Furthermore, traditional banks still refuse to bank crypto businesses: Crypto activities trigger virtually every internal alarm associated with money laundering risk within traditional banking systems, regardless of the actual risk profile. In Europe, correspondent banks exert heavy pressure on smaller institutions to cut ties with crypto clients, forcing them to choose between serving crypto customers and keeping their place in the financial system.

RedotPay illustrates the traditional fintech response to this problem. It holds VASP licences in Lithuania and Argentina, a money lender licence and Trust or Company Service Provider licence in Hong Kong, and maintains full PCI DSS compliance. This is the compliance first strategy: accumulate licences faster than competitors can apply for them.

RedotPay’s multi-jurisdictional licensing is a core reason it operates in over 100 countries while protocol-native actors remain geographically constrained. The planned US IPO would further solidify this advantage by embedding the company within US public market disclosure and governance requirements.

Onchain neobanks are, given their design, more transparent than traditional banks by nature:

• Every transaction is verifiable onchain.

• Every reserve is auditable in real time.

• Every smart contract interaction is recorded immutably.

The onchain transparency advantage should, in theory, make these protocols safer, not more suspicious.

Yet, compliance is becoming an inevitable structural factor, just as it is with traditional banks.

The protocols that build GENIUS Act and MiCA compliance into their architecture will be the ones that become blue-chip retail products.

A Long Way Ahead

The first generation of neobanks changed how banking looks, while the second generation is changing how banking works, by replacing custodial, intermediary-dependent infrastructure with self-custodial, onchain alternatives.

All four models are converging toward the same banking products: save, spend, earn, borrow, but they are arriving from fundamentally different directions.

• Ether.fi comes from DeFi staking and has made Cash a major source of revenue.

• Tria comes from cross-chain execution infrastructure and is positioning BestPath as the settlement layer that other neobanks plug into.

• Superform comes from yield aggregation and is building an automated savings account.

• Plasma comes from stablecoin infrastructure and is targeting the billions of people who need dollar access more than they need DeFi.

The massive elephant in the room is, of course, the utter lack of consumer protection.

If crypto cards are a tool for sophisticated users who understand DeFi mechanics, collateral management, and smart contract risk, the absence of deposit insurance, chargeback guarantees, and institutional safety nets means these products are not yet substitutes for traditional banking.

Crypto neobanks remain an experiment that neither neobanks nor banks should see as a threat, given the massive guarantees they offer their customers. Because of a lack of perspectives on long-term regulations in Europe, an uncertain future for current US legislation, and a total lack of consumer protection, it would be wise to rely either on one’s affable banker or, at least, on a useful AI agent ready to answer at any time.

Many neobanks burned cash and never reached profitability. Crypto neobanks face the same unit economics question.

written by @TradFiHater ✍️

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Privacy is a baseline natural desire

Privacy is an underrated luxury that most people don’t think about until it’s gone. While people chase fame, plenty of public figures have spoken about how exhausting it is to have every moment picked apart. People make mistakes, but imagine if those moments are amplified and on loop for everyone to see. Remember that time you tripped while crossing the road? The world just made a meme out of it.

However, we live in an age of surveillance. Companies compete for access to our data, what we do, what we like, and how we spend. User preferences are used for more specific ad targeting. Artificial intelligence will only accelerate the ability for external third parties to piece together information about you.

A lack of blockchain privacy is a flaw in the current design

Blockchain transactions lack privacy. While conducted pseudo-anonymously, the majority of transactions since Satoshi’s genesis block in January 2009 are publicly recorded, permanently indexed, and easily accessible to anyone with tools like Nansen or Arkham. If you momentarily expose your screen, anyone can suddenly trace what you spend, what you earn, and how you move assets.

Nonetheless, governments have been reluctant to legitimise privacy solutions; many are seen as non-compliant, with limited safeguards against misuse by bad actors operating on these rails.

However, as institutional participants enter the market, privacy becomes increasingly important; it’s not just about “having something to hide,” but rather protecting proprietary strategies while remaining compliant.

Privacy is more relevant than ever

As a result, the market has begun to develop real solutions for onchain privacy. Privacy coins were the best-performing crypto sector of 2025 by a wide margin (up 288% YoY) while Bitcoin and Ethereum largely flatlined. Zcash surged 861% before the broader privacy narrative peaked, eventually giving way to market-wide selling pressure.

Even if the cycle has cooled, the underlying infrastructure has finally matured: zero-knowledge proofs have moved from academic papers to production-grade systems, enabling private transactions that settle in seconds without sacrificing verifiability, preserving one of crypto’s core promises.

Beyond the financial aspect of privacy, much more is at stake.

In this context, Starknet is introducing STRK20, a new standard that enables any ERC20 token to be privately transferred without rebuilding infrastructure, fragmenting liquidity, or introducing compliance risks.

At the same time, strkBTC launched as a Bitcoin-backed asset that is private by default, programmable, and redeemable 1:1 for native BTC.

Different Approaches To Privacy

This section highlights four different approaches to privacy in blockchains.

1. Privacy through token transfers, which conceals the sender, receiver, and amount of a transaction between wallets.

Monero and Zcash are cases in point where

• Monero uses ring signatures and stealth addresses to make every transaction private by default.

• Zcash relies on zk-SNARKS to enable shielded transactions.

The limitation, however, is structural. Privacy at the token transfer layer breaks down the moment users need to interact with markets rather than simply move funds between addresses. As soon as users want to swap, lend, borrow, or participate in any protocol that depends on observable shared state, privacy becomes a constraint. Users are either forced to unshield, exposing their positions at the exact moment it matters most, or are effectively blocked from market participation entirely.

Historically, adoption of Zcash shielded pools has remained between 10% and 30% of the total supply, as users default to transparent transactions when they need composability. Even Zcash Connect, the bridge to Ethereum DeFi, requires unshielding at every protocol boundary.

More broadly, the challenge of market participation remains unresolved. These assets have largely stayed on the fringe, with limited adoption across both retail and institutional users, precisely because privacy, in its current state, comes at the cost of usability and integration.

2. Privacy through applications: building confidential applications on top of public blockchains. These systems encrypt user activity at the application layer while leaving the underlying execution environment transparent.

The tradeoff with this system is fragmentation. Each application becomes its own privacy domain, which limits interoperability. Critical data, such as price feeds, liquidation triggers, and settlement states, cannot cross application boundaries without naturally leaking information. DeFi depends on this level of shared visibility. For example, a lending protocol must track DEX prices to manage collateral risk, or a DEX must track funding rates set by spot market dynamics to effectively price its own products. Privacy in this model starts to conflict with composability.

Within this category, Railgun is the most successful implementation. Backed publicly by Vitalik Buterin, Railgun processed $1.6 billion in shielded transactions in 2025 and hit $4 billion in cumulative volume. It applies zk-SNARKs at the smart contract level on Ethereum, allowing users to shield any ERC-20 token and interact with DeFi protocols from within a private balance. But Railgun remains an application sitting on top of a transparent chain. TVL bounds the anonymity set in the shielded pool (currently around $83 million), which means a sufficiently motivated chain analyst at the IRS can narrow the set of possible participants. It is the best version of app-level privacy, but it’s not bulletproof.

3. Privacy through executions: encrypting the smart contract execution itself so that neither the state nor the computation is visible to external observers.

This is Aztec’s approach, attempting to resolve the fundamental conflict between encrypted execution and usable markets. The Aztec Ignition Chain launched with 185 operators and 3,400+ sequencers.

Zama approaches the same problem from a different cryptographic direction. Rather than ZK proofs, Zama uses fully homomorphic encryption (like Octra, another recently funded protocol), computation on data that remains encrypted throughout processing, including during execution.

Its fhEVM allows developers to write confidential smart contracts in standard Solidity, where encrypted state coexists alongside public state on any EVM-compatible chain without modifying the underlying blockchain.

In theory, FHE solves the composability problem that undermines the privacy of ZK-based execution, allowing protocols to interact with each other’s encrypted state. In practice, FHE remains orders of magnitude slower than native computation, the coprocessor network is still in testnet, and no DeFi app has demonstrated that the latency is tolerable for operations like liquidations or arbitrage.

Tornado Cash struggled not because of its mechanics, but because regulators killed it. A non-custodial Ethereum mixer operating at the transfer tier without any compliance, it recorded billions in volume at its peak. On August 8, 2022, OFAC sanctioned Tornado Cash, the first time an immutable, open-source smart contract was sanctioned, and volume collapsed by nearly 85% within weeks. Those sanctions were eventually lifted after a court ruled the Treasury had overstepped its authority over open-source smart contracts.

Developer Roman Storm was convicted in August 2025 on one count of operating an unlicensed money-transmitting business, but a jury deadlocked on the more serious money laundering and sanctions charges. As of March 2026, the DOJ is pushing for an October 2026 retrial, somehow just weeks after the Treasury acknowledged in a report to Congress that mixers can serve legitimate financial privacy purposes.

The bottom line is that privacy tools without a compliance framework can be scrutinised by regulators regardless of their technical soundness. This risk would not disappear if the legal outcome is reversed, as the reputational risk of potential non-compliance is detrimental to the firm’s reputation. CertiK noted that the mere use of these coins poses significant operational risks for both platforms and users. For mainstream privacy that’s adoptable by institutions and retail alike, a compliant and scalable version is necessary.

Each of the above approaches features a major issue

• Privacy through token transfers isolates users.

• Privacy through applications fragments DeFi

• Privacy through execution prevents trading.

• A mixer that is not compliant violates the protocol regardless of its technical merit.

The only path through all four failure modes requires an entirely different architectural approach.

4. Privacy through ownership

In this approach, markets remain public, while users can remain private.

Market structure remains fully visible, including prices, liquidity, settlement, and protocol interactions. What disappears is the user layer: wallet addresses, positions, transaction history, and trading strategies. The success of Extended on Starknet suggests real demand for exactly this tradeoff: with $180 million in TVL and $156 billion in cumulative volume, Extended has become a reference in the trading sector.

Onchain analytics can show that trades occurred, but not who made them, what positions they hold, or how wallets are connected. Composability stays intact. Surveillance becomes impossible. The result is essentially Bitcoin’s permissionlessness without its privacy vacuum, and without the regulatory red flag of total opacity.

So far, achieving privacy through ownership has not been feasible, as it requires a specific infrastructure property from scratch, that is to say, the ability to verify transaction correctness without transaction visibility.

To that extent, optimistic rollups are not the ideal tech stack for privacy:

• A rollup that uses fraud proofs must publish execution data for challengers to verify, and that data, in turn, is the surveillance flaw.

• A rollup that uses validity proofs generated by the sequencer requires trusting the sequencer.

Enabled through ZK rollups

This is solved with ZK rollups. A ZK rollup with validity proofs generated by a decentralised prover network can verify that the cryptographic proof for every transaction is correct without needing to see the transaction itself. As such, it allows execution correctness and execution privacy to coexist.

The ZK proof infrastructure was built before privacy was a commercial priority and has been running in production for nearly a decade. Its applied result is now the STRK20 standard from StarkWare.

strkBTC, the first model for STRK20

While STRK20 is an engineering concept, strkBTC, announced at the beginning of February, is its first and most consequential application, addressing the most specific pain point in Bitcoin.

Sizing the $20B Annual Opportunity

Bitcoin processes close to half a million transactions per day. At a $100,000 BTC price, this represents more than $20 billion in annual, fully public economic activity, all recorded onchain. However, more than 2.5 million BTC, over $225 billion, sits in centralised exchange custody. Less than 0.5% of the total Bitcoin supply participates in DeFi, while Ethereum protocols routinely deploy 40% to 60% of the circulating supply into active positions. The infrastructure does not exist, and, logically, Bitcoin-adjacent activity offers no incentives.

strkBTC is a Bitcoin-backed asset issued on Starknet, redeemable one-to-one for native BTC at any time, with no algorithmic backing, secured by a federation of institutional signers operating a multisig bridge, no fractional reserve, and no synthetic exposure. Because strkBTC follows the STRK20 standard, balances are not publicly visible on Starknet, and transfers do not reveal the sender, receiver, or amount.

The STRK20 supports two standards:

• In unshielded mode, strkBTC behaves like a standard ERC-20 token. Balances and transfers are public and fully verifiable by any curious regulator or fiscal authority.

• In shielded mode, [strkBTC] balances and transfers are protected. Ownership and transaction details are hidden from public view, but can be selectively disclosed to specific parties upon request.

The same Bitcoin that currently generates $20 billion in annual economic activity becomes, on Starknet, an asset that can be held, transferred, lent, and traded without any of that activity appearing onchain. The 2.5 million BTC currently on exchanges for privacy reasons now has an alternative that does not require surrendering custody to, more often than not, antagonistic offshore exchanges.

Anonymous Swaps: The Litmus Test for Scalable Anonymous Blockchains

The hardest initial application is a shielded swap: a trade executed against a public AMM that does not reveal the trader, the trade size or the trade direction.

Anonymous swaps are the litmus test because they force privacy to coexist with and encompass pricing, liquidity, and execution order. Previous systems have historically failed this test.

For example, a user attempting a swap via Tornado Cash-style systems encountered a broken sequence: unshield funds from the privacy pool, execute the swap on a public DEX while fully exposed in the mempool, and then reshield the output.

Each step is a potential window that may break a private flow:

• The unshielded transaction reveals that funds are leaving the privacy pool and entering a public wallet.

• The swap transaction exposes the full trade to sandwich bots in the mempool.

• The reshielded transaction links the post-swap balance back to the privacy pool. The net result is that the most sensitive part of the interaction, the trade itself, is the most exposed.

STRK20 collapses all three steps into a single atomic operation:

• The user’s wallet privately constructs the swap, selecting encrypted notes from the privacy pool.

• Routes it through Ekubo’s AMM.

• Generates a ZK proof that the entire sequence is valid.

• The Starknet sequencer verifies the proof and executes atomically.

Under this standard, there is no intermediate public state and no unshield-before-swap window for front-runners.

Trades settle at the market price visible to all participants. The AMM only sees the trade size in order to price it, which requires price discovery. What the AMM does not see is who submitted it, where the funds originated, or where they go post-execution. This now changes for traders. A sandwich bot cannot front-run a trade it cannot see in the mempool. An analytics firm cannot reconstruct a position that was never disclosed.

As an example, Ekubo provides liquidity, while shielded strkBTC and unshielded USDC interact with the same pool. There is no separate privacy DEX to bootstrap from zero liquidity. The market depth that exists on Starknet from day one is the market depth available to private users from day one.

The Five Pillars of STRK20 and the Six Problems of Privacy

Specifically, STRK20 works as follows:

• When a user shields a token, the contract creates an encrypted note that does not reveal the owner or amount and hashes it into a Merkle tree onchain.

• When the user spends it, he reveals a nullifier, a one-time code that proves the note is theirs and marks it as used.

A ZK proof ties it together: the network confirms the transaction is valid without learning who sent what to whom.

The 2024 SoK paper from Yale, George Mason, and Mysten Labs identified six open problems that are blocking blockchain privacy from scaling and, logically, from becoming mainstream.

STRK20 addresses five of those:

• Unbounded state (Problem 1): A single canonical contract at the protocol level instead of emulating UTXOs inside a smart contract.

• Light-client discovery (Problem 2): S-two proves in seconds, onchain encrypted channels let the wallet find incoming funds instantly without scanning the chain, the problem that killed Zcash and Monero on mobile.

• Full anonymity scaling (Problem 3): A note-based model, rather than encrypted account balances, means validator work scales with transactions, not total users.

• Replay and front-running (Problem 4): Note consumption plus sequencer-level verification avoids the one-transaction-per-epoch cap that cripples account-based schemes.

• Gas deanonymisation (Problem 5): Paymasters allow users to pay for gas in any token via the privacy pool (no public address required).

• Sub-linear state growth (Problem 6): Remains unsolved. Nullifier sets still grow linearly. This is a known tradeoff, as the current design prioritises composability and compliance, with state efficiency on the longer-term roadmap

On compliance, an important compromise as crypto becomes more regulated, is that a threshold-controlled integrity council holds encrypted viewing keys. A lawful request reconstructs one user’s history without touching the rest of the pool. This is the same structure as Swiss banking confidentiality and the same logic as GDPR data requests, with no direct access to every single piece of information regarding a user’s activities.

Conclusion

Every serious privacy attempt in crypto has failed the same way. Tornado Cash failed because OFAC had no lever to pull except obliterating the whole protocol. Zcash shielded pool adoption never broke 30% because users unshielded the moment they wanted to do anything useful. Aztec is still figuring out whether encrypted execution and usable markets can coexist. The pattern is consistent enough to warrant a serious inquiry into how crypto can remain both compliant and private, without a catastrophic downside or the protocol being deserted.

STRK20 is a genuinely different architecture. Markets stay public, users stay private, and a compliance mechanism gives regulators something to work with short of sanctioning the whole ecosystem. Whether that satisfies OFAC in practice is a question regulators will ultimately answer, but the architecture at least gives them a lever that didn’t exist before. The institutional change of heart shows that DeFi is no longer a niche. Allocators are no longer individuals in search of high-risk, high-reward investments.

The $225 billion in BTC sitting on centralised exchanges is there because the infrastructure to hold it privately, use it in DeFi, and remain redeemable one-to-one for native BTC did not exist. Less than 0.5% of the Bitcoin supply participates in DeFi, while Ethereum protocols routinely deploy 40-60% of the circulating supply. That gap remains unresolved, and previous attempts have not worked.

As we enter a different cycle, defined by an overwhelming appetite from institutions and, paradoxically, a fearful retail, compliant privacy might be the last bastion for individuals looking to preserve their sovereignty.

written by @TradFiHater ✍️

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2026 has not been a great start for crypto. The majority of assets are down in price; BTC reached its all-time high six months ago and has since been in a constant drawdown. There has been no bullish news recently, constant ETF outflows, a loss of interest in crypto, businesses shutting down, VCs not actively investing, and it seems like the well of opportunities crypto once had is drying up.

While all of this is true and there is no positivity in it, we are moving towards a major shift in which tokens that have no connection to protocol revenue will plummet in value, and those with no revenue will fail to survive. The land of rugs is turning from “Gambling” to “Investing”.

The event that accelerated this shift was the October Liquidation Event, followed by a series of macro events, such as gold outperforming Bitcoin, which left us asking whether crypto is investable anymore and whether it has the upside that attracted many people in the first place.

This piece highlights the same shift and its effects on cryptocurrency assets and the investment models that underlie them

From Gambling to Investing

Crypto has gone through its phases, including the initial discovery phase, when it was tech for nerds, and no one saw its use cases; the extreme speculation during the ICO boom; regulatory disregard; huge blowups like the Luna Crash and FTX; and the current era, where institutions are stepping in.

For a long time, crypto has run on an extraction-first approach and has set a norm of gambling rather than investing. Launches and successes of products like pumpdotfun that let users create memecoins with just a click validate that crypto has always been a gambling bubble where new users come in hoping to make big. The crypto extraction approach can be classified into three classes:

• Low Effort Low Output (Memcoins)

• High Effort High Output (Scam Projects and Slow Rugs)

• Low Effort High Output (Celebrity Coins)

At one end of the spectrum lie the simple extraction methods that have worked quite well so far and will also work in the future, but might slow in rate: memecoins. Memecoins are easy to launch; they don’t need to be explained to anyone why this coin was launched or what its utility is, because making money with them rests on a single principle: exiting the trade before others. Whoever trades memecoins is aware of this, and in some cases they deserve to lose their money, cause that’s how the market works. On the other hand, come the projects that overpromise, hype themselves up, and do a slow rug. There are a few exceptions as well that are just our low-effort and extract the most, for example, the celebrity coins.

Taking last year’s TGEs as an example, most can be categorised as bad investments, as they closed the year with significant losses for their tokenholders. Reasons for them being down could be bad tokenomics, launching at a ballooned valuation (mostly), market and project sentiment, and much more.

For a long time, crypto projects focused on building the best tech possible, but never on achieving product-market fit (PMF), which is why we have tech no one uses. But as of 2026, things seem to be changing, and the extraction-first approach of crypto seems to be taking a back seat as institutions move onchain. They want to use the infrastructure crypto built over several years, but their arrival comes with a huge caveat that they don’t want to do anything with the tokens we produced in our way to build the tech; they like the code and infrastructure, they will use it, but that wouldn’t have a positive impact on the majority of the assets.

Some time back, the NYSE shared that it would use blockchain infrastructure to support 24/7 trading. Robinhood has begun testing its L2, built on the Arbitrum Stack, to tokenise equities and ETFs, allowing users to hold “Stocks” in self-custody wallets. BlackRock’s BUIDL and Franklin Templeton’s Benji are great RWA products onchain. All of this enables instant settlement, a problem that TradFi has faced for years due to the limited trading period.

Coming to RWAs, they are projected to go into the trillion-dollar league in the next few years. Private Credit, public equities, and short-term U.S. tokenised debt are growing onchain; one can leverage trade commodities and equities on platforms like Hyperliquid and Ostium, and these stats keep on going up.

Everyone is coming onchain because these are the rails which can take finance to the next level. The dream of the complete adoption of decentralised finance becomes a reality as institutions and every retail user use the same rails we use today, enabling transparency, faster settlement, no delays, and greater control over funds.

The apps that have built a strong foundation will still thrive in this new age. The incumbents in Lending, like Morpho, Aave, and a few others, will continue to dominate as they have been battle-tested during the worst drawdowns, have performed well across them and have continuously innovated. Furthermore, protocols like Hyperliquid are becoming one of the deepest sources of onchain liquidity while enabling leveraged trading in public equities and commodities. As institutions grow, they need venues that can accommodate their size.

Oracle networks, crosschain interoperability stack, L2/L1 scaling, and token standards are what will matter. Obviously, there are no surefire assets that will deliver the best returns when institutions go all-in on the onchain rails, but those with a solid track record are not going anywhere and will find their way into use by both institutions and retail investors.

Revenue is the King

There are over 17000 tokens listed on Coingecko.

Around 5,700 protocols on DeFillama; if we include protocols that generated >$100k in revenue in the last 30 days, we get ~200 protocols or products, which is 3.5%. The investable pool of crypto is smaller than anyone would expect. Most of the tokens are uninvestable.

If I were to crunch these numbers more realistically, I would consider holder revenue. The revenue that goes back to holders in any form. It’s surprising that only ~50 protocols did over $100k in holders revenue in the last 30 days, that’s <1% of the total protocols listed on Defillama.

Increasing these benchmark numbers is fair, maybe to a million dollars a month, because most tokens trade at hundreds of millions and even billions of dollars.

If we were to dive into the issue of lower token holder revenue, it stems from the alignment issue crypto has always had and from the token structure. There are always two entities related to a project: Labs and the DAO/tokenholders. Labs are the “team” in tokenomics; they are the project’s initial developers, and they raise funds by selling a portion of their company and issuing tokens to investors at an early stage, in exchange for funds they use to grow the business. Tokens are not a legal representation of the business and don’t offer any actual rights over the company’s profits, unlike equity. Investors who receive tokens have these rights through the equity they hold. But token holders are usually at the project’s mercy when it comes to aligning their product with their token.

But over the last year, things have started to change, and people are betting less on speculative plays and focusing more on how much the protocol actually makes. This single shift will take crypto where years of an extraction-first approach couldn’t.

Below, we discuss some key metrics every crypto investor should consider when analysing the token. We analyse the top revenue-generating token protocols over the last 30 days, including Hyperliquid (HYPE), Pumpdotfun (PUMP), Tron (TRON), Sky (SKY), Jupiter (JUP), Aave (AAVE), and Aerodrome (AERO).

Price-to-Sales Ratio

The Price-to-Sales (P/S) ratio is calculated by dividing the protocol’s market capitalisation by its annualised revenue. P/S serves as a gauge of how much the market is willing to pay for every dollar of revenue generated. The premium reflected in this ratio indicates how much users value the protocol’s future capabilities and growth factors.

We compared some of the top revenue-making protocols and their tokens based on their annualised revenue and P/S ratio. We took the revenue for the last 30 days and multiplied it by 12 to get the annualised revenue figures. The result we get is visualised below.

The overvaluation threshold is set at 20, based on the top U.S. public equities’ P/S ratios. Most protocols are around or below this threshold, except Tron, which trades at a much higher ratio than the others. Another threshold we considered is revenue, for which we used the average annualised revenue of the protocols discussed, amounting to ~$250 million. Only three protocols, Pumpdotfun, Hyperliquid, and Tron, exceed this threshold and together account for ~80% of the revenue among the mentioned protocols

Token Holder Revenue

The next important factor we discuss is the token holder revenue. This largely depends on the protocol’s revenue and how much of it is actually returned to tokenholders through buybacks, token burns, and staking rewards. It is a famous metric now, and everybody has been talking about it, and it holds more importance than the actual revenue because this is how the token accrues value.

We have once again classified protocols by holders’ revenue over the last 30 days and multiplied it by 12 to obtain the yearly estimates. At a glance, we can see most protocols are playing pretty fairly with their holders and using most, if not all, of the revenue to accrue value for their tokens.

This is one side of the picture and reflects that buybacks are being executed and, if done at a similar pace, would add millions of dollars in token value. To better understand this value accrual, we also compare the relative performance of these same tokens from the October Liquidation Event to better picture the impact of token accrual activities.

In the chart above, we have a few outliers, such as TRON, HYPE, and, in particular, SKY, which is relatively positive. Of these three, TRON didn’t move much and has followed a more sideways pattern, while HYPE diverged from the other token patterns in late January.

This points out that buybacks alone are not sufficient for token value increases; other factors, such as broader market drawdowns, vesting schedule and cliff unlocks, category narrative, and the protocol’s overall sentiment, also play a role. All these different points are discussed in the sections to follow. Before moving on to that, let’s also compare two of the most revenue-generating protocols and their token performance: Pumpdotfun and Hyperliquid. From the figure below, it’s clear that HYPE performed better when both tokens had active buybacks (annualised holder revenue for HYPE is ~$660 million, and for PUMP is ~$ 380 million), due to the protocol’s overall sentiment and people pricing the tokens based on future supply shocks and unlocks.

Tokenomics Design and Supply Overhang

In crypto, tokenomics is designed to help raise funds from investors, incentivise users, sometimes run a community raise, and allocate token supply to the team. There is not much of a hard-and-fast rule around tokenomics design, and different projects handle this process at their own discretion. This part of the project is important because it determines not only the token’s near-term supply pressure, but also how value accrues to the token, which value sinks exist to offset sell pressure, and how well the tokens align with their holders.

Below, we capture the supply-unlock velocity for a set of fixed-supply tokens. While most tokens eventually become fully unlocked, the pace varies significantly: PUMP exhibits the fastest unlock velocity, while HYPE unlocks the slowest. A slower unlock schedule is generally preferable, as it reduces the likelihood of abrupt supply shocks and the associated sell pressure that markets may struggle to absorb. For tokens like AAVE and SKY, most of the supply is already unlocked, whereas for JUP, the long-term unlock schedule is discretionary rather than deterministic and is governed by the DAO.

It is also important to highlight that the unlocked tokens can be further categorised into investor unlocks, team unlocks, and community unlocks. Community unlocks can be routed towards staking rewards, incentives, and airdrops. It needs to be analysed on a per-token basis and plays an important role in understanding the token’s sell-side dynamics.

The Lindy Effect

“The longer something has survived, the longer it is likely to continue surviving.”

This is what the Lindy Effect actually is, and it is true for almost all businesses, including onchain ones, with innovation as the key factor, as those who fail to innovate can’t survive for long.

Last year, crypto protocols generated cumulative revenue of ~$16 billion, and revenue concentration among the top few protocols is quite high. The top 10 protocols accounted for 80% of net revenue, with the top 3 representing 64% and Tether alone accounting for 44%.

Additionally, not all of them have tokens; for example, Circle, the second-highest-revenue protocol after Tether, has a stock listed on the NYSE under the ticker symbol CRCL. At the same time, Tether doesn’t have a token. Even among the top 10 protocols, only three included a token, indicating that launching a token might not always be the best approach, depending on the protocol design.

Returning to the Lindy Effect, in most crypto categories, the top 2 protocols account for the largest share of the market and dominate. It’s more commonly seen in categories like Stablecoin, where Tether (USDT) and Circle (USDC) represents 84% of the whole market, followed by other players like Sky (USDS) and Ethena (USDe). There are other examples where this pattern might not look as strong, but it can still be pointed out, such as Lending, where the top 2 protocols by TVL (Aave and Morpho) represent 64% of the market. The same pattern can be observed across multiple categories, such as prediction markets, yield, liquid staking, restaking, and more.

The Lindy Effect also becomes important because of the hacks the crypto industry regularly experiences at the protocol level. This year alone, we have witnessed more than $130 million vanishing from the smart contracts and, over time, tens of billions of dollars. Over time, it has become even harder to trust any new protocol with your money because you won’t know when it might get hacked. So here, the contract age and the protocol existence matter a lot because the system has stood the test of time without failing. Even if in some cases when the system doesn’t work as intended, like recent Aave’s CAPO oracle misreporting, the users get the refund because the protocol’s treasury can afford it. Additionally, the longer the system had existed, the more it had proven its significance during market drawdowns. The top protocols perform as intended during market drawdowns, a strong signal for anyone to adopt the already battle-tested system.

On the other hand, innovation is equally important, as market leaders have continually innovated and improved their products over time. For example, Morpho is onboarding various institutions to onchain finance through its vault architecture, giving them a way to curate a vault that allows maximum customisation to fit their needs. Aave will also enable this by introducing Spokes in its upcoming v4 upgrade. Additionally, Aave, through its Horizon instance, allows institutions to borrow against tokenised RWAs.

The next wave of crypto consists of Institutions and Agentic Finance; the protocols best positioned for both will grow the most.

Crypto Doomerism

In the Citrini article on “The 2028 Global Intelligence Crisis”, they write:

The biggest way to repeatedly save the user money (especially when agents started transacting among themselves) was to eliminate fees. In machine-to-machine commerce, the 2-3% card interchange rate became an obvious target.

Agents went looking for faster and cheaper options than cards. Most settled on using stablecoins via Solana or Ethereum L2s, where settlement was near-instant and the transaction cost was measured in fractions of a penny.

This begins our next chapter, which goes beyond crypto institutional adoption and focuses on Agentic Finance and the broader adoption of blockchain technology by agents. This has already started, and many protocols are integrating AI agents to streamline the user flow and eliminate user-experience bottlenecks that crypto products have long had. All these efforts can be categorised under the category that surfaced in late 2024: a combination of decentralised finance and Artificial Intelligence (DeFAI). It did its part and turned itself into an extraction-first narrative like everything else in crypto, but it also highlighted how much crypto experience can be improved by incorporating more AI.

It’s June 2028, and most crypto transactions are done by agents with no humans in the loop. Agents find the best possible yield for users based on their risk appetite. For non-crypto agents, blockchains are considered best for conducting most transactions because of their low cost, efficiency, and verifiability. Blockspace has become cheaper with time, and transactions cost way less. Crypto is no longer complex. You can give an AI agent a prompt and some money to help you earn the best yield. Crypto and blockchain are finally mainstream and widely used. To increase overall capital efficiency, agents moved funds from low-yield-generating protocols or from liquidity that was not being used optimally to a few concentrated venues where they could find the best yield. Most public blockchains and protocols are effectively wiped out for lack of use. The tokens you invested in are worth the least since you invested; you think you should’ve pulled out in 2026. Few tokens went up, including those that were actually generating revenue and continuously accruing value through revenue. From all the other tokens, the value got rotated into the few that actually perform and have some utility attached to them. Crypto market capitalisation is up when compared to March 2026, but most tokens haven’t benefited from institutional adoption and the growth of agentic finance. The crypto dream finally came true; it is being used by the masses, but the token part of the dream didn’t quite play out the way many expected.

It’s March 2026; whether or not you believe the above will become true, protocols with positive cash flow will sustain long-term, and their tokens will thrive.

Conclusion

For so many years, crypto protocols focused on the tech problem and never really on PMF, which was the biggest risk investors never priced in, but the market did over time. With most tokens seeing a downward trend for years now and their all-time highs well in the past, the story is clearer than ever that a change is imminent. The rise of certain tokens in 2026 reflected the importance of revenue numbers and a token-forward approach, as investors began to shift from Gambling to Investing.

Bad actors in crypto have always benefited from the extraction-first narrative, while most participants in the space have left with negative portfolios and become exit liquidity, which isn’t healthy at all. As institutions are flowing in, this realisation hits even harder because they don’t want to do much with our assets but are more focused on the infrastructure we helped build over the years and is battle-tested.

As we move further with institutions and AI-enabled crypto infrastructure, we are likely to see this trend grow even stronger, as more and more investors look for hard metrics that can convince them to buy a token/equity.

written by @noveleader ✍️

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

Human-centric Research and Advisory.

If you are more of a Telegram person, you can read all of our research without the noise on our TG channel:

https://t.me/castlelabsreads

Gm all!

Welcome to the newest edition of the Chronicle!

You’ll get a curated list of the most important macro news and DeFi news, along with insightful posts from guests and more! Actionable intel done the Castle way 🤝

Without further ado, let’s get into it, shall we?

In The Markets

Sometimes it seems as if this is the war that never ends. We flip-flop from bullish to bearish to war is over to we’re obliterating the enemy within days, even hours!

It’s enough to lose your head and makes it doubly harder to participate in any meaningful way in this market. The only winners right now seem to be holders of predominantly cash or those willing to DCA over long time frames.

The only solace we can take from this is that BTC (and crypto as a whole) has held up relatively well.

Have we mooned? No, but at least we’re holding our ground!

Hopefully, we’re setting up for something to push us convincingly above 70k and beyond, but that hasn’t happened quite yet.

With all that being said, let’s dive into the rest of the newsletter to see what went on this past week!

Ethena bringing changes to USDe?

According to Guy (founder of Ethena), the team realised that their product wasn’t positioned well for the aftermath of 10/10.

As a stablecoin that primarily focuses on performance during bull periods, Ethena has needed to find a way to source better income during the inevitable downturn we experience.

They’ve since created a new framework that, once approved by the independent risk committee, will give USDe access to -

• Basis on non-crypto assets like commodities and equities

• Institutional triparty collateralized lending via Coinbase, Kraken, Anchorage, etc

• Prime lending across CeFi and Hyperliquid

• Liquid high-quality non-Tbill RWA exposures

This is a potentially great change for Ethena to make, and should help bring back some previously lost TVL. The main draw of USDe was the high yields it returned during bull markets, but the trade-off was poor performance during downturns.

It hasn’t helped that crypto has gone through an intense yield compression, but still.

This gives Ethena tons of room to manoeuvre and diversifies its yield sources tremendously. This plays right into the hands of TradFi as well, as stablecoin yield that only comes from crypto sources would likely be deemed as unreliable.

Chaos Labs is leaving Aave

In the wake of BGD and ACI leaving Aave DAO, Chaos Labs is following suit.

Chaos Labs helped price all the loans initiated on Aave since November 2022 and managed risk across Aave v2 and v3 markets.

They state that even though they believe that Aave Labs is doing what it thinks is best for Aave, they do not believe in the way that the risk is being managed going forward.

Chao Labs says that there is a fundamental misalignment on how risk should look at Aave, citing these 3 things:

• Core Aave contributors left, increasing the workload and operational risk substantially

• Aave v4 expands the scope of the risk function, increases legal and operational burden, and does so on an architectural level that Chaos Labs does not support.

• For the past 3 years, they ran the Aave engagement at a loss, and would still be operating at a loss even with a $1M increase.

Chaos Labs brings up two options that they couldn’t choose:

1. Do their best with the resources they’d receive, realising it’s not enough to meet the standard of the largest DeFi app in the world.

2. Continue to lose money by subsidising Aave’s risk operations.

Thus the only option remaining – leave the DAO.

Link to Chaos Labs’ post here:

After that post, different perspectives on this came out including this from Aave founder Stani -

The tldr of it all is this:

1. Chaos Labs wanted to be the sole risk manager, removing LlamaRisk.

2. They wanted to replace Chainlink oracles with their own.

3. Increase their compensation from $5M - $8M.

Unfortunately for all of us, crypto drama never ceases.

Here’s what we do know, no matter what - Aave will win.

432 Hours of Hyperliquid Oil Market Data

Are you a fan of massive research? Is that the same tagline from last week?

It sure is, but this time you get another look at Hyperliquid data!

This time, in the form of the oil market on Hyperliquid, which has taken CT by storm. It’s been fascinating to watch how Hyperliquid’s 24/7 market does in comparison to the regular markets, and how the TradFi oil market tends to come in line with what Hyperliquid’s does over the weekends.

If this is of interest to you, then give this a read:

DeFi Is Still Alive

One of the takeaways from ETHcc is that DeFi is still alive and kicking, even with its new TradFi-leaning architecture.

One of our friends, DavideFi, summed it up excellently here:

DeFi is alive even with a suit on.

However, it seems we are having a bit of an identity crisis. Many projects have been broken by these markets.

The ones left were the ones working as a business, and they saw before their eyes how institutions could have handled a buoy in these times.

However, Ethcc has a special vibe as always, with a lot of builders heads down.

Next year, should be just as exciting for DeFi!

In The News

• Over 21 crypto projects have shuttered up this year alone. That is an unfortunately humbling number, but it’s part of the growth of our industry.

• Recently, Drift Protocol (a large DEX on Solana) was hacked to the tune of $280M on April 1st. While sadly not an April Fool’s Joke, this hack was a wake-up call to a lot of the industry. What’s likely is that this hack was executed by the Lazarus Group (a large-scale North Korean group), and increases their total of stolen assets to nearly $7B. For a full breakdown of this event, read Drift’s article below.

• One of our good friends Stephen, from the DeFi Dojo, dropped a great primer on current Pendle opportunities. If you’re still yield chasing in DeFi (as there are still some good yields out there if you know where to look), then this is a must-read for you!

That’s it for another edition of the Chronicle! Every week brings new opportunities, so don’t fret!

We’re all gonna make it eventually!

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.

This article is an excerpt from our research on Commodities evolution. Download the complete report here:

https://docsend.com/v/sjv2g/the_evolution_of_commodities

Methodology

The analysis evaluates oil market microstructure across two studies, one overlapping hours and a weekend analysis, drawing on tick-level execution data from two venues: the Hyperliquid xyz:CL perpetual contract and the CLJ6 (April 2026 NYMEX WTI futures) contract on CME.

Data Sources

CME data is sourced from the Databento trade feed, which captures tick-level executions rather than order book snapshots. As a result, all depth and slippage estimates for CME are derived from observed fills rather than quoted depth.

Hyperliquid data is sourced from Hyperliquid’s publicly accessible S3 archive, which contains the complete onchain fill record.

Both venues are therefore analysed on a fills-derived basis. All depth figures represent revealed liquidity, the volume executed within a defined basis point range of the VWAP mid per 5-minute window, rather than the full resting depth on the book.

Study Period and Market Context

The study period runs from February 27 to March 16, 2026. This window coincides with a volatile geopolitical episode following Iranian strikes on February 28, 2026.

• Pre-strike market close: The final CME session before the event.

• Monday Open: A high-stress reopening, with CME gapping materially higher and Hyperliquid xyz:CL market constrained by the discovery bounds.

• Subsequent weekends: As oil prices remained elevated and the volatile environment kept the commodity’s trading levels high on Hyperliquid.

xyz:CL launched in early 2026, meaning the three-weekend observation window captures an early-maturation phase for the Hyperliquid market. Observed trends, including improving depth, rising volume, and growing user counts, partly reflect the market maturation.

We do not expect onchain venues to be competitive with traditional venues on absolute benchmarks such as liquidity depth or slippage (yet).

The objective is to track directional trends: whether the gap is narrowing, at what rate, and under what conditions.

The Analysis

Analysis of the data is divided into two parts during the data timeframe:

• Overlapping Hours: It covers the full three-week period and compares the overlapping hours of both Hyperliquid and CME in terms of depth, slippage, and the premium/discount of one venue’s trades relative to the other. For Hyperliquid, we also analyse its funding rates during the whole period.

• Weekend Analysis: In the given time frame, there are three weekends, so we analyse price discovery and Hyperliquid’s price-gap deviation relative to the CME open.

Overlapping Hours

This analysis covers the full three-week period and focuses on the hours when both venues are active simultaneously.

Depth: Revealed liquidity depth is measured as the total USD volume executed within ±2, ±3, and ±5 basis points of the VWAP mid price per 5-minute bucket, aggregated as the median across all overlap-hour buckets. As noted above, this reflects executed volume within the band, not resting quoted depth. CME and Hyperliquid depth are likely understated by this method.

Slippage: Execution slippage is estimated using a fills-sorted synthetic order book. Within each 5-minute bucket, observed taker fills are sorted by price (ascending, to simulate walking the ask side) and walked sequentially until the target order size is filled. The arrival price is set as the lowest-priced fill in the bucket (a proxy for the best ask at order arrival). Slippage is then computed as the difference between the execution VWAP and the arrival price, expressed in basis points. This is applied at incremental order sizes from $10k to $1 million.

HL-CME Basis During Overlap Hours: The signed price differential between the Hyperliquid mid and the CME last price is tracked across all overlap-hour 5-minute windows. This captures any structural premium or discount at which Hyperliquid trades relative to the CME reference price during active hours. The Hyperliquid mid price is derived from the VWAP of taker fills per 5-minute bucket, not from a live order book quote.

Flows and Funding: Hyperliquid funding rates are reported at hourly resolution (HL settles funding every 1 hour). Funding rates are expressed in basis points per 1-hour period.

Weekend Analysis

This analysis focuses on three discrete CME-closed weekend windows:

• W1: February 28 - March 1, 2026

• W2: March 7 - March 8, 2026

• W3: March 14 - March 15, 2026

A structural note on Weekends 1 and 2: Hyperliquid perpetuals are constrained so that

the mark price cannot deviate beyond the “discovery bounds” (DB). When the oracle price freezes, as it does when the primary reference market (CME) is closed, and external price feeds stop updating, the protocol effectively caps the executable price within a tight band.

Price Discovery: For each weekend window, we report Hyperliquid xyz:CL key data metrics, including the price, volume, and number of trades.

Monday Open Price-Gap Deviation: For each weekend, we measure the price gap between Hyperliquid and CME at three reference points:

• 3h before CME reopen

• 1h before CME reopen

• At CME open (T=0)

All gaps are expressed in basis points. Positive values indicate Hyperliquid was above the CME open, negative values indicate a discount.

Quantitative Analysis

We begin this section with our first analysis, comparing Hyperliquid xyz:CL HIP-3 oil market with NYMEX CLJ6 on weekdays during overlapping hours.

Liquidity Depth

There is no doubt that onchain commodity venues have a completely different liquidity profile compared to the CME. The average liquidity depth of CL on HL is less than 1% of that of CLJ6, with scaling consistent across bands (109x at ±5 bps). At ±2 bps from mid, CME offers $19M in executable depth versus $152K on Hyperliquid: a 125× difference.

This is no surprise, considering the novelty of the CL market on HL as well as the different user targeted. The primary value proposition of onchain venues was permissionless access for those traditionally excluded by incumbents, such as the CME.

However, as venues such as HL become more important on weekends, we are witnessing a shift in the perception of these platforms, with growing interest from institutions in hedging their positions during off-market hours. Therefore, it becomes increasingly important to nurture market conditions that make markets such as CL suitable for traditional investors and retail alike.

For a retail trader executing $10K, this gap is irrelevant.
For an institutional desk moving $1M+, onchain trading of CL (and most other markets) remains prohibitive.

The inherent differences in user profiles are, in fact, reflected in the median trade size for these markets during overlapping hours.

The 166× difference in median trade size ($90,450 vs $543) is the clearest proof that these venues serve fundamentally different user profiles. The median size on CLJ6 aligns with one standard crude oil futures contract (~$94k notional at current prices), while Hyperliquid’s $543 median reflects crypto-native retail traders taking leveraged directional bets.

We expect the HL median trade size for commodity markets to hit an inflexion point as these markets become increasingly legitimised in the eyes of more traditional investors, bringing their funds onchain.

To further differentiate across trade sizes, we run order simulations capped at different sizes from $10k to $1 million.

For $10k orders, the CLJ6 traders have no slippage, as expected, whereas HL users incur a sub-1 bps median execution slippage of 0.77 bps. The inflexion points occur at a $100k order, where HL users’ slippage rises to 4.33 bps, approaching the 5 bps threshold, while there is no slippage on the CME CLJ6.

It is worth noting that this is above the median trade size for the CLJ6 market ($90.450k).

At $1M, Hyperliquid’s 15.4 bps is ~20x CME’s 0.79 bps, confirming that the venue is not yet viable for institutional-sized orders. Given the average trade size on HL, the platform can serve its users just as well without slippage.

CLJ6 orders begin to experience material slippage, affecting their execution at sizes around $500k.

When we extend our order-size analysis to weekends, slippage declines across all order sizes, especially for the $100k and $1 million order sizes, indicating market maturity.

Over the course of the three weeks analysed, slippage has gone down as follows, for these simulated orders:

• $10k: -16%

• $100k: -75%

• $1 million: -86.9%

Funding Rates

Funding Rates of CL were volatile during the CME close hours but less dynamic during the overlapping hours. This helps us reveal the market’s internal pricing dynamics when it operates outside market hours.

Being open on the weekends means the CL market leverages internal price discovery (supported by DB and other mechanisms of risk reduction). As such, funding rates are expected to be more volatile, as observed during the highlighted periods below.

During active trading hours, Hyperliquid’s xyz:CL tracks CME’s CLJ6 closely, though a structural discount emerged and widened as oil prices rose, most likely driven by the funding rate pressure from accumulated long positioning. During weekend hours, when CME is closed, Hyperliquid’s price discovery is further constrained by the price band mechanism (DB), which limits how far the mark price can move in the absence of a live reference market.

Weekend Analysis

The three weekends tell a story of rapid maturation:

Weekend 1 (Iran strikes)

Hyperliquid moved from CME’s $67.29 close to ~$70.80, capturing roughly 45% of the eventual Monday gap to $75 (+1146 bps).

An important caveat this weekend is that, due to the ±5% DB of Tradexyz mentioned above, price discovery was capped. This explains why the line in the chart is flat and why there is a Monday gap. Nonetheless, Hyperliquid xyz:CL($73.89) was within 1.5% of CME CLJ6 ($75) at the first second of paired data.

This is not a “miss” or “failure,” but rather risk protection through market design.

For this reason, weekend 1 is the least relevant from a data perspective, but it highlights how the xyz:CL reacted to the initial shock of the strikes on Iran, as well as the importance of DB as a mechanism to cap price discovery during weekends, especially for new markets.

Weekend 2

Weekend 2 was the real test as xyz:CL hit the DB at the very end of the market. CLJ6 opened at $98 (+737 bps from $91.27 close), while xyz:CL reached ~$95.83, capturing only 68% of the move.

In Weekend 2, xyz:CL was able to better capture the move and was closer to the CME open than the preceding weekend.

Weekend 3

Weekend 3 highlights that, in calmer conditions, Hyperliquid can more reliably predict the eventual CME opening directionally.

This weekend highlights xyz:CL tightest convergence with CLJ6: At +226 bps vs CME close, it slightly overshot the Monday open of +62 bps. CLJ6 closed at $99.31 at Friday and opened at $100.93 (+163 bps) while xyz:CL at the CME open was trading at $101.56.

Taken together, the three snapshots show a structural change in the xyz:CL market on Hyperliquid, transitioning from an infant market constrained in price discovery by DB (Weekend 1 and Weekend 2) to increasingly free price discovery with overshoot and correction (Weekend 3).

Upon analysing the price-deviation error at different weekends for different hours before CME open (3h, 1h, 0h), weekend 3 shows the most reliable data, as in the initial two weekends the xyz:CL market hit DB. At weekend 3, xyz:CL was trading at an error of about +70 and -139 bps at 3 hours and 1 hour before the CME eventual open, indicating better price discovery than in the previously analysed weekends.

We also provide additional metrics for the weekend summary analysis, including volume, total trades, and average trade size, which varied across weekends and increased further over consecutive weekends.

The total volume in the xyz:CL market grew from $31 million to over $1 billion in three weeks, reflecting increased usage and eventual maturation.

Additionally, the total number of trades followed increased from just 26k at weekend 1 to over 700k at weekend 3.

What’s interesting to note is that the average trading size on weekends actually increases from the median we highlighted earlier, to $534. The same growth trend is observed across all three weekends, possibly a sign that more institutional flows are being captured.

On the first weekend, the average size was $1199, rising to over $1500 by the third weekend.

This potentially indicates a different user base leveraging the platform on the weekend, less so retail users, and more traders who need oil exposure before Monday, making weekend flows closer to hedging demand than speculation.

Find the complete report here:

https://docsend.com/v/sjv2g/the_evolution_of_commodities

written by @noveleader and @francescoweb3 ✍️

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

Human-centric Research and Advisory.

If you are more of a Telegram guy, you can read all of our research without the noise on our TG channel:

https://t.me/castlelabsreads

Gm all!

Welcome to the newest edition of the Chronicle!

You’ll get a curated list of the most important macro news and DeFi news, along with insightful posts from guests and more! Actionable intel done the Castle way 🤝

Without further ado, let’s get into it, shall we?

In The Markets

It’s ETHCC time!

That means crypto should be rife with announcements, alpha from talks, and more.

Be keeping an eye out for our Castle Labs team running around Cannes, gathering up all the information that they can.

Also, make sure you’re monitoring our X account to catch all the news as we find it!

Now, as far as the markets go, we’re pretty well stuck in a standstill. Equities started to drop a bit at the end of last weekend, but any pop seems to be just short-term relief in an otherwise murky macro/war backdrop.

Everything we’ve said in the past few weeks remains true – move slow, cash is a position, and play the game defensively for right now.

The beauty of this market is if the tides turn and assets start to reprice upwards, you’ll have more than enough time to ride the wave. But, at the same time, you have to be wary of any pumps right now until news starts turning for the better.

There are still a lot of macro elements at play here, causing things to be confusing.

With all that being said, let’s dive into the rest of the newsletter to see what went on this past week!

ETHCC Round-Up (Castle’s Boots on the Ground Edition)

Stable Summit Recap

Our team at Cannes went to this event, and the thread that follows is the recap of this kickoff event:

Stani Announces Aave V4

The big and controversial upgrade to Aave is here, and we gathered all you needed to know from their announcement in France:

Frankencoin Panel

Another need-to-know panel from Stable Summit, this time from Frankencoin. Our boots on the ground team summarised everything worth knowing from their talk:

Massive Commodities Report

Are you a fan of massive research?

Do you enjoy digging through scholarly-esque papers and dissecting/parsing through all available information?

Fantastic!

If that is the case, you need to be nose-deep into this new report of ours on commodities!

Let us know what you think and give it a read:

In The News

• Aero started off their ETHCC coverage with a new announcement – they’re doing away with weekly epochs! That means no more voting, no more resets, nothing. Instead, veAERO will turn into sAERO, where users can choose to have protocol revenue streamed to them in the form of USDC.

• Aave v4 launched during the beginning of ETHCC as well, debuting their new Hub-and-Spoke architecture. A noteworthy feature is that more exotic collateral gets a higher borrow rate, while safer collateral gets to borrow for cheaper.

• One of the wildest pieces of news to come out of the last week was Fannie Mae accepting crypto-backed mortgages. What makes this crazy (as you can see in the post) is that mortgage terms remain unchanged when BTC collateral drops in value. How does this work? Who the hell knows! But what we do know is that degenerate BTC activities are back!

That’s it for another edition of the Chronicle! Every week brings new opportunities, so don’t fret!

We’re all gonna make it eventually!

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/the_evolution_of_commodities

Gm all!

Welcome to the newest edition of the Chronicle!

You’ll get a curated list of the most important macro news and DeFi news, along with insightful posts from guests and more! Actionable intel done the Castle way 🤝

Without further ado, let’s get into it, shall we?

New Year, New Castle

Yesterday, we announced something new for Castle Labs.

Instead of telling you about it, how about we show you?

It’s been a long time coming for this, and we’re so glad it’s finally out for everyone to see!

If you want a bit more backstory, make sure you check out this article from founder Atomist:

In The Markets

Sigh.

All we’re asking for is just a little bit of relief from the markets, is that so much to ask?

Apparently, it is!

Each new week brings new escalations and de-escalations in the Iran war, causing more volatility in markets than we’re typically used to.

Honestly, this is probably one of the longer stretches of prolonged volatility that we’ve seen since Covid, save for maybe the Liberation Day tariffs.

The hardest part of this being that there is no telling which way the markets are going to swing as they’re completely dependent on Trump’s remarks. It’s hard to really tell what is going on in the background, as we’ll never be privy to the behind-the-curtains activity.

This is why we’ve preached cash as a position recently since it’s no use chopping up your hard-earned moolah. This advice extends itself to crypto as well, since any adverse movements in this military operation can wipe out positions that may seem good.

As well, there still isn’t many hot topics in crypto just yet either. We’re still waiting on MegaETH’s launch and a few other tokens that have yet to launch until market conditions improve.

It is a period of patience and sitting on your hands.

In reality, it’s a trader’s market. The whipsaw-esque price action we’re seeing is perfect for traders, navigating the volatility like a prime Jack Sparrow on the raging seas.

A prime example here is Oil, moving up and down 10% each way like it’s nothing. Incredibly volatile for a large asset!

Stocks are also moving similarly, up or down 2-3% depending on the order of words coming from Trump’s mouth, and whether they are construed as positive or negative.

It’s a market of sentiments and narratives, which are all driving price.

With all that being said, let’s dive into the rest of the newsletter to see what went on this past week!

Castle’s Analyst Corner

Featuring: Noveleader

Ever wanted to know exactly what’s going on in our analysts’ minds?

Then this is the section for you!

Our team will talk about anything from AI developments to crypto to even random musings from the top of the dome.

Without further ado….

A Look at Polymarket’s Revenue

Polymarket will turn on fees for most market categories starting March 30th.

The fee structure varies and is downward-parabolic, depending on the market state and the per-share price. So users pay the most when shares are priced at $0.5 and pay progressively less at the edges.

To estimate annualised revenue, we sampled the last 30 days of volume across different categories and applied the new fee structure. Since the fee structure varies, we take 30% of the peak rate as an average rate for the analysis.

In the last 30 days, Polymarket did $9.55b in trading volume, and with the same metrics, we estimate revenue of about $25m, which would be $300m annualised at current volume levels. At a $20b valuation, it would be a 67x multiple; at $9b (ICE investment), a 30x multiple.

On the other hand, @Kalshi is running at an annualised revenue of $1.5b (reported by Bloomberg), implying a revenue multiple of 15x based on their recent round at a valuation of $22b.

Additionally, the Polymarket numbers are expected to go higher as they launch Polymarket U.S.

Castle’s Guest Corner

Featuring: CryptoCondom Intern

Here at Castle, we like to occasionally shine the spotlight on our friends and other people in the crypto community, and showcase the awesome things they build or write about.

In this instance, we want to give props to CryptoCondom Intern and the incredibly useful app that he and his team made called Proximity.

The following is their story…

Building Proximity was not a solo journey. We are a team of three, and the idea came from a frustration we all shared.

Anyone navigating crypto knows the drill. Five browser tabs open at once. One for price data, one for on-chain metrics, one for news, one for your portfolio, one for whatever AI tool you are running that day.

The information exists but it is scattered everywhere and none of it talks to each other. There was no single place on your phone where you could just open one app and have everything you actually need in front of you.

That was the gap we wanted to close. We wanted to build something that respects how crypto people actually operate, fast, mobile, information-dense, and gives them one hub instead of ten tabs.

We started simple. A few core metrics, clean interface, nothing fancy. Then it grew. Users wanted more and the app grew with them into something considerably more complex than what we originally shipped.

Along the way we realised that the intelligence layer powering Proximity had value beyond the app itself.

So we built AgentCanary, the API that feeds Proximity, and opened it up publicly.

130+ endpoints, macro regime detection, whale alerts, narrative scoring, social intelligence across 200+ accounts. Not raw data. Processed intelligence that tells you what the market means, not just what it is doing. AI agents and traders can now plug directly into the same data stack that runs our app.

Where we are now is the part that excites us most.

We are starting to work directly with projects to build customised dashboards together, giving DeFi users a genuinely informative place to track data on their favourite project or sector. We combine multiple APIs into a single experience so the user never has to think about where the data comes from.

They just see what they need.

What comes next is where things get interesting. The next phase of Proximity is about bringing AI directly into the experience in a way that actually respects the user.

Most AI tools in crypto today require you to hand over your data, your portfolio, your behaviour, your intent. We think that is the wrong trade.

Our focus is on building an AI layer that is genuinely useful without being extractive. That means on-device processing, no data leaves your phone, and intelligence that works for you rather than around you. Privacy is not a feature we are adding later. It is the foundation we are building on from the start.

From the Mouth of the Developer

As a developer, I have always been interested in how to bring together different market and macro data sources into one coherent system.

For Proximity, I integrate data from many different sources, from on-chain metrics and ETF flows to macro indicators and market structure. A large part of the development process involves building data pipelines, connecting APIs, and cleaning up time series data properly. For this I rely on APIs from platforms like FRED, DefiLlama, various on-chain data providers, and market data feeds.

The biggest challenge is not collecting the data.

It is filtering out the signals that actually matter. Markets produce an enormous amount of noise, so I am constantly experimenting with new metrics and models to make capital flows and market regimes more visible.

The indicators that resonate most with users right now are the ones that make liquidity, capital flows, and structural market shifts easy to understand at a glance.

The philosophy has stayed the same since day one. All the information you need, on your phone, ready to go.

Proximity is now live on the App Store. Download it here: t.co/ktkouSmggm

All Signals Zero Noise

Crypto Round-Up

The New Bitcoin?

Clickbait aside, this is a legitimate phrase that is being parroted around CT and beyond. This is in reference to all the new press that TAO (Bittensor) has been receiving.

If you’re new to Bittensor, here’s the lowdown:

• It’s an open-source platform where users can create decentralized commodity markets called subnets.

  • Examples of subnets include compute power, AI inference/training, prediction markets, and more.

• TAO is the currency powering it all, with 21 million supply just like Bitcoin.

  • TAO emissions were cut in half in December, creating their own halving, making rewards scarcer over time.

The mainstream attention its getting is surprising however, but it seems to have crossed the rubicon with Jason Calcanis from the All In podcast saying this:

Likely, people are just searching for any way to continue to get exposure to AI, and crypto can be a way of doing that at a cheaper, albeit more risky, valuation.

The downside about TAO right now is that the subnets are fairly illiquid, without decent (or any) revenue models, and people can still game the system for outsized rewards.

The upside here is that there can only ever be 126 subnets, as the lowest ranked ones (by staked TAO) get deleted every so often. Combine this with an AI boom, plus new institutional products for TAO, and you have a decent combo for a potential bullish asset.

TradeXYZ Brings the S&P Truly Onchain

Hyperliquid has been long touted as the “Blockchain to House all Finance” and while to some it may be a bold claim, this most recent announcement is a pretty huge endorsement of that statement.

TradeXYZ is an HIP-3 market built on Hyperliquid, housing a variety of assets from stocks to commodities to crypto to indices, and more.

The biggest thing here is that they can offer a 24/7 trading interface for a variety of assets that may have been previously closed off to that functionality.

The news that is so important is the partnership between TradeXYZ and S&P Dow Jones Indices to launch the first official SP500 perpetual contract.

A massive announcement as it shows endorsement and trust of blockchain from TradFi leaders, plus offering the world a chance to trade something that was gated by market hours, weekends, and geography.

It’s a legitmization of crypto as infrastructure and a legitimization of the industry at large. This isn’t a “partnership” through traditional crypto lenses, but a legit collaboration with real S&P index data.

This is a true showcase of crypto’s ability to be the backbone of finance writ large.

We’ll have to see if there are any other exchanges that will try and come for their crown, but as it currently stands, Hyperliquid sits atop the throne, and it’s on everyone else to compete for the top spot.

That’s it for another edition of the Chronicle! Every week brings new opportunities, so don’t fret!

We’re all gonna make it eventually!

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.

Gm all!

Welcome to the newest edition of the Chronicle!

You’ll get a curated list of the most important macro news and DeFi news, along with insightful posts from guests and more! Actionable intel done the Castle way 🤝

Without further ado, let’s get into it, shall we?

In The Markets

Another week in the markets and another week of oil volatility chopping up all participants.

Unfortunately, there is still no resolution to the Iran War; in fact, it seems to be escalating daily.

While we won’t pontificate on this much anymore, it is still the prevailing environment we find ourselves in. The markets are constantly watching the headlines, and things aren’t going to get better until there is some conclusion.

We’re starting to see weakness in the S&P (and stocks in general), while BTC is still capped at 73/74k. The biggest risk seems to be in Oil futures creeping back over $100, after briefly hitting $120 last Sunday.

Typically, when oil rips, everything else gets crushed, but we haven’t seen that fully happen yet. Better macro minds than us seem to think it’s only a matter of time until stocks start to slide downwards.

Not to mention higher gas prices, which have a detrimental impact to consumer's’ wallets. Spending more at the pump is inversely related to discretionary spending, like investing more in stocks and crypto.

If you want to know more about this oil risk (and where things might go), one of our favourite podcasts, Forward Guidance (by and ), had a video on this recently, talking about this very topic:

Recession is a forbidden word that we hope doesn’t come to pass, but it’s a possibility that everyone should be prepared for. It’s why we’ve preached patience in the markets and prioritised research and slow-moving over willy-nilly buying.

Slow and steady wins the race, especially when cash is still a great position to have.

That being said, let’s dive into the rest of the newsletter to see what went on this past week!

Castle’s Analyst Corner

Featuring: Noveleader

Ever wanted to know exactly what’s going on in our analysts’ minds?

Then this is the section for you!

Our team will talk about anything from AI developments to crypto to even random musings from the top of the dome.

Without further ado….

The Multipolar Trap and Race to Zero

Today in the world, we witness multiple problems starting Climate Change, Economic Inequality, Environmental Degradation, and so much more. All of these problems, to some extent, exemplify the Multipolar Trap. In a multipolar trap, the interests of a few individuals or the preference for short-term gains collectively harm society.

At some point in the future, Artificial Intelligence will go through the Multipolar Trap, and in some contexts, it is still going through it. AI at this stage helps individuals ease their work, maybe speed it up, or reduce the workload altogether, but these systems are made to replace those same individuals. We all have read the Citrini Article on the Global Intelligence Crisis, which is the point when the Multipolar Trap reaches one of its extreme points, where the gains of a few individuals would be prioritised with the use of AI, and everyone else will be pushed to do the work they never wanted to do, bringing a crisis. The AI situation is a little bit different because, at some point, it might look like companies are putting nails in their own coffin, as the market will eventually blow up with less purchasing power, lower stock prices, because no one can afford to buy, and the same flows that AI helped to streamline become worthless.

Being on any side of this spectrum doesn’t look good unless you are sitting on a lot of cash, holding a glass of champagne in one hand, and watching the world burn. If you come in the latter category, that’s the peak of the Multipolar Trap, where only a few key individuals are benefiting. A large part of the population will rely on savings, UBI, and any remaining blue-collar jobs.

Additionally, the governments around the world will tend to use AI for mass surveillance, which you would have to accept because, well, you are in one way or another dependent on them. You will accept it with a smile on your face, and control of humanity and its behavioural analysis will be given into a few hands. That’s another extreme concave point in the multipolar trap.

I also believe that cypherpunk and privacy-enabled solutions (blockchains) will become an important part of history going forward, as a portion of the population will adopt the tech more deeply.

At the end, I just want to say there is nothing that could stop all of this from coming. I am not sure how or when all of this will actually become a reality, and I hope every day that it doesn’t.

Schizo’s Solitary Confinement

Welcome back, all my favorite crazies!

I took a small break from posting my solitary confinement section because, well, to be honest, there wasn’t much to speak about. Again, if we’re being real, there still isn’t much to speak about, at least not from a crypto perspective.

It’s amazing how quickly the space has dried up and how many people have pivoted away from crypto towards AI. The intersection between AI and crypto is still super interesting, but many seem to have gone dark.

So where am I spending my time right now?

Well, like everyone, I’m monitoring the situation hard right now, filling in gaps by experimenting with AI. Since crypto is stuck in a holding pattern, I find I’m more interested in messing around with equities and general macro knowledge.

This is a relative weakness for me, so I’m working to make it part of my skill set. Improving during periods like this is worthwhile, especially when you can spend a lot of dead time in this market watching crypto be range-bound for weeks.

This is where markets can be the hardest to navigate because while there is a lot happening macro-wise, there is typically not much in the way of news during these more bearish periods. It’s easy to get complacent and sit on your hands.

That’s why I choose to spend my internet free time learning what I can about macro to become more knowledgeable and well-rounded as an investor, and then simultaneously keeping a trained eye on any crypto developments to find possible opportunities for capital deployment.

But again, crypto seems to be in a holding position. Like, we’re still waiting on MegaETH to launch their token, there are a few token-less protocols holding onto their token to avoid launching in a bear market, among other things.

No one wants to drop a token when all participants are foaming at the mouth, waiting for new tokens to dump so they can secure whatever capital they can. It’s like a piranha waiting just underneath the surface, waiting for a new piece of meat to devour.

They don’t care what the meat is; they’re just hungry. That’s crypto participants right now – they are so desperate for excess capital.

Time will tell how this all plays out, but make sure you’re prepared to capitalize on anything the market gives you.

Schizo out.

Article Highlight

AI is obviously where many people’s attention has now flocked to, as the crypto markets stay high and dry.

There’s no shortage of articles that tell you “Here’s how to make 500K a year using these 10 Claude prompts!” and undoubtedly, you’ve seen some pretty bad ones.

But that shouldn’t take away from the fact that there are some great pieces of writing centred around how to prosper in a world of AI.

One such article is by our friend Hoeem, creator of the .

He broke down the new Claude Certified Architect exam guide, reverse-engineered so anyone can learn the material.

This guide goes over 5 domains: agentic architecture and orchestration, tool design and MCP integration, Claude Code configuration and workflows, prompt engineering and structured output, and context management and reliability.

Each domain is broken down so everyone can understand what’s going on and includes prompts for interactive learning of these domains.

Kudos to Hoeem and go read the article!

That’s it for another edition of the Chronicle! Every week brings new opportunities, so don’t fret!

We’re all gonna make it eventually!

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.

Gm all!

Welcome to the newest edition of the Chronicle!

You’ll get a curated list of the most important macro news and DeFi news, along with insightful posts from guests and more! Actionable intel done the Castle way 🤝

Without further ado, let’s get into it, shall we?

In The Markets

The Iran War is continuing, oil has exploded, and then imploded after Trump tried his famous TACO strategy. In his own words, “The Iran War will end very soon”.

While the markets reacted favourably to that statement, it’s hard to imagine Iran giving up so easily. This feels like one of his walkbacks, the calm before the storm, if you will.

This still has the potential to backfire on markets, specifically if Iran continues to hold out and oil rises. Luckily for us, crypto seems to be a bit more resilient right now than equities.

Crypto’s disastrous few months of price action seem to be mostly behind us, as the 60k floor has been defended fairly heavily. Obviously, anything can change, and we could lose that floor just as easily, but the hope is that maybe we stay mostly flat until the conflict is behind us.

All eyes have been on the Middle East and will likely remain so until resolution, so the best thing for us to do is keep researching the projects that best align with crypto’s future and take advantage of any war-influenced dips.

But until that happens, let’s dive into the rest of the newsletter to see what went on this past week!

Crypto Round-Up

Pendle’s Road to DeFi Domination

Pendle has long been one of crypto’s best DeFi applications, and each year it becomes more useful. This past week, Pendle announced a new roadmap for 2026, adding a good amount of new features to the protocol.

Think of all those underutilised stablecoins sitting on CEXs, barely earning 3% yield. Now imagine what that would look like if Pendle gave those holders direct access to Pendle fixed-yield strategies from their home CEX.

Well, you don’t have to imagine anymore, because that is exactly what has happened.

That’s a lot of excess capital that can be absorbed into the Pendle ecosystem if it plays out the way they want it to.

Looping Pendle PTs has also been one of DeFi’s greatest strategies, so it’s no surprise that Pendle wants to lower the barrier to entry here. This new one-click leverage feature makes it much easier for users to leverage their PTs and earn a great yield.

Speaking of PTs, Pendle says, “You want to buy PTs on any chain from any chain? We got you.” Being able to buy and loop PTs from anywhere is highly powerful and drives significant demand for all users.

Pendle has brought a lot to the table with this roadmap, and there are even more tools that we didn’t cover.

If you want to see the full announcement, go here:

ERC-8183: The Commerce Layer for AI Agents

Agentic commerce is one of the major narratives driving crypto, as there is potential for millions of agents to transact on crypto rails in the near future.

To do this requires a fully permissionless commercial environment where agents can purchase or offer services anywhere.

This is why Virtuals and the Ethereum Foundation have come together and created ERC-8183 - an open permissionless standard for agentic commerce applications. These applications will also include escrow and evaluator attestation in the smart contracts.

This makes transactions and commerce between agents trustless, no more worrying about whether or not money is being sent without guarantees.

ERC-8183 is defined by the Job. The Job comprises 3 parties: the Client, the Provider, and the Evaluator.

The Client creates the job with a Provider and puts the payment into escrow > The Provider does the work and puts the job completion onchain > The Evaluator reviews the submission and either calls it complete or rejects it.

Some examples of various jobs that could be built are:

• Service jobs like content generation, code review, and data analysis

• Fund transfer jobs like yield farming, token swaps, and portfolio rebalancing

• Reputation-gated jobs that enforce stricter terms on unproven agents, as well as blocking low-reputation providers

This is a huge task and super important for the future of crypto x AI. To read more about this, check out Virtuals’ article below:

Castle’s Special Guest feat: Boros Finance

Trade Here To Win This Bear Market - A Comprehensive Boros Overview

Boros is a sister protocol of Pendle V2, taking its unique yield-trading mechanism and bringing it to the world of funding rates.

While trading funding rates is still nascent in crypto, we believe we’re building one of the best places to trade in this bear market.

In this guest article, we’ll cover:

• How Boros works - Yield Units, funding rates, getting fixed funding on perps and farming funding rate differences

• Why you should use Boros: possible speculative gains, insurance against funding rate spikes, and the unique edge you have as a participant in the bear market

• Finding ideal trading setups on Boros

• How to start trading on Boros today, based on your experience and risk tolerance with crypto

Funding Rates: An Unexplored World in DeFi

Perpetuals trading has become THE breakout product of crypto in the last cycle. Protocols like @hyperliquidX achieved huge Product-Market-Fit, and perpetuals trading volume now outpaces spot trading by magnitudes:

Even in bear markets, perpetuals continue to lead spot volume by multiples!

But within the perpetuals market lies billions of untapped yield via funding rates.

Put simply, funding rates are what longs/shorts pay to each other, depending on the difference between perp/spot prices:

Depending on whether there are more longs/shorts, rates either swing highly positive (longs pay shorts) or highly negative (shorts pay longs) during market volatility.

This floating funding rate has led to new yield farming strategies emerging, such as:

• Cash/carry trade to capture positive funding rates (i.e. short ETH perp to collect funding / hold ETH spot to make the position delta neutral)

• Cross-platform funding rate arbitrage to capture funding rate differences (e.g. long ETH on exchange A, short ETH on exchange B - your yield is the spread between the two platforms)

However, as funding rates are never static, these trades might not be suitable for retail participants to execute.

But with Boros: we’re bringing fixed yield into funding rates, opening up these strategies to the average crypto participant.

Fixed Yield via Yield Units (YU) - The Heart of Boros

With Boros, you can now capture the yield of funding rates with our Yield Unit (YU) markets. One YU represents the 1:1 funding of the same asset on perps:

1 YU of ETHUSDT-Binance = 1 ETHUSDT funding on Binance perpetuals

With Boros markets, YUs have both Implied APR and Underlying APR.

Implied APR:

• Think of this as the price you pay to purchase YUs on Boros

• Your Implied APR entry is the fixed APR you pay/receive until you exit the YU position

• If you long YUs, you pay the Implied APR

• If you short YUs, you receive the Implied APR (perfect for cash/carry trades!)

Underlying APR:

• This is the floating funding rate of the YU’s perp market

• If you hold a long position, you receive the Underlying APR

• If you hold a short position, you pay the Underlying APR

There are 2 ways to make money directly from YUs on Boros:

1. Implied APR gains (mark-to-market)

You’ve longed BTCUSDC-Hyperliquid rates at 8% Implied APR, and close at 10% - your position is up 25% from the increase in price! (vice versa for shorting)

2. Underlying APR gains (settlements over time)

As YUs represent the funding of perpetual markets, you either pay/receive the Underlying APR, depending on your Implied APR entry + whether you’re long or short.

This time-based element can be tricky to understand, so here’s an in-depth thread for further reading:

You can also consult our Boros docs for more details if needed: https://pendle.gitbook.io/boros/the-basics/chapter-2-implied-apr-and-underlying-apr)

Getting Fixed Funding with YUs:

With YUs, you can now lock in fixed rates for perpetuals positions. Simply long/short YUs 1:1 to your notional perp amount, and your Implied APR entry is the funding rate you’re paying until you unwind the position!

Achieving fixed funding on longs:

Achieving fixed funding on shorts:

Why use Boros?

Boros is inherently PVE because we’ve created an arena where traders don’t need to “win” on Boros to be profitable.

For example:

• Trader A believes that Implied APR for ETHUSDT-Binance at 7% is undervalued, opens a long to speculate on the price increasing before the market matures

• Implied APR then spikes to 14%

• Trader B wants to capture the fixed 14% APR, and shorts ETH rates at 14% Implied while shorting ETH on Binance for fixed rates, while Trader A exits his longs

End result: Trader A profits from Implied APR increasing, while Trader B gets a high entry for fixed yield on an ETH cash/carry trade.

Both participants win!

For a deeper dive on this:

How to start using Boros

There are two main ways to use Boros:

1. Trade Boros markets as a speculator

This means betting on the movement of Implied/Underlying APR in markets.

For example, traders who longed XAUUSDT-Binance funding rates before the US-Iran escalations were able to capture huge upside on both Implied APR price and Underlying APR settlements:

It’s as simple as being a directional trader. Think rates are undervalued and are going to increase due to a market catalyst or uptrend? Long rates on Boros. Think rates are overly high, and due to correct? Short rates on Boros.

Catalysts that push spot/perp price dislocations, such as mass liquidations of shorts/longs, are also events that can be captured with Boros:

2. Trade Boros markets as a yield farmer/hedger

This means using Boros to enable fixed funding, and/or to capture spreads between perp platforms simultaneously.

You can use it to lock in high Implied APRs for cash/carry trades, or arbitrage funding rates between platforms for delta-neutral fixed yield.

We’ve even launched a Boros Strategy Dashboard that makes it easy for you to spot funding rate arbitrage opportunities when they appear:

These yield strategies can go up to 23.8% during periods of volatility, and can go even higher with leverage (adjusted to personal risk tolerance)

And we’re regularly highlighting trading opportunities and the movement of funding rates on our official X account, so make sure to follow us there @boros_fi!

And to see how several traders have done well on Boros, here are several case studies:

Trading to a 73% ROI in 30 days:

Making 5 figs from Boros with one trade:

From 11k to 117k on Boros:

Now the best way to start trading on Boros… is to open up a trade and to see what happens!

Don’t let the complexity of funding rates scare you. Figure out the strategy you want to try out, deposit into Boros, and open a small trade to see what happens.

From a distance, Boros might seem overwhelming and too complex to learn - but once you’ve got the first trade open, it’ll start clicking into place.

Start trading on Boros today: https://boros.pendle.finance/strategy

In The Know

• Virtuals has long been the protocol championing AI, and recently also robotics. They recently announced this hackathon with Base for any builders looking to leverage embodied AI. This is the next logical step for AI Agents, giving them a body to perform physical activities instead of being siloed to digital work. This will be something to watch going forward, as companies that come out of this hackathon might be a good chance to invest in something at the ground floor.

  

• Another chain bites the bullet and creates its own enshrined stablecoin. But this time, instead of using Ethena (like the other chains that made this decision), Sonic went a different route and chose Frax as its infra layer of choice. Enshrined stables just make sense from a chain perspective, but it remains to be seen if Sonic can do anything with it and get back the users they have lost over the past few months.

  

• RAAC has launched another backed coin, this time backed by real estate assets rather than gold, like pmUSD. This new token, iREET, provides exposure to onchain real estate with real rental income as cash flow. We’ve seen real estate being tokenised before, and it doesn’t always end up well. But that being said, this is what RWA is supposed to be, so here’s to hoping they’ve found the sauce to make it succeed.

  

That’s it for another edition of the Chronicle! Every week brings new opportunities, so don’t fret!

We’re all gonna make it eventually!

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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.

$69 trillion: This is the estimated market cap of the US stock market, bringing the grand, global total to $130 trillion.

The opportunity to participate in equities is increasingly being considered by onchain natives, after they initially ignored it. The reasons are multiple, but the consensus was that crypto offered faster returns. However, more and more investors chose to diversify; the Wall Street Journal highlighted this trend as a rotation from Bitcoin to gold or the Magnificent Seven (MAG7).

Until recently, the crypto thesis was defined by a monogamous devotion to digital assets, accepting the cyclical contingencies where every four years, everything must mysteriously collapse; almost astrological in nature, most cryptocurrency assets had their all-time-high after Q2 2025 and have yet to come back to life. Meanwhile, equities hit new all-time highs, prompting investors to question whether loyalty to the blockchain amounts to neurosis veiled as conviction.

The entire use case of tokenisation is not “financial inclusion” or “democratising access“, but a way to allow traders to short TSLA to death, borrow against NVDA without KYC, trade pre-IPO equities or earn yield in Kamino vaults.

This article analyses three different approaches for onchain tokenisation:

• Ondo Finance launched Global Markets in September, bringing institutional-grade tokenisation to the Ethereum network.

• Backed Finance’s xStocks (now owned by Kraken) debuted in June, targeting retail with multi-chain composability.

• Hyperliquid activated HIP-3 in October, enabling permissionless perpetual futures on any asset, including commodities, stocks and more.

This article explores the inner workings of each protocol, focusing on how they “tokenise” assets onchain.

General considerations will be made regarding the legal contingencies underlying each protocol and their implications for investors.

Finally, we are going to explore where the broader tokenisation trend is going and what it means for the crypto ecosystem we are accustomed to.

Ondo: BlackRock Onchain

Founded in 2021 by Goldman alumni Nathan Allman and Justin Schmidt, Ondo spent years building tokenised treasury products (USDY for retail and OUSG for institutions), holding over $2 billion before launching Global Markets in September 2025. Ondo holds $2.47 billion in TVL across all products, including T-bills.

Ondo’s tokenisation model is what the industry calls indirect tokenisation. An offshore SPV purchases and holds the underlying equity on behalf of token holders, then issues onchain structured notes that pass through the economic exposure without granting legal ownership. The buyer holds a claim against Ondo’s issuing entity, secured by the underlying stock sitting in a segregated account at a US-registered broker-dealer.

Ondo tokens are debt instruments collateralised by equities, not equities themselves. There are no voting rights, for example, reserved for holders of the underlying.

The most notable features are:

• Institutional-grade tokenisation with bankruptcy-remote SPVs, daily proof of reserves, US-registered custodians, and instant minting during market hours.

• If Apple trades at $180 on NASDAQ, users mint AAPLon for $180 in stablecoins and redeem it instantly. Arbitrageurs keep onchain prices tight by averaging tokenised share prices across DEXs and Global Markets: The arbitrage loop is what keeps the peg in place. Ondo settles atomically: stablecoins in, token out, one transaction. If AAPLon trades above $180 on a DEX, a market maker mints new tokens on Global Markets and sells them into the market to balance the premium. If it trades below, they buy the token onchain, redeem at par, and keep the difference.

• Ondo tokens are fully backed and secured by U.S. stocks and ETFs held at one or more U.S.-registered broker-dealers. Holders do not hold shares directly; they have economic exposure through tokens, whereas dividends are automatically distributed.

• There are no minting or redemption fees, as Ondo profits from the spread.

The platform launched with 100+ assets on Ethereum, expanded to BNB Chain and Solana, and recently announced Ondo Chain, which adds a specific POS mechanism for staking RWAs.

The current catalogue is vast: mega-caps (AAPL, TSLA, NVDA, GOOGL), ETFs (SPY, QQQ), and commodities.

Geographic restrictions, however, are stringent: no US persons or residents are permitted. Ondo tokenised stocks are available only to qualified investors, and KYC is mandatory.

The tokenisation process deserves attention because each protocol has its own alchemy.

Alpaca, the US-headquartered self-clearing broker-dealer, now custodies over 94% of all tokenised US equities and ETFs by value, including Ondo’s. Its Instant Tokenisation Network provides the in-kind minting and redemption rails, meaning the underlying stock is journaled between brokerage accounts rather than liquidated into cash and re-bought, eliminating slippage and keeping token prices stable. Ondo also recently filed a registration statement with the SEC; once effective, it would make Global Markets the first issuer of transferable tokenised stocks subject to SEC reporting requirements. The SEC closed its two-year investigation into Ondo in November 2025 without recommending charges, and the protocol subsequently acquired Oasis Pro Markets, an SEC-registered broker-dealer, to accelerate its domestic ambitions.

Ondo believes that institutions care more about regulatory clarity and operational efficiency than ideological purity.

xStocks: Retail’s Best Friend

xStocks occupies a sweet spot between crypto and TradFi: More accessible than Ondo, more compliant than HIP-3, open to all.

Launched in June 2025, xStocks offers 60+ tokenised equities and ETFs, each backed 1:1 by securities held in Swiss/US custodians under Swiss regulatory oversight. Tokens are SPL/ERC-20, freely transferable across chains.

Its timely success prompted Kraken to buy Backed in 2025. xStocks now holds $250 million in public equities, with Tesla accounting for more than a quarter of that figure.

In this specific model, token holders don’t own shares; they hold creditor rights against the issuer. Each xStock is backed 1:1 by underlying equity; dividends are automatically reinvested, following Ondo’s model: When the underlying equity distributes a dividend, holders receive additional xStock tokens airdropped to their wallet, equal in value to the dividend amount.

The tokenisation mechanism mirrors traditional structured finance compressed onto blockchain. Legally speaking, each xStock is a tracker certificate, classified as a bearer debt instrument, issued by Backed Assets Limited, a Jersey-domiciled SPV and wholly owned subsidiary of Backed Finance AG in Switzerland. The token’s financial value tracks a specific underlying equity or ETF, but grants no ownership or voting rights. Token holders are creditors of the issuer, not shareholders of the underlying company. This is the same indirect tokenisation model as Ondo, but the legal architecture and post-issuance mechanics are different.

The issuance works as follows:

• An authorised participant (AP) submits a mint request through Alpaca’s API, specifying the ticker, quantity, target blockchain, and wallet address.

• Alpaca, acting as the US-headquartered self-clearing broker-dealer, validates the request and records the corresponding shares from the AP’s brokerage account into the issuer’s account.

• Once Backed confirms receipt of the underlying security, the equivalent xStock tokens are minted onchain and delivered to the AP’s wallet.

Redemption works in reverse: the AP burns the tokens, Alpaca confirms the burn, and the underlying shares are recorded back. This is an in-kind process which keeps the token price tethered to the underlying equity.

On March 5th, xStocks unveiled xChange, a swap engine designed to siphon capital-market liquidity directly into DeFi during trading hours while maintaining onchain liquidity pools for weekend price discovery.

The system has three components:

• Onchain liquidity for off-hours price discovery.

• xChange itself connects DeFi and TradFi during market hours.

• xPort for porting assets onchain.

Powered by Chainlink oracles, xChange is already live on Solana aggregators and launching on CoW Swap and 1inch on Ethereum, with integrations with PancakeSwap, LiFi, DFlow, and Kamino Swap in the works.

The vertical effect is that offchain liquidity gets siphoned into the blockchain through arbitrage, tightening spreads in onchain pools; horizontally, it opens access to the long tail of xStocks without requiring pre-seeded liquidity for every ticker.

The regulatory wrapper spans three jurisdictions:

• The issuer sits in Jersey, regulated by the Jersey Financial Services Commission under the Control of Borrowing Order

• The prospectus is approved by the FMA in Liechtenstein, making the tokens passportable across the EU

• The tokenisation itself is carried out by Backed Finance AG in Switzerland.

Collateral is held in segregated accounts at regulated custodian banks in both Switzerland and the US (InCore Bank and Maerki Baumann among them), governed by a three-party Account Control Agreement: if token holders’ rights are breached, a security agent can seize the collateral accounts.

The distribution is aggressive, with shares available on Kraken, Bybit, Gate and other CEXs. Kraken offers instant settlement, fractional investing ($1 minimum), and competitive fees (0.1% taker, -0.02% maker rebate).

Unlike Ondo, the concept is to onboard retail where they are found. There are no specific KYC or whitelisting requirements, as anyone can buy shares and freely transfer them between self-custody wallets.

On the 25th of February, xStocks achieved $25 billion in volume.

Kraken named Alpaca its preferred partner for sourcing/custodying underlying equities 1:1. Alpaca’s Instant Tokenisation Network provides real-time minting and redeeming for institutions. At the beginning of February 2026, the Deutsche Börse-owned 360X platform started offering xStocks to its clients! The BaFin and ESMA regulate this exchange, the gold standard for Europe.

The idea behind xStocks is that retail cares more about self-custody and multi-chain access than institutional-grade custody. Naturally, retail desires the same weapons available to institutions; tokenising stocks is a first step to fill the chasm of informational asymmetry: now, anyone can listen to the earnings call and immediately dump or buy before the market opens.

Hyperliquid: Anything Goes

An altogether entirely different model has been promoted by Hyperliquid, where tokenisation is reduced to its bare minimum: instead of an economic exposure, traders long or short derivatives, and nothing more.

HIP-3, activated in October 2025, lets anyone staking 500,000 HYPE launch their own perp exchange on HyperCore. The deployer sets the oracle, defines leverage, manages risk, and earns 50% of fees.

The mechanics here are fundamentally different. In the Ondo and xStocks model, there is an actual stock sitting in a custodial account; the token is a structured claim on that stock, and when a holder burns it, the share is sold. The chain of custody looks like this:

• NASDAQ → broker → SPV → blockchain.

In Hyperliquid’s model, none of that exists. HIP-3 markets are isolated-margin, not listed on Hyperliquid’s main frontend, and distributed entirely through third-party builders who choose which markets to offer. The oracle is the critical variable: each deployer selects its own pricing source and defines what happens off-hours, when US markets are closed, but the perp trades 24/7. During off-market hours, the exchange relies on EMA-smoothed internal pricing, protocol clamps, and specific trust tiers based on the assets’ liquidity depth.

This is not tokenised equity, like Ondo’s Global Market. There are no shares, no dividends, no redemption, no SPVs, only contracts that track price via an oracle, settled in stablecoins or HYPE.

XYZ100, deployed by trade.xyz tracks the “value of a modified capitalisation-weighted index of 100 large non-financial companies listed on a U.S. exchange.” It hit $72 million daily volume and $55 million open interest within two weeks, breaking into Hyperliquid’s top 10; it now averages billions in monthly volume.

Hyperliquid’s edge is decentralised market creation. Any builder meeting the 500K HYPE requirement deploys three markets free; additional markets require a Dutch auction.

This creates niche explosions:

• trade.xyz (XYZ100, NVDA, TSLA, AAPL, GOOGL)

• Ventuals (pre-IPO SPACEX perps)

• Felix (USDH collateral, 20% lower taker fees)

• Kinetiq, a liquid staking protocol with more than a billion dollars of monthly volume

Through HIP-3, Hyperliquid becomes AWS for perpetuals: instead of competing with every market, they provide infrastructure and let builders compete.

AWS rents users compute, storage, and networking, and users build whatever they want on top. Hyperliquid does the same with financial infrastructure:

• HyperCore provides the order book, the margining engine, and the settlement layer.

• The deployer decides what asset to list, which oracle to use, what leverage to permit, and how to manage risk.

The protocol is indifferent to whether the market tracks Tesla, pre-IPO SpaceX, gold, or a basket of GPU manufacturers. It collects its 50% fee share regardless. This is a fundamentally different business model from Ondo or xStocks, which must individually structure, custody, and legally wrap every single asset they tokenise. Hyperliquid delegates those functions to builders and adopts a laissez-faire approach to tokenisation.

The current meta is highly favourable to perp DEXs, and the volume is not decreasing at all in 2026. Crypto speculators care more about leverage and accessibility than ownership rights, but, as explained above, this is partly because the culture has yet to change, and accessibility was poor until tokenisation emerged in recent years.

The risk, however, is far more important than in tokenised equities. Oracle failures during periods of high volatility or off-market hours, liquidations, or MMs pulling off to avoid drawdowns can lead to an absolute loss. Unlike tokenised stocks, once a position is liquidated, the capital is lost and cannot be recovered.

Institutional desks require auditable counterparties and regulatory clarity on the classification of derivatives, while HIP-3 offers neither. For a fund with compliance obligations, trading an equity perp on Hyperliquid would raise immediate questions from auditors and risk committees, especially concerning ISDA compliance. Hyperliquid’s current user base is mostly retail, as it focuses on public access; however, there are signs that this is changing. Ripple has integrated Hyperliquid into its institutional prime brokerage platform Prime, providing clients with access to perps; another sign of the times. The availability of Hyperliquid gold, silver and oil markets during the Iran strikes on the weekends is increasingly an argument to become a key benchmark for tokenised asset prices during off-market hours.

Tokenise It All

Hyperliquid proved that decentralised protocols can and will compete with legacy exchanges.

Others are following suit. Binance relaunched tokenised stocks on February 24, 2026, partnering with Ondo to list 10 tokenised US equities and ETFs on Binance Alpha. This is their first tokenised stock offering since shutting down the service in July 2021, following FCA and BaFin questions about their compliance, which led to a series of unfortunate events for CZ.

The current US market exclusion is another point of contention. The moment the SEC approves domestic tokenised securities (and they will, as post-GENIUS Act momentum is not slowing), the onchain RWA sector will explode. If cryptocurrencies are bleeding to death, equities only go up, whether public or not.

The real competition is between whoever controls the infrastructure when US approval is official.

Hyperliquid is not competing with xStocks and Ondo in any direct sense; it serves a fundamentally different function. Ondo and xStocks provide economic exposure to equities, with tokens backed by real shares, dividends reinvested, and a redemption mechanism tied to the underlying. The backbone is access: holding, lending against, and composing with assets that were previously accessible only on Schwab or Interactive Brokers. Hyperliquid’s HIP-3 provides leverage and speculation: a synthetic contract that tracks the price, with no claim on any asset, no custody chain, and no creditor rights. In a way, this is the apex of financial freedom, where anyone with a wallet and some dollars can access almost anything, immediately.

For retail, the choice should not be a dilemma, as each alternative yields a different outcome. A trader might hold xTSLA in a self-custody wallet as a medium-term position while simultaneously shorting TSLA-USDC on Hyperliquid to hedge a potential grim earnings call, like many traders arbitrage between Polymarket, pre-markets, OTC points platforms, etc.

One is a long-run portfolio allocation, the other is a trade. The confusion arises because both are accessed through crypto wallets, denominated in stablecoins, and marketed under the umbrella of “tokenised equities.” But the comparison is skewed: xStocks and Ondo carry issuer and custodial risk (the SPV must remain solvent and the collateral must stay segregated), while Hyperliquid carries oracle and liquidation risk (the price feed must remain accurate, the margin must stay healthy, or the position is gone permanently). So, despite a common idea, each protocol cannot reasonably be compared to the others.

What Hyperliquid does better than either is speed and flexibility. The permissionless nature of HIP-3 means the market itself is the product, seeing as any asset with an oracle feed can have a perp within hours, not the months of legal structuring required for tokenised equity issuance.

Three hardly comparable protocols, each pursuing a very specific niche, for everyone to be satisfied: competition between them is illusory.

This is ultimately a discussion about choice, self-agency and inventiveness.

written by @TradFiHater ✍️

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The increased presence of institutions is reflected in the products being launched in the market lately.

This is evident with the growth of vaults as yield instruments, which have become increasingly popular. Recent examples include Coinbase launching curated vaults in partnership with Morpho on Base, and Kraken doing the same on Ink, in partnership with Veda Labs and Sentora.

With DeFi projected to grow at a 43.3% CAGR through 2026–2030, this trend is expected to be a key driver, as more partnerships among technology providers, quantitative asset managers, and established distribution platforms emerge. While not encompassing the full range of providers offering institutional services, lending protocols already account for over 20% of Total Value Locked (TVL).

While vault curation is currently not highly profitable for those involved, given the associated risks, most growth in this vertical will come from institutional and more retail appetite for these products. An example is Bitwise’s first onchain vault on Morpho

In fact, while vaults are the structure of choice for many seeking to attract capital from retail investors by abstracting away the complexity of strategies, they are also an incredibly powerful tool for institutional investors.

However, the inherent volatility of digital assets is often a decisive factor for institutional investors when evaluating these alternative investments.

In particular, they require two key properties in the investments they make:

• Risk-adjusted returns

• Regulatory clarity

While the regulatory component is due under the CLARITY Act, pending a vote in the U.S. Senate, the risk-adjusted returns are subject to active remediation. To address this, it is necessary to differentiate the asset composition of investment portfolios, on the one hand, to gain exposure to the growing opportunities in the sector and, on the other, to ensure low correlation with crypto-related volatility.

This article explores a broader shift in the landscape, using PRISM (Portfolio of Risk-adjusted Investment Strategy Mix) as a case study to illustrate the design and unique value proposition of yield products aimed at attracting both institutional and retail flows.

Light Through the Prism

In the 1660s, Isaac Newton performed the Prism experiment, in which he allowed a single ray of light to pass through a glass prism, producing a multicoloured band of light resembling a rainbow. All these different-coloured lights had different wavelengths but originated from a single beam of sunlight.

If we apply the same context to any asset class, many of them are volatile when considered in isolation. Once placed in a fund or index, these assets are less volatile because the exposure is often neutralised. The same idea applies to crypto and PRISM, which is issued by OpenEden and whose strategies are managed by Monarq, the quantitative asset arm of FalconX, which seeks to achieve the same neutralisation in this highly volatile asset class.

The main idea behind this product is to reflect how onchain investment products are evolving toward more regulated, professionally managed offerings, and to provide users and partners with OpenEden’s “regulatory-compliant tokenisation infrastructure that allows strategies like this to be accessed in a transparent and scalable format”.

The role of Monarq is instrumental in providing expertise in “sophisticated quantitative strategies and multi-layered risk management framework”, specifically focused on strategies that reduce the correlation of PRISM with cryptocurrency prices. This is the key behind PRISM, to leverage onchain strategies while minimising exposure to cryptocurrency assets themselves.

Most onchain tokens provide exposure to a single asset or yield source, leaving users concentrated in one risk stream. Instead, PRISM takes a different approach. It integrates multiple strategies within a defined risk framework under a single token, delivering professionally managed, diversified allocation designed to balance risk and return across market conditions.

According to OpenEden, PRISM should be considered a “new class of onchain products,” moving onchain strategies further from the more traditional delta-neutral or single-strategy approach to better account for risk-adjusted returns for both retail and institutions.

Strategies and Risks

Prism shies away from single strategies in favour of a multi-strategy approach.

The strategies of PRISM include:

• Cash-and-carry arbitrage

• Overcollateralised secured lending to institutional counterparties

• Participation in established onchain yield venues

• Allocations to regulated tokenised RWAs, including U.S. Treasury–backed assets

As the strategies are proprietary to Monarq, we are unable to share the backend details. While not ideal, this is understandable, as they are trying to preserve their edge and competitive advantage. Building institutional products inevitably entails trade-offs. For transparency into PRISM’s backing, users can track onchain reserves on the transparency dashboard, once it is live.

PRISM is currently permissioned. To access the strategy as a primary client, users must complete KYC and onboard with OpenEden. Though it would be worthwhile to explore secondary markets in the future.

To understand the complexity and level of collaboration and professionalisation required for this category of products, here are the service providers involved in PRISM:

Notwithstanding the regulated and transparent approach and the calibre of the service providers involved, these products still present several risks, including counterparty, smart contract, regulatory change, and liquidity risks.

Food for Thought

The launch of PRISM reflects a broader trend in the sector, with most innovation coming from products targeting institutional players and offering better opportunities for retail audiences.

In 2026, crypto went from a narrative trade to an institutional portfolio allocation.

This is exactly the value proposition of PRISM: elevating traditional onchain strategies with a regulated approach, delivering returns without exposing oneself to the volatility of digital assets.

The result is a multi-strategy approach which focuses on becoming increasingly disconnected from market cycles by:

• Reducing concentration risk

• Prioritising risk-adjusted returns

Nonetheless, competition in the sector is ferocious.

Other incumbents include:

• Ethena (delta-neutral yield)

• Ondo (tokenised treasuries)

• Superstate (regulated onchain funds)

• Matrixport/Maple (institutional lending)

While these are all single strategies, PRISM leverages multiple strategies to reduce risk and correlation with market cycles.

Furthermore, as part of the current roadmap, PRISM will evolve into “a multi-strategy, multi-manager product rather than remain a single-manager product,” integrating additional institutional-grade managers and offering different liquidity and risk parameters.

Last but not least, PRISM is issued through OpenEden’s regulatory-compliant tokenisation infrastructure, which includes KYC requirements. This matters for the audience it targets: institutions that cannot touch unregulated products.

The flip side of this design is opacity (proprietary strategies) and permissioned access for primary clients (KYC-gated). While the Monarq team has real institutional and quantitative credentials, with a history in digital asset trading dating back to 2017, the firm has no public track record yet. For an institutional audience, the regulatory wrapper and diversified approach outweigh these concerns, and for a crypto-native audience, the lack of secondary markets can be seen as a problem.

We expect the coming months to be characterised by further integration and collaboration among distribution networks, vault providers, and curators.

Within this framework, the unique differentiating factor of these solutions will be defining their target audience.

For institutional investors, the feasibility of considering these alternative investments comes down to how solid the guarantees of regulatory clarity and the strategies’ risk-adjusted returns are. For retail investors, the primary value proposition is the product’s ability to deliver market-neutral yields.

written by Francesco and Noveleader ✍️

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Disclaimer: This article was produced in collaboration with OpenEden. 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.

Gm all!

Welcome to the newest edition of the Chronicle!

You’ll get a curated list of the most important macro news and DeFi news, along with insightful posts from guests and more! Actionable intel done the Castle way 🤝

Without further ado, let’s get into it, shall we?

In The Markets

We couldn’t buy a quiet week if we tried, could we?

It’s a little tiresome knowing that each week we get hammered by some new news, but alas, we cannot change what we have no control over!

In the past few days, we had a new war unravelling, with Trump setting his sights on Iran. The US dropped bombs (literally and figuratively) over the weekend with this incursion, causing unrest in the broader markets.

Once again, BTC and crypto were hit the hardest as they’re a very liquid 24/7 market. While this sometimes works in our favour, it also goes against us, specifically when people can use crypto to express negative market sentiment during typical stock market closures.

This new attack on foreign soil causes a lot of issues, primarily in its onslaught of uncertainty. Markets don’t like uncertainty.

Also, because of the attacks' location, the Strait of Hormuz is effectively closed. This is a major problem, as a large chunk of the world’s oil passes through the strait, with no immediate viable bypass.

Typically, this would bring inflation downstream, as the shock to energy prices would trickle into other sectors. This only really matters if we see a long-term closure of the Strait, so we may not see this happen.

However, if we go through all the strategic oil reserves, and the conflict goes on for months (pls no), then we may see some more negative impacts.

The silver lining we can take here is that, with midterms coming up, Trump isn’t likely to make this a prolonged engagement, preferring to keep it short and sweet to help boost midterm numbers.

Luckily for us, this didn’t impact the level of crypto news and insights we gathered, so let’s dive into the rest of the newsletter to see what went on this past week!

Crypto Round-Up (AI Edition)

Venice Taking Over Crypto’s AI

“Civilization is best served by powerful machine intelligence when it respects the sovereignty of those who use it.”

That’s a direct quote from Venice, and it very accurately sums up what their product is being used for.

The blessed meeting of AI x Crypto has been prophesied for a while now and has evolved into many different directions, but the path Venice has chosen is the one less travelled.

All major AI providers store your content, prompts, responses, and more, meaning that everything you speak about is being logged. But Venice has created a way for users to interact with various AI models in a private, freedom-first way.

Thus, Venice has been picked up by CT and has become their new darling. But, as it actually has a very solid use case for private inference, this seems to be one of the few times CT really hits the nail on the head.

Venice employs a dual-token model with VVV and DIEM.

VVV is currently up around 140% since last week (around 400% since the lows of February!), proving that there is still money to be made in crypto if you’re actively searching around.

DIEM, their other token, can only be minted by locking staked VVV and is used to unlock Venice API capacity. The exact math is: 1 DIEM token = $1 of API inference per month, which never expires or changes value.

In the tweet below, you can see how this user can run his OpenClaw automations entirely on his DIEM inference claims, meaning he never has to pay for a subscription!

Venice is really showing off crypto’s skill and how it can be applied to general AI infrastructure, in a way that anyone can use.

This is the path to accelerated adoption. This is the path forward for crypto.

Facilitating Agentic Money

Piggybacking off the previous section on Venice, we switch gears a little bit.

f(x) Protocol, which we’ve previously talked about, has expanded on its agentic money thesis in a tangible way.

They recently announced their fxUSD Agentic Stablecoin Vault on Morpho, in collaboration with DeFi/vault curator 9Summits.

This vault unlocks liquidity for holders of $BANKR, $CLANKR, $VIRTUAL, and $VVV. Also, it signifies a shift in collateral options, indicating that agentic tokens/AI agents are worthy of serving as stablecoin collateral.

The vault currently offers nearly 14% APY on fxUSD, a solid option for stablecoin aficionados looking for yield in a down market.

Clearly, AI Agents are here to stay in crypto, and we expect this to continue to grow and accelerate over time.

The bet on compute becoming valued as a commodity like digital oil only adds fuel to this fire, and AI Agents transacting on crypto rails bring this to a scalable reality.

A New OpenClaw Competitor Has Appeared

OpenClaw was one of the AI revelations that hit the ground running and never stopped. However, the downside of being the first iterator of any frontier technology is that anyone can come for your throne, taking advantage of any slip-ups in your product.

Nous Research created Hermes, a different take on this new wave of agents, one that is built for more long-term growth. OpenClaw is at its best when doing instantaneous real-world actions, while Hermes will grow with you, learning and remembering all tasks across its persistent memory.

An agent that can evolve over time is a huge boon for any creator/builder.

Here’s a very interesting use case of Hermes, straight from the horse’s mouth:

Personal AI Agents, if done correctly, will be one of the most transformative pieces of technology for everyone. A pocket computer that can help users create, iterate, run tasks in daily life, and eliminate stress, is the future that old movies used to dream up.

Every week, we say that AI is finding new ways to push boundaries, and each week we are proven correct.

Enjoy the future, folks.

Arbitrum Corner

Welcome to another edition of the Arbitrum corner!

The vibes are not exactly immaculate, considering the worldwide uncertainty during the last couple of weeks.

Nonetheless, Arbitrum has been at work for a long time to ensure its network is as little impacted by market trends as possible, by focusing on the big guys.

Just a couple of weeks ago, Robinhood announced the launch of the testnet of its chain, an L2 on Arbitrum, with a specific focus on onchain asset tokenisation.

Fast forward a couple of weeks, and the testnet has already processed over 10 million transactions.

Nonetheless, given the high profile of Robinhood as well as the scale of it, we expect this testnet to take slightly longer than what we are used to, and run for a few months of testing.

To bootstrap development, Robinhood is also contributing $1m to the Arbitrum Open House builder program.

Even taking into consideration the recent market downturn, all of the recent developments are bringing more and more onchain activity, reinforcing Arbitrum’s positioning as a financial network.

These efforts are proven time and time again by the increasing number of financial institutions and organisations using Arbitrum to transact. This month, we saw strong PYUSD inflows through LayerZero on Arbitrum.

In just a year, the transaction count has doubled from 2 million to slightly under 4 million transactions daily.

Arbitrum’s TVL within RWAs also continues to grow, with over $750m.

Arbitrum also has the highest amount of tokenised assets, with over 1727.

One of the key players, Spiko, reached a significant milestone the previous week, with over $300m in TVL, becoming the largest issuer with their EU and US T-bill products offerings.

We’ve also seen Tally launching an ICO on their new integrated platform for token launches, with idOs network’s sale going live.

Bungee also launched Incognito, where users can pay to any wallet, swap to any token, and bridge on Arbitrum without leaving any onchain trace.

In other news, here’s a deep dive on how you can leverage ERC 8004 for AI agents on Arbitrum, as well as the planned launch of CLUTCH, future perps on NFT for selected communities.

Starting in April, Arbitrum is also launching its Mentorship program, an 8-week programfor 15 early-stage teams with a clear path to launch on Arbitrum.

Think you have what it takes?

Apply here.

In The Know

• Theo Network recently announced thUSD, a yield-bearing, gold-backed stablecoin for crypto. Having a stablecoin backed by gold is one of those no-brainers, given its the world’s deepest and most liquid commodity market. Not to mention, one that is incredibly hot right now, with gold accumulation being talked about everywhere. Theo uses a similar structure to other stablecoins, where thUSD is minted using thGOLD and then hedged by shorting gold futures across multiple exchanges, generating a delta-neutral position that earns yield. It might be a worthwhile stablecoin to help diversify your stablecoin exposure.

  

• One of the largest dramas in recent DeFi memory seems to be coming to an end, as the temp check for the new Aave proposal is set to pass. This consolidates all Aave revenue into a single stream, flowing directly to the AAVE token. It’s a win for DeFi tokens everywhere if Aave fully becomes a token-centric business.

  

• The Ethereum Foundation dropped the newest roadmap for Ethereum called strawmap. While intended for a more technical audience, here is the general gist you need to understand:

  • Faster L1 speeds, finality in seconds

  • 10K TPS enabled via zkEVMs

  • 10M TPS achieved by L2s, via data availability sampling

  • ETH L1 being insulated against a post-quantum future via hash-based schemes

  • Shielded ETH transfers creating a private L1

    

That’s it for another edition of the Chronicle! Every week brings new opportunities, so don’t fret!

We’re all gonna make it eventually!

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.

“You get what you incentivise.”

In Decentralised Finance (DeFi), incentives play an important role in shaping a project’s growth trajectory, but they often come with a double-edged sword: once these incentives are removed, users may leave the platform to seek similar opportunities elsewhere.

The challenges behind DeFi incentives can be classified under:

1. Focusing on multiple protocols simultaneously dilutes incentives. (This is for ecosystems)

2. Not assigning weightage to KPI-driven performance based on tracking key metrics.

3. Lack of Flexibility in incentive distribution and the ability to dynamically change incentives during the course of the program.

4. Lack of tapered rewards to smoothly exit an incentive campaign.

5. Bad User Experience for distribution.

These five challenges encapsulate the state of incentives in DeFi and why they might fail. Typically, protocols and ecosystems adopt a “Spray-and-Pray” approach, deploying capital to attract users, hoping they will remain engaged, without any proper structure.

Ecosystems such as Arbitrum recognised these problems and addressed them by launching the DeFi Renaissance Incentive Program (DRIP), which is funded by the DAO and designed by Entropy, aiming to reward targeted actions and conduct KPI-based distributions, so that the protocols performing best were rewarded the most.

This report examines the program’s performance and its contribution to ecosystem growth, as well as the incentivised protocols and assets.

DRIP: A KPI driven Incentive Program

The DRIP program was introduced based on lessons from previous incentive programs run by Arbitrum DAO, such as STIP (50 million ARB) and LTIPP (45 million ARB), iterating on their impacts and shortcomings. The problems of these programs were similar to those mentioned above, particularly regarding the incentive structure (mostly fixed) and mercenary capital. While these incentives led to a brief spike in activity, this effect did not sustain over the long term, necessitating changes to the approach.

Contrary to previous spray-and-pray incentive programs, DRIP was a highly precise, targeted program that focused on key assets and winning protocols. The DRIP program is distributed across 4 seasons, allocating a total of 80 million ARB tokens. Each season has a singular, clear objective, for example: making Arbitrum the best place to borrow USDT against wstETH, or achieving the deepest liquidity for a particular trading pair. By focusing on one vertical at a time, the program can more easily measure outcomes and iterate on findings.

The first season officially concluded on 17th February, 2026, after running from September 3rd, 2025. This season had a budget of 24 million ARB (including 8 million ARB discretionary budget) and focused on lending and borrowing of yield-bearing ETH and stable assets across blue-chip lending protocols such as Aave, Morpho, Fluid, Euler, Dolomite, and Silo.

DRIP Season 1 had 24 epochs (1 epoch = 2 weeks), where each epoch had a particular role:

• 2 Discovery epochs: Market Exploration phase to determine which protocols perform best with the incentives. These epochs helped determine which protocols perform better with greater incentivisation.

• 6 Performance epochs: Optimised incentives distribution based on the analysis of the previous epochs. In each of these epochs, the incentives were dynamically allocated based on the protocol’s performance. In some cases, incentives were even paused to align with the market conditions.

• 4 Taper epochs: Gradual reduction in incentives to ensure TVL/activity retention. The reduced incentive ensures that users aren’t suddenly deprived of incentives, which might lead them to leave the platform.

Finally, to ensure the program provides the best user experience for incentive distribution, Arbitrum collaborated with Merkl and launched a website listing all active opportunities.

Season 1 of DRIP has officially concluded, and this article assesses its effectiveness. As noted above, DRIP led to a shift in approach, focusing on looping and yield-bearing assets. A looping strategy is executed as follows:

1. Deposit a yield-bearing asset on the eligible protocol

2. Borrow stables like USDC

3. Buy more of the yield-bearing asset from step one.

4. Repeat the process to achieve maximum leverage and yield (yield from asset - borrowing rate)

On Ethereum, Looping accounts for most activity in lending protocols, so incentivising it on Arbitrum was a clear choice. Moreover, it also has second-order effects that create a flywheel in which incentives increase user yield, thereby attracting more capital and prompting users to swap their assets as the process of looping increases DEX activity and liquidity.

While we now understand how DRIP addressed issues surrounding incentive structuring, this section highlights the campaign’s impact. But before we move on to that, let’s understand some of the KPIs to access DRIP:

1. Cost-effectiveness: It is a measure of the net change in protocol/assets growth on Arbitrum relative to the provided incentives. This value determines whether the incentives led to any growth.

2. Market Size and Borrowed Liquidity Growth: Net change in Arbitrum market size and borrowed liquidity.

3. Market Share and Comparative Metrics: Arbitrum growth compared to other L2s like Base.

4. Network Level Metrics: Growth of Arbitrum Total Value Locked (TVL), Total Value Secured (TVS), DEX Liquidity, and Fees Generated.

Starting from network-level KPIs, Arbitrum Total Value Secured (TVS) decreased by ~13%, from $13.77 billion to $11.97 billion (excluding Hyperliquid USDC), and Total Value Locked (TVL) decreased by 34%, from $3.17 billion to $2.09 billion, during the DRIP campaign. Compared with competitors over the same period, Base TVL declined by only 17.6%, from $4.75 billion to $3.91 billion, without incentive programs.

However, these plain numbers only provide half of the picture. While the charts show that DRIP did not sustain value, this is attributable to a strong decline in ETH’s price, which is down 60% from its peak in late August and 40% over the last month, as we can see below how strictly correlated Arbitrum TVL is with ETH price. This drawdown in the broader market has reduced DEX liquidity (down 58% from peak in mid-October) and volume on Arbitrum as expected.

On the other hand, the market cap of Yield-bearing stablecoins (YBS) grew compared to Liquid Staking Tokens (LSTs) and Liquid Restaking Tokens (LRTs), which are ETH-related yield-bearing assets that follow its price.

The push from YBS stems from the launch of USDai and sUSDai, as well as other assets such as wstUSR (Resolv), thBILL (theo), sryupUSD (Maple), and sUSDC and sUSDS (Spark), and from their growth on Arbitrum last year. Additionally, greater incentives were provided to YBS due to the ETH’s non-optimal supply to run incentives properly in certain epochs. This constant monitoring of the market conditions helped to use incentives in the most capital-efficient way.

Furthermore, the fees generated by protocols appear to be consistent with the broader market state. It declined over time as asset prices fell. Certain peaks are evident in the chart below, occurring around major market drawdowns, such as the October Liquidation Event and the early February crashes, when users rush to unwind their positions or are liquidated.

Another relevant metric, as reported in the Entropy dashboard, is the program’s cost-effectiveness. It is calculated by dividing the change in Arbitrum Network/Lending Markets TVL by the daily U.S. dollar average value of allocated ARB incentives. In short, if this value is positive, it indicates that the incentives contributed to an increase in TVL; if it’s negative, it indicates that the incentives didn’t have much impact.

This metric declined slightly after the October Liquidation Event and has recently declined further as ETH prices continue to fall and TVL goes down in dollar terms. Thus, incentives cannot keep pace with the reduction in the ecosystem’s locked value.

The next section dives into incentivised protocols and assets, reviewing their growth.

Lending Protocols

By design, DRIP Season 1 prioritised high-velocity DeFi activities, such as looping, thereby incentivising blue-chip lending protocols. These incentives initially increased the market size of lending protocols, but later declined following the ETH price and broader market drawdown. Currently, the combined market size of the incentivised protocols is down by ~26% from the start of the campaign (i.e., 3rd September 2025), from $2.66 billion to $1.97 billion.

Reflecting on the program’s cost-effectiveness, only three of six protocols had a positive impact, owing to factors such as protocol asset concentration and market drawdowns. Cost-effectiveness is calculated as the change in the protocol’s market size on Arbitrum divided by the incentives provided, measured in dollars.

In this case, Aave, Dolomite, and Euler have negative values, whereas all the others show positive growth. For Aave, incentives were paused between epochs 2 and 5 due to ETH’s high cost of capital, as its supply on the chain declined under parallel incentive programs on chains such as Plasma and Linea. Due to the incentive pause, the burden of cost-effectiveness shifted to later epochs for Aave, which also underperformed due to broader market drawdowns (Aave TVL on Arbitrum is largely skewed toward LSTs and LRTs), and not onboarding assets such as USDai and sUSDai, until recently.

Dolomite has lost 55% of its TVL on Arbitrum since the program’s start, as the protocol’s TVL is heavily concentrated in volatile, yield-bearing assets that declined in value when ETH prices fell. Moreover, Dolomite had fewer competitive integrations with incentivised and high-growth assets such as syrupUSDC and PT tokens.

For Euler, although the decline is not large, it is driven by market drawdowns and the expiration of Pendle’s PT assets, such as PT-USDai/PT-sUSDai in November, which accounted for the majority of the decline.

For protocols such as Morpho, Silo, and Fluid, conditions were similar, but they benefited from specific Arbitrum launches, an incentive and focus skew toward stable assets, and performance-based rewards.

The increase in the Morpho market size was primarily driven by stablecoin inflows, including thBILL and syrupUSDC. Additionally, Morpho borrow-side growth in USDC loans and PT assets as collateral enabled effective leverage looping. Silo achieved positive campaign growth by targeting high-demand, incentivised assets such as rsETH and Ethereal vaults. For Fluid, growth was driven by deposits of syrupUSDC and USDC/USDT0 loans.

Moreover, the utilisation rate across lending markets remained stable throughout the campaign at approximately 40%, while borrowing activity fluctuated due to a combination of market conditions and incentives.

Upon comparing Arbitrum with Base in terms of the change in participating-protocol market size, we observe a clear difference and note that Arbitrum underperformed despite the campaign. Growth on Base is primarily driven by Morpho and Aave (cumulatively represent 95% of Base lending TVL) through their partnerships with exchanges and wallets, including Coinbase and Bitget Wallet.

After reflecting on the overall growth of lending markets on Arbitrum, we examine how each incentivised protocol performed.

Aave

Among the incentivised protocols, Aave received ~34% of all rewards ($1.47 million), given its size and larger user base. This aligns with the campaign structure for rewarding winning protocols and assets.

In certain initial epochs, Aave’s incentives were paused and reserved for subsequent epochs (after the 5th epoch). When incentives were introduced for Aave, its WETH market size increased by 76k units; ETH and related assets saw more than $160 million in net inflows; and rsETH grew to $283 million. This corresponds to an increase in market size in November, as shown in the chart below.

Notably, the protocol’s market size and borrowed liquidity declined significantly recently, owing to the ETH price’s decline over the past month. Its market size declined by 37%, from $2.14 billion to $1.34 billion during this period.

Morpho

Morpho is the second-largest protocol in the lending category and, given its size, was awarded the highest rewards, only behind Aave, representing ~27% of total rewards ($1.2 million).

Morpho launched on Arbitrum in August 2025 and quickly reached its peak market size of approximately $500 million in October, driven by a strong focus on stable assets and competitive rates for eligible assets, such as syrupUSDC. Additionally, thBILL inflows contributed to its growth.

However, following the October Liquidation Event and the allocation of some vaults to overleveraged YBS (Stream Finance Incident), its growth was adversely affected, resulting in a 68% reduction in market size from the peak in late October. On this note, Entropy also blacklisted two vaults (MEV Capital USDC and Hyperithm USDC) from receiving DRIP rewards.

Later, Morpho recovered to similar levels in January 2026, driven by syrupUSDC and PT-USDai markets, only to experience a recent downtrend, a pattern consistent with that observed in the other protocols.

Fluid

Fluid accounted for ~19% of the net incentive allocation ($850k).

Fluid’s market size increased during the initial phase of the incentive period, rising by 63% from the start of the campaign, driven by syrupUSDC deposits, and then declined after peaking in early November.

Similar to Aave and Morpho, Fluid also experienced a 35% decline in its market size over the past month, falling from $330 million to $213 million due to market drawdown.

Euler

Euler was allocated 13% of the net incentives, worth $580k.

Euler has a story similar to Morpho; it launched on Arbitrum last year and employs a curator model similar to Morpho’s. Its market size declined following the Stream Finance Incident and the expiration of PT assets around the same time (though it didn’t witness any bad debt, so no rewards were reduced as Morpho).

Its market size has not recovered on the chain since then and is currently down ~85% from the campaign peak of $190 million to $30 million.

Dolomite

It was awarded ~3.5% of the total rewards distributed across the campaign ($150k), exceeding Silo’s share.

The Dolomite story differs slightly from the aforementioned protocols; it began the campaign with an estimated market size of approximately $92 million and currently stands at $30 million, a 68% decline, attributable to a higher proportion of yield-bearing assets and less emphasis on high-growth assets such as syrupUSDC and PT assets.

Their downward trend correlates with market conditions and was not benefited by incentives.

Silo

Silo received ~3% of the net incentives ($136k) and still grew at a decent pace.

Silo is one of the protocols that closed the campaign with net-positive growth and entered the program with a market size of $50 million, which has since grown to $73 million.

They reached their peak in early November but declined following exposure to the Stream Finance Incident, leading to Entropy removing the rewards for certain exposed vaults like Varlamore USDC and Silo TID vault.

Overall, they performed better with respect to the program’s cost-effectiveness due to a focus on Optima USDC and Ethereal vault and assets such as rsETH, which were incentivised.

ETH Assets

LSTs and LRTs were also incentivised during the campaign, although they accounted for only ~37% of the net incentives distributed, compared with the YBS, which received the remainder. These assets were selected because they are yield-bearing and can be used to perform activities such as looping.

Recall that, as noted above, for a looping strategy to be successful, the platform’s borrowing rate must be lower than the asset’s yield.

Hence, the incentives are targeted to:

1. Reduce the effective borrowing rate.

2. Increase the yield on depositing these assets as collateral.

Hence, looping becomes more profitable. Few assets were eligible for rewards during the season: wstETH, weETH, ezETH, rsETH, and gmETH.

The market capitalisation of these assets grew rapidly, reaching a peak of $1.22 billion in mid-September last year, and has since declined to approximately $600 million. Moreover, in ETH terms, the market capitalisation has grown by ~22% since the start of the campaign, increasing from 249k to 302k ETH. The decline in the USD-denominated market cap can be attributed to falling ETH prices, but an increase in ETH terms indicates net inflows, suggesting that incentives worked for these assets.

While market capitalisation shows the asset supply on the chain, its utilisation can be analysed by the increasing market size in lending protocols, the specific area where the campaign focused.

Two outliers, Kelp (rsETH) and Renzo (ezETH), grew by ~380% (from $28 million to $137 million) and ~2784% (from $2.6 million to $75 million), respectively. Notably, their size on Arbitrum at the start of the campaign wasn’t large relative to other incentivised assets, such as weETH and wstETH, but they ended up with a market size comparable to theirs.

The lower maturity of these assets in the initial phases of the campaign enabled them to grow on Arbitrum, driven by competitive yields from issuer rewards. When incentives were restored to LSTs and LRTs on Aave in Epoch 6, their growth accelerated exponentially.

Additionally, during the campaign, the dominance of these assets on Arbitrum increased, particularly for rsETH (Kelp) and ezETH (Renzo), rising from ~2% at program start to ~12% and ~19%, respectively.

Reviewing the net market size and asset capitalisation of the incentivised ETH-related assets, it’s relatively down from its peak and has been decreasing due to lower ETH prices. This also directly affected the DEX liquidity of these assets, which has decreased compared to the start of the campaign.

Compared with the ETH supply on Base, the Arbitrum ETH supply changed noticeably; Arbitrum led and grew by 18% during the campaign period, while for Base, it is 9%. The current ETH supply on Arbitrum sits at 872k.

USD Assets

On the other end of the incentive spectrum, YBS (yield-bearing stablecoins) were incentivised. They represent 63% of the net incentives distributed, far more than ETH-related assets. Since these assets are yield-generating, they can be used for looping strategies. During the campaign, multiple assets were incentivised, including sUSDC, sUSDS, USDe, USDC, sUSDe, RLP, wstUSR, sUSDai, syrupUSDC, and thBILL.

Compared with the growth of other aspects of DRIP, YBS performed very well. From the start of the campaign, the combined market capitalisation of these assets increased by ~45% from $923 million to $1.33 billion. One of the key contributing factors for this increase is the launch of USDai on Arbitrum last year.

Moreover, their total market size on Arbitrum has increased from $43 million to $190 million, a 340% increase. This is a positive change, but it remains substantially below the asset market size peak in late October, which was $330 million, due to the October Liquidation Event and the requirement to unwind positions.

A similar rationale applies to the DEX Liquidity of these assets on the chain, which has declined by 65% from its peak of $120 million in mid-October to $41 million. Additionally, following the market downturn, DEX liquidity for YBS on Arbitrum has also declined.

Closing Thoughts

DRIP seeks to address the incentive structure and mercenary capital problem of incentive programs across its four seasons. The first season has officially ended with the distribution of 16.7 million ARB tokens (~$4.3 million). The program aimed to incentivise the winning protocols and assets through activities that had second-order effects, such as looping.

The focus of Season 1 was on YBS, LSTs and LRTs. As ETH assets are inherently volatile, incentives were unable to provide much support during the drawdown, but they did provide some support for certain protocols. For YBS, growth appeared positive, but the broader market drawdown also contributed to a reduction in market size on lending protocols. Overall, more incentives for YBS led to net positive growth in the market capitalisation of these assets on Arbitrum.

The data indicate that additional incentives don’t always yield the greatest growth, as the cost-effectiveness of certain protocols, such as Silo, is higher than that of others, even though they received the fewest incentives. Although it is fair to say that Silo size isn’t large, it had more space to grow.

Nonetheless, this was only the initial season of the DRIP campaign, which spanned across five months and followed a defined structure to incentivise users and to select winning assets and protocols. This case study showed that incentives can serve as a useful fallback during market drawdowns and help protocols and ecosystems sustain value for a longer period as the ETH supply on the chain grew during the program. It is also noted that active adjustments to incentives appeared effective and helped better align incentives during market drawdowns and incidents such as the Stream Finance Collapse.

That said, there are three more seasons remaining, each targeting a particular area, and there is substantial value for the Arbitrum Ecosystem to acquire, as Arbitrum currently represents only 2.18% of the total DeFi TVL. Additionally, over the past year, the ecosystem has focused on creating long-term economic value for the DAO and the ecosystem to sustain a healthy flywheel, driving constant growth.

To more ecosystem-focused initiatives, Arbitrum Everywhere.