New USDe changes and DeFi is still alive, even with its new suit- The Castle Chronicle
PLUS: Chaos Labs is leaving the Aave DAO?
Welcome to Edition 166 of The Castle Chronicle!
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:
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.
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:
Chaos Labs wanted to be the sole risk manager, removing LlamaRisk.
They wanted to replace Chainlink oracles with their own.
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!
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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.