The Castle Chronicle: Capturing yield from onchain stocks

PLUS: Building a tech stack for tomorrow's communities

Welcome to Edition 145 of The Castle Chronicle!

Gm dear readers! It feels like in recent weeks we’ve been getting hit by treacherous market conditions over and over again, but you know what? You keep showing up. Good stuff! Speaking of good stuff, we hope you enjoy this edition of the Chronicle!

Gm all, Here’s what we have for you today:

• 🔍 Market Watch - Weak Market is back

• Arb Corner - Yapper Month 2 is Live!

• Edel Finance - The Aave of Onchain Stocks

• Edge City: Crypto Pop-Up Communities

• 📖 Recommended Reads - Top reads from the best researchers on CT

🔍 Market Watch

Gm frens! The market looks weak right now. And unless some significant strength comes in quick, I expect to be patiently sidelined for quite some time. The HTF context is still bullish, so by no means am I ready to short. BUT the current weakness is significant.

Price Action

My expectation for BTC is that price will continue bleeding out for a while, go sideways and eventually break out higher for continuation towards new ATHs. This could take months though!

Top Performers

Even during moments of overall market weakness, there will always be some outliers. The privacy sector in general is doing very well. DASH and ZEC have been showcasing unparalleled strength over the past few weeks and months. Is that a strong enough argument to trade them? I’m not sure.

Around 60% of the market is BTC and it’s very uncertain right now. Chances are the bearishness will continue and drag everything else with it. Because of that I will refrain from trading any other cryptos and patiently wait for BTC demand to show up again.

Narrative Performance

With BTC showing weakness it’s only natural to see a red wave in the market. Most narratives have lost from 10% to 30%, with biggest losses taken by DeSci and DeFAI. Once again, I want to point out the resilience of Privacy. Especially during moments of market weakness we’ve seen Privacy absorb the sells very well.

What to do now?

I am a trend & momentum trader. For me, trading is completely seasonal. And if I decide to trade out of season, chances are I will fail. That’s why it’s extremely important for me to be patient and sit out during moments like these.

My mentor told me a really impactful story once and I want to share it with you today:

“Trading is in a way like farming. It’s seasonal. Imagine wanting to grow tomatoes. You’ve been told that as a farmer you can plant the seeds and enjoy tomatoes, BUT you need to grow them during the right season. Growing tomatoes in winter will yield no results, you will just waste money and effort. But if you wait for the right time, you will have plenty with little effort. It’s very similar with trading. When the time is right and the top-down analysis is well aligned, that’s your season for trading. You will get plenty of trades and they will often play out in your favor. If you however trade out of season, it’s like trying to grow those tomatoes in winter. You will constantly lose and be frustrated.

It’s a misalignment in expectations and a fundamental understanding shift.”

Right now there is a top-down misalignment in the crypto market. The HTF (1W) shows bullishness, but the LTF (hours) shows bearishness. I always want to have all my timeframes aligned before I start following a market. We’re in off-season now frens.

But there are things you can do! As traders it’s our responsibility to find markets to trade. There is no need to be tribal and only trade the crypto market. If we want to continue growing our equity curves we can find markets that are in good season right now, such as the US stock market. The indexes such as NAS100, S&P500, etc. are doing great and there are thousands of individual stocks to play relative strength on.

Risk responsibly, and I’ll see y’all next time!

Courtesy of 0x_Vlad - trend-based trader and MentFX student

Not following what I’m talking about? Check out my quick cheatsheet to understand how I approach a chart.

Arb Corner: DRIP + Yaps!

Amid a dire week for the cryptocurrency market as a whole, Arbitrum stands out with a lot happening in its ecosystem.

With DRIP running at full speed, we’re already seeing the impact on both lending and DEX volume. We dived deep into a mid-season 1 report on DRIP results - have a look if you want to learn more about the incentive program and its impact:

Epoch 5 of DRIP is live!

According to Nansen, this week, Arbitrum experienced:

- 1.37M users (+43%)

- 1.2M txns (+27%)

- $53M+ in stablecoin inflows

The impact of DRIP is also being amplified by the Kaito campaign, which has now concluded month 1 and just started month 2.

While we are happy to see increased mindshare from KOLs and other builders talking more about Arbitrum, we also have to highlight the noise being created by AI-generated content (which we see a lot with our posts being repurposed).

A balance must be struck between quantity and quality.

What else is happening in the ecosystem?

Ostium reached an ATH in open interest (OI), with over $300m, of which commodities accounted for almost half of the total OI.

This week, we also had the launch of a new protocol: Printr.

Printr is a cross-chain launchpad which allows the creation and launch of tokens (with a focus on memes) across multiple networks. They recently raised $4.5m and have a partnership with Bybit, which could offer an interesting distribution opportunity for successful tokens.

Maybe this will help stimulate token retail activity on Arbitrum and a more active meme ecosystem, something many have lamented in the past.

On the other hand, we have already seen that previous launchpad experiments on Arbitrum haven’t been particularly successful.

Maybe by focusing on native token interoperability and leveraging the cross-chain aspect - results will be different this time.

Another one of Arbitrum’s most talked-about protocols, Ostrich, just conducted its RICH TGE, available for trading on Camelot and MEXC.

Ostrich became one of Arbitrum’s biggest protocols, trading at an FDV of over $290m.

Last but not least, Robinhood continues to deploy stocks to Arbitrum, and we can expect things to continue to ramp up!

Before we end, if you are a small builder, don’t forget that Arbitrum is offering between $25-50k in grants to bootstrap small projects!

More information can be found here:

https://x.com/chilla_ct/status/1983207757256777916

Honestly, if we ignore the broader picture, Arbitrum seems to be benefiting from strong alignment across several initiatives. DRIP is boosting the liquidity, lending and DEX volume , while Arbitrum protocols continue to perform well in areas of growing interest, such as AI (USDai), RWAs (Ostium, Ostrich), and more.

It’s unfortunate not to see any of this reflected in value accrual for the token - but the Arbitrum ecosystem is becoming increasingly active these days.

What if..

Edel Finance: The Aave of Onchain Stocks

Crypto participants frequently discuss how we’re going to *tokenise the world* and how our industry can flip the traditional finance rails on its head.

Luckily, this statement isn’t without weight, as you can see this happening in real time with RWA’s TVL breaching ATHs and approaching $20B in supplied assets.

We’ve brought treasuries, commodities, real estate, and now stocks onchain, opening up the world of traditional finance (TradFi) to the crypto rails. This is a massive development for both crypto and TradFi.

Despite our impressive progress, one central financial mechanism remains unaddressed by crypto: securities lending onchain.

Global securities lending is a large-scale industry, with roughly ~$3T in on-loan balances. This is a very lucrative business for institutions that lend out their stocks, generating approximately $10B in revenue.

Individuals who have invested in pension funds or ETFs have likely passively benefited from this form of lending. The downside is that you don’t capture all of the revenue from this enterprise, nor do you really get your fair share.

Here’s how this process works in practice:

• A hedge fund is looking to short-sell a stock, like AAPL.

• To achieve this, the hedge fund borrows shares of AAPL from a bank or a broker acting on behalf of Pension Fund A. They then sell AAPL shares, hoping to repurchase them at a lower price.

• The hedge fund posts collateral (usually cash), and an interest rate or lending fee is set, with the interest returned to Pension Fund A as revenue.

• The bank/broker will also take a percentage of the revenue as payment for acting as the intermediary.

An individual investor who has money in this pension fund benefits indirectly, either by their portion of the fund increasing incrementally or by the pension fund using lending income to offset its management fees.

In either case, the investor isn’t seeing a large portion of this income, even though it’s their stocks that are being lent out and borrowed.

This brings us to the subject of this article: Edel Finance.

Solving Onchain Securities Lending

Edel Finance is a permissionless, non-custodial money market for tokenised equities, a protocol that enables holders to capture the full scope of revenue from lending their stocks onchain.

Edel will run on the Ethereum mainnet and is built using Aave’s V3 architecture, using top stocks as pristine collateral. Lenders are overcollateralised by design, and all positions are autocompounding aTokens, the same design as Aave.

The autocompounding positions enable users to capture this previously unattainable lending spread and watch a real-time revenue stream, while also allowing users to access liquidity by borrowing off their positions.

By the very nature of this being onchain, users can be sure their stream of funds is free of shady broker fees and can access it 24/7.

How does it work?

1. To start the process, you’d need to own tokenised stocks, sourced from Ondo or xStocks. Since Edel is a non-custodial money market, you retain control of all your funds through your wallet.

2. You supply your stocks to earn lending income from institutional borrowers.

3. You still retain your stocks’ dividend rights while earning the additional yield.

If you’re familiar with lending on Aave, the process should be reasonably similar on Edel.

For a more in-depth look at how this will function when Edel is live, look at this image from their docs:

Why is onchain securities lending relevant now?

Never before has crypto been as widely discussed in traditional finance circles as it is now. We went from cypherpunks chatting about Bitcoin on internet forums to detractors like Jamie Dimon admitting they were wrong about crypto.

Investors now have access to Bitcoin and Ethereum ETFs, with numerous funds and institutions venturing further onchain. All developments that we would have considered unthinkable a few years ago.

It’s not inaccurate to say that tokenisation is going mainstream, with banks, companies, and issuers actively seeking ways to come onchain. This means that crypto rails are going to become more popular, and it is likely that people will be increasingly using protocols built onchain, whether they realise it or not.

There has also been an increase in the number of people interested in buying stocks in recent years, with 62% of Americans currently owning stocks. This statistic aligns with 2023 and 2024, as the years preceding them failed to reach the ~62% mark.

In fact, the last time that stock ownership numbers were this high was before the 2008 financial crisis!

This means that there is a larger cohort of stockholders that Edel could potentially cater to if all the stars align.

Thoughts on the future

While crypto use is far from as widespread as we would like, we’re still on track for integration on a scale we’ve never seen before. Especially with stablecoins taking centre stage, more people will be exposed to crypto, and more institutions will look onchain for yield opportunities that TradFi can’t provide.

The composability of onchain stocks brings forward numerous strategies and opportunities, but lending them at scale has not yet occurred. This is the next unlock for RWAs, and Edel’s leveraging of Aave’s v3 architecture puts them in a good spot to capitalise on this development.

The hyperfinancialization of the world means that people are always on the hunt for ways to generate income from previously idle assets and products, and stocks are no exception.

The only difference now? Stockholders can actually capture the yield they’ve been historically denied.

Schizo out!

Edge City Patagonia: A New Type of Society Incubator

Being in Argentina for all of the month of November before this year's edition of Devconnect, I decided to join a new type of event that I had never heard of before: Edge City.

Part of the Zuzalu ecosystem, a crypto-focused gathering created by Vitalik Buterin, Edge City has the goal to gather people from different fields in the tech industry in pop-up villages all across the globe in order to prototype what can be a brighter future for all. The goal is simple: Building a Tech stack for tomorrow’s communities.

And NGL, it's very refreshing to discuss & cogitate with tech-focused people on different topics other than shitcoins, volume & open interest, or which market maker is about to blow up.

This pop-up city is happening in San Martin de los Andes, a small town in Patagonia, the southern part of Argentina. More or less 400 people from the Crypto space, AI, Quantum computing & Bio-hacking are living close by in different residencies & interacting daily with each other in different conferences/events that are spread all over the small town.

The activities and conference types span from talks on the mental health impact of AI to Farcaster app onboarding, discussions on biomarkers of ageing, or a Sauna session with a philosopher. All happening in different venues in the town that can be walked to in 5 minutes from each other.

All the events are figured on the same application :

https://app.sola.day/

That has been built specifically for those pop-up villages.

Anyway, I just landed in San Martin this weekend, so only had the chance to attend 4-5 events, but already I met up with interesting brains & had great discussions. As said earlier, it’s useful sometimes to exit your speculative circle & reach other crypto / AI builders that only focus on financial instruments. Helps to take some distance from the charts & tokens.

On this, have a great week all!

From CL with love

📖 Recommended Reads

• A great article by 0xJeff (@Defi0xJeff) on AI agents

• Castle Alumni zerokn0ledge gives his view on Codec and the robotics narrative

  

• Emrecolako’s timely article on vaults and how they earn yield

  

That’s it for today’s issue, we hope you enjoyed it.

You can check out our X for new research reports and weekly gigabrain content.

See you in the next issue,

The Castle Team

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.