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Treehouse Daily31 Jul 2023

🌳China Takes Further Measures to Boost Consumption and Avoid Deflation; Curve Finance Pools Exploited, Resulting in Nearly $50M Loss

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BTC

ETH

S&P Futures 500

$29,475.95

$1,874.19

$4,609.00

(+0.73%)

 (+0.69%)

(+0.84%)

Note: All percentages shown above are referenced to the previous business work day's 09:00 (GMT+8)


GM Treehouser 🌳

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Our Daily View

What We Are Covering Today

  • China unveils additional measures to bolster economic growth; Fed Chair Jerome Powell no longer foresees US recession (more in Macro & TradFi)
  • Lyra to launch its V2 on the customized Lyra Chain based on OP stack; Multiple pools on Curve Finance exploited, totaling almost $50M loss (more in DeFi & CeFi)
  • Traders accumulate LTC before halving; Whale makes significant moves on PEPE and BALD (more in On-Chain)
  • Crypto market cools with month-long IV decline; Bullish flows prevail (more in Crypto Derivatives)
  • Both BTC and ETH remains relatively flat over the weekend and traded range-bound near the support zone (more in Crypto Technical Analysis)

Macro & TradFi

China is taking new steps to boost consumption and revive its economy after a slowdown in the second quarter. According to a data provider China Beige Book, almost every major sector experienced a weakening in revenue and profit margin compared to June, with retail particularly affected. However, sales in the travel, food, and drinks businesses increased due to continued "revenge spending". China announced additional measures on Friday to bolster economic growth, including plans to boost consumer industries and facilitate access to funds for small firms through an exchange dedicated to their support.

Federal Reserve Bank of Minneapolis President Neel Kashkari calls the U.S. inflation outlook 'positive' but worries that the central bank's assertive tightening measures might lead to job losses and hinder economic growth. Nevertheless, recent pivotal data demonstrate a positive development, indicating a decline in U.S. inflation from its pandemic peak and a stable economy despite the record-high interest rates. Similarly, investor confidence soared as Fed Chair Jerome Powell stated that the central bank no longer foresees a U.S. recession and believes inflation can reach its 2% target without substantial job losses. Investor focus is now on the eagerly awaited U.S. jobs report for July, which is expected to show 184K jobs added to the nation's workforce.

All three major indices closed higher last week, boosted by positive big tech earnings, economic data, and central bank announcements that bolstered investor confidence. The Dow Jones Industrial Average increased by 0.5%, the S&P 500 gained 0.99%, and the Nasdaq Composite saw a rise of 1.9%. In the energy market, oil is poised for its largest monthly gains over a year, driven by expectations of Saudi Arabia extending voluntary output cuts into September and tightening global supply. Brent crude settled higher at $84.99 a barrel, while U.S. West Texas Intermediate (WTI) crude climbed to $80.58 a barrel. Lastly, spot gold remained range-bound on Monday, trading at $1.95K, with investors awaiting further cues on the U.S. economy later in the week.

DeFi & CeFi

  • Lyra Finance to launch V2 on the OP stack based Lyra Chain
  • Suku launches a new solution that allows users to send crypto using Twitter handles
  • Binance and CZ ask the court to dismiss CFTC charges
  • PancakeSwap goes live on zkSync Era
  • RWA tokenization specialist Securitize issues tokenized Spanish real estate investment trust on Avalanche
  • Curve Finance pools exploited due to reentrancy vulnerability

Lyra Finance has announced the upcoming launch of V2, an options trading protocol built on the Lyra Chain. The customized Ethereum rollup using the OP technology stack aims to provide scalability for the protocol by offering high throughput, low latency, and cost-effective execution. Lyra Chain will be the engine for margin, liquidations, and settlement of options and perpetual futures, facilitating deposits and withdrawals from Ethereum mainnet and Layer2 networks and supporting smart contract deployment. The platform will also introduce Lyra Matcher, an open-source order-matching engine that will enable off-chain matching services for traders and market makers.

On July 30, individuals exploited several stable pools on Curve Finance using vulnerable versions of Vyper (0.2.15, 0.2.16, and 0.3.0), resulting in losses of over $47M. The attack exploited a reentrancy vulnerability in the Vyper compiler, allowing the draining of funds from affected contracts. DeFi projects like Ellipsis, Alchemix, JPEGd, and Metronome were affected. The exploit caused panic in the DeFi ecosystem, leading to a decline in Curve DAO token (CRV) value. According to a statement within the Curve Discord, all affected pools have been exploited or saved by a white hat hacker, with all remaining pools safe from further exploits.

On-Chain

According to @Santiment, Litecoin's upcoming halving event on Wednesday sparks aggressive accumulation among traders between $9.5K and $950K worth of LTC. The significant and simultaneous increase in accumulation among Dolphin and Shark wallets reflects traders' confidence in the potential price appreciation following the halving.

As the token with the largest market capitalization on Coinbase's L2 Network, Base Chain, BALD has attracted significant attention, with over $62M of liquidity bridged from the ETH mainnet to the Base mainnet via a proxy contract address. A whale made substantial moves in the Base market, selling 720.8B $PEPE for 501.5 ETH ($943K) and then using the ETH to purchase 13.6M BALD ($937K) five hours ago. As a result, the investor has become the largest holder of BALD, except for the developer. Last month, between 7-9 June, the same investor bought 3T PEPE using 3.5M $USDC but incurred losses of approximately $620K when depositing it to Binance. Subsequently, the investor bought 4.57T PEPE for $6.55M at an average buying price of $0.000001434.

Crypto Derivatives

  • BTC and ETH funding rates continue to stay positive.
  • Deribit Implied Volatility Index (DVOL) for BTC and ETH rose to 36.35% and 36.19%, respectively.
  • 30-day 25-delta skew (C-P) for BTC rose to and ETH is at 0.72% and -1.97% respectively.
  • The futures market witnessed $102.48M worth of liquidations over the weekend with longs representing 56.08% of the total.

Top 3 CEX USDT perp funding rate arbitrage based on the last 24-hour lookback:

Net Annualized APR

Perp (USDT pair)

Long on

Short On

9.28%

DOGE

OKX

dYdX

6.92%

BTC

OKX

dYdX

6.78%

ETH

OKX

dYdX

Source: @CexyArbBot Telegram

1) Pairs observed include BTC, ETH, SOL, BNB, XRP, LTC, DOGE vs USDT perps 

2) CEX observed include Binance, Bybit, OKX & DYDX

@CexyArbBot allows you to customize CEX, 100+ pairs & lookback periods combo


Over the past month, the 30-day ATM IV for BTC experienced a notable decline, dropping from its previous level of over 46.11% to a low of 30.54%. Traders, as observed by @tradeparadigm, have been capitalizing on the declining IV environment by selling ATM volatility and purchasing out-of-the-money wings. 7-day IV spiked at the start of the week, while the overall IV remains subdued due to the range-bound crypto markets.

The term structure continues to be in contango, exhibiting a smooth upward slope and consistent increase in IV as we move further out the curve. At the start of the week, short and medium-term IVs are slightly elevated, indicating the market's anticipation of potential volatility in the coming days. Additionally, the IV spread between BTC and ETH has narrowed.

During the first half of the month, the market displayed significant enthusiasm following Blackrock's announcement of the spot BTC ETF filings, leading to highly positive options skews for BTC. However, this excitement has subsided notably in recent times. The 7-day and 30-day skews, previously favored calls, have experienced significant declines and are now returning to a more neutral position.

Bullish flows dominated @tradeparadigm over the past week, with investors rolling out BTC positions that are further and initiating new upside positions. Top trades included bullish risk reversals, rollouts, and call purchases, such as 1025x Sep-23 $26K/$35K bullish risk reversals bought and 875x 4-Aug $30K Call bought. ETH flows were mixed, featuring upside buying and various calendar spreads, including 22K 29-Mar-24 $1.9K/$2.8K Call Spread bought, 12K 27-Oct-23 $2.2K / 29-Dec-23 $2.5K Call Calendar sold, and 10K 29-Dec-23 $2.5K Call bought.

Crypto Technical Analysis

During the weekend, the price of BTC remains stable, trading within the range set in the previous week. Currently, BTC is facing resistance at $29.5K, which had previously supported the previous month's trading range. However, given the bearish momentum indicated by the MACD and the gradually declining RSI, a breakdown could lead to support levels at the lower trendline, around $27.2K, implying a potential downside of 8%.

Like BTC, ETH has also experienced a flat weekend. Although it is trading in a range-bound manner, potential upside momentum for ETH could encounter resistance at the $1.9K and $2K levels, which have acted as significant barriers. However, the bearish momentum indicated by the MACD and RSI suggests that ETH might be more prone to retracing toward the $1.83K support level.

Access institutional-grade commentary on TradFi × Crypto markets

By Treehouse Research

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Treehouse Research 🌳

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