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Treehouse Daily14 Apr 2023

Market Rejoices Over Further Indication Of Falling Inflation; Outdated Smart Contracts The Cause Of Yearn Finance Exploit

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BTC

ETH

S&P Futures 500

$30,773.50

$2,098.00

$4,174.00

(+2.47%)

 (+9.74%)

(+1.39%)

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

  • March PPI shows the first sign of easing inflation (more in Macro & TradFi)
  • Rook Labs to buyout governing rights of its token holders with its $25M treasury; Yearn Finance suffers flashloan attack due to its misconfigured yUSDT (more in DeFi & CeFi)
  • The on-chain metric of Ethereum indicates potential profit taking among traders (more in On-Chain)
  • ETH near-term IV bids higher as price rallies; Large bullish ETH positions opened (more in Crypto Derivatives)
  • Both BTC and ETH broke all previous technical indicators with no near term resistance in sight (more in Crypto Technical Analysis)

Macro & TradFi

The FBI has arrested Jack Douglas Teixeira, a member of the Massachusetts Air National Guard, for allegedly leaking classified intelligence documents. The Pentagon collaborated with the FBI in the investigation, which focused on the unauthorized removal, retention, and transmission of national defense information. The leaked documents reportedly revealed US surveillance activities against adversaries and allies, raising concerns about potential damage to Ukraine's efforts to counter Russian aggression.

In March, the Bureau of Labor Statistics released the latest Producer Price Index (PPI), showing wholesale-level inflation in the US continued to decrease. Annualized price increases dropped to 2.7%, the lowest level since January 2021, from a revised figure of 4.9%. Although economists had anticipated a 3% increase in annual inflation as measured by the PPI for the 12 months ending in March, the report indicated that inflation was cooling down, which could result in lower prices for consumer goods in the coming months.

The news of falling inflation had a positive impact on major US indices. The S&P 500, DJIA, and NASDAQ all experienced significant gains of 1.32%, 1.13%, and 1.98%, respectively. However, the 2-year and 10-year Treasury yields remained largely unchanged, with the former standing at 3.970% and the latter at 3.444% at the time of writing.

DeFi & CeFi

  • The SEC formally issues an electronic subpoena to Justin Sun
  • DEX Uniswap launches its mobile wallet, live on App store in several countries
  • Solana Saga smartphone to go on public sale on May 8 at $1,000
  • EOS Network raises $60M in funding from DWF Labs
  • Yearn suffers flashloan attack, losing over $10M due to its $yUSDT
  • Layer 1 blockchain Aleo to announce new incentive program on April 17
  • Vela Exchange ends its beta version early due to $VLP price issue
  • New privacy-focused Layer 1 blockchain Namada proposes a direct airdrop of its native token to Zcash holders
  • Ethereum unstaking requests pile up, with validators looking at a wait time of 14 days
  • $ROOK holders are starting to swap their $ROOK tokens for the $25M treasury of the DAO

Rook Labs, the company behind Rook's MEV technology, have acquired the governing rights for approximately 60% of the treasury by buying out token holders. Within the next 90 days, ROOK token holders can redeem their tokens for USDC, but in doing so, they will forfeit their theoretical rights to Rook's intellectual property and future profits. Incubator DAO, which is run by activist investors that previously called for Rook Labs to return value to token holders, will manage the liquidation process for the treasury. Token holders who redeem their tokens through the smart contract will receive a pro rata share of USDC and a pROOK token, and any remaining USDC at the end of the 90-day period will be distributed among pROOK token holders.

Elsewhere, a bug behind yUSDT tokens issued by DeFi protocol Yearn Finance caused an exploit resulting in losses of over $10 million, according to security firm PeckShield. The losses spread across several stablecoins, including DAI, USDT, USDC, BUSD, and TUSD. Although Aave version 1 was initially believed to have been impacted by the exploit, Aave developers have clarified that the protocol was not affected and was only used to swap tokens to conduct the exploit, which primarily involved Yearn Finance's yUSDT stablecoin. PeckShield explained that the root cause of the exploit was a misconfigured yUSDT token, which was unrelated to Aave. Since Aave version 1 had been frozen since December 2022, its impact was limited, and versions 2 and 3 were not affected. The Yearn Finance team is currently investigating the incident and has stated that Yearn V2 vaults were not impacted.

On-Chain

$FTT surged by 53.0% to reach $2.02 following news that FTX may restart its cryptocurrency exchange. During a U.S. bankruptcy court hearing on Wednesday, a bankruptcy lawyer representing FTX reported that the company had successfully retrieved over $7.3 billion worth of cash and liquid crypto assets, as reported by @Reuters. This news led to an increase in on-chain activity, with 879 new addresses created in the past two days, the highest increase since the exchange's collapse (@Santiment).

In other news, Ethereum's price has officially crossed $2k for the first time in 8 months, following the successful completion of the Shanghai Upgrade. The market-value-to-realized-value (MVRV) metric, which indicates a potential profit taking, suggests that traders may be willing to sell. The 30-day MVRV of ETH is currently at 9.95%, and a value above 15% indicates a probable sign of a correction, according to @Santiment. On a longer time frame, the 365-day MVRV is +29%, the highest it has been since 27 December 2021, suggesting that traders are currently holding heavy profits and may not be adding new positions.

Crypto Derivatives

  • BTC and ETH funding rates remain positive
  • 30-day ATM IVs for BTC and ETH rose to 52.90% and 60.81% respectively
  • 30-day 25 delta call skew for BTC and ETH tightens to 3.42% and 2.45% respectively

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

Net Annualized APR

Perp (USDT pair)

Long on

Short On

25.07%

ETH

OKX

DYDX

12.50%

BNB

OKX

BYBIT

11.50%

DOGE

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

The futures market experienced $82.5M in liquidations over the past 24 hours, with long shorts accounting for the majority at $66.8M.

In the options market, IV across the curve for ETH rose as traders piled into bullish trades. The ETH term structure turned into steep backwardation as near-term IV hit 80%. Calls continued to dominate the volume, with the put-call volume ratio hovering around 0.35. Despite the IV spike, the risk premium for ETH fell to 20.29% as RV rose even more. The 7-day RV increased from 36.08% to 44.75% as ETH rallied.

On the flow side, sentiment for the end of the week on April 14th was bullish for both BTC and ETH. For BTC, bulls continued to look towards the end of the month on April 28th. If the April 14th contract expires at the current price of $30.8K, the bulls would profit around $350M over the bears, as reported by (@cointelegraph). After the Shapella upgrade, institutional players are bullish on ETH in the short to mid-term with large bullish trades.

Noteworthy ETH trades:

  • Buying of 31K contracts of 26 May 2.4K/2.7K call spread
  • Profit-taking with the closing of 10K contracts of 28 Apr 2.2K calls
  • 6.5K contracts of 21 Apr 2.2K calls being bought

Noteworthy BTC trades:

  • Buying of 1K contracts of 28 Apr 34K/36K call spread
  • Profit-taking with closing of 500 contracts of 30 Jun 29K calls (@tradeparadigm)

Finally, the VIX fell to 17.8.

Crypto Technical Analysis

On the TA front, BTC has broken through all previous resistance levels, including the key psychological level of $30K. Following this bullish momentum, the next resistance is at the 1D timeframe, around $31K, a level we haven't seen since last May. This now serves as the key resistance zone, and $31K also intersects with the upper trendline formed by the local higher highs. However, the relative strength index (RSI) has gone into the overbought zone even at the 1D timeframe, currently sitting at 72.3 and 77.4, respectively, for 1D and 4H.

Turning to ETH, the narrative is largely the same as BTC. The price movements in the last few days have broken all resistance levels indicated by technical indicators. Going forward, there are no clear resistances in sight until around the $2.5K level, which would represent another 18% potential upside from the current level. RSI is also at an extremely high level, currently at 75.4 and 85.3 for 1D and 4H, respectively.

Access institutional-grade commentary on TradFi × Crypto markets

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