Surviving a sideways market

May 27, 2023 Stan

“I believe China (and Asia in general) will fuel the next run,” – GCR, legendary Crypto trader.

Hong Kong legalizing crypto trading can accelerate the prophecy.

Here’s what we’ve got today:

Fight between jurisdictions. Hong Kong legalized crypto trading for retail.
Survival Guide for Sideways Market. My tips for current market conditions.
Tornado Cash DAO is under attack. Attacker gains control via a governance attack.
Spotlight on 0xSami. I interviewed 0xSami from Redacted Cartel.
Around the Web. Alchemix considers Arbitrum deployment, Dopex introduces a new service, and more.

Here’s your Edge 🗡️!

📉 THE MARKETS

“Movements have narratives. They tell stories, because they are not just about rearranging economics and politics. They also rearrange meaning. And they’re not just about redistributing the goods. They’re about figuring out what is good.” – Marshall Ganz

Hong Kong Legalizes Retail Crypto Trading

Starting June 1st, retail crypto trading will be fully legal in Hong Kong. The Hong Kong Securities & Futures Commission (aka their version of the SEC) will start accepting applications from crypto trading platforms.

So far, they’ve received over 150+ submissions for licensing.

Previously, retail trading of crypto was banned in Hong Kong. But the flight of crypto startups to competing jurisdictions seemed to have pushed HK in this direction.

This doesn’t mean all the coins can be traded on regulated exchanges. There are some restrictions designed to protect consumers:

Platforms should conduct due diligence before listing.
Being included in two acceptable indices is just the minimum criterion for being listed for trading.
Crypto “gifts” designed to incentivize investments, which likely include airdrops, are banned.

Why does this matter? The US is known as the land of innovation. However, in the case of crypto, innovation is being stifled. From Elizabeth Warren’s Anti-Crypto Army to Operation Chokepoint 2.0, crypto’s regulatory environment is becoming extremely hostile. And therefore, crypto companies are leaving the US.

And other jurisdictions are capitalizing on this, such as Dubai, El Salvador, and now Hong Kong.

Also, there are thoughts that future capital inflows / liquidity will come from Asia. Having a Crypto friendly jurisdiction in Asia will help facilitate that.

One tool that has made a huge splash recently is Arkham Intelligence. It has become one of my go-to tools in the past few months.

Despite all blockchain transactions being part of public records, few people can effectively track whales. The existing tools are not easy for average users to use. This is where Arkham Intelligence comes in.

Arkham Intelligence enables users to track whales beyond their surface-level activities. It provides several tools to comprehensively track the activities of whales and give access to both on-chain and off-chain data.

Don’t just assume someone is a good trader cuz their wallet has a lot of money. Using Arkham, you can actually check if they’re profitable.

Here’s a list of features we believe make Arkham unique:

Entity page: You will get a comprehensive understanding of the activities of any entity or address.
Visualizer: The cryptic transaction details are converted to easily understandable network maps.
Dashboards: You can create and share personalized dashboards that capture dynamics important to you.
Filtering: Focus only on information that matters to you by efficiently filtering and sorting transactions throughout the platform.
Alerts: Custom alerts to proactively monitor situations. These alerts can be created for both on-chain and off-chain activities.
Explorer: Delve into specific transaction details, making exploration analysis-efficient.

The true power of Arkham can only be understood once you actually use it. It’s in closed beta now, and it’s free.

I have a link you can use to “skip the line.” This post is not sponsored.

Survival Guide for Sideways Market

For the past few months, crypto prices have fluctuated within a narrow range. Many people are frustrated with these seemingly unpredictable movements.

This is because we are in a sideways, choppy market. And if you’re not careful, you can get eaten up before the bull market’s here.

What is a Sideways, Choppy Market?

It’s a phase in the market. It is characterized by little or no clear direction in price movement. Prices tend to oscillate within a relatively tight range, making it difficult to identify trends or take advantage of significant price swings.

There’s not a lot of liquidity in the market. And the only players left are the sophisticated players.

So what I see happening is people trying to force moves that aren’t there. And if they’re not careful, they end up losing money before the real fun begins (the bull market).

Here’s my strategy for the sideways market:

#1 Survival is Key

The most important thing is survival. Don’t be greedy, and chase after quick gains now. I’ve seen plenty of people trying to trade this market only to lose everything. Remember, patience is your ally. Preserving your trading capital means you’ll have funds available when the next bull market arrives.

So, focus on capital preservation and avoid taking unnecessary risks. This means being more in stablecoins / cash than high risk plays.

#2 Build Your Income

Bear markets are for builders. But the building isn’t limited to coding DeFi protocols. You can just focus on building your skill sets. There are several high-value skills that you can pick up in 4-6 months.

Writing
Video Editing
Programming
Digital Marketing

Making life-changing money by trading with a $1000 portfolio is extremely difficult. So, focus on finding ways to increase your income.

#3 Level Up Your Knowledge and Network

Now’s the time to level up your fundamentals. Understand the difference between Optimistic vs. ZK rollups. Start refining your strategies on how you trade and take profits.

You don’t want to play “catch up” once the bull market’s here.

This is also a great time to build your network. Everyone’s bored, so they’re more likely to engage in convos. Build your squad now.

#4 Dollar-Cost Averaging (DCA) into Solid Projects

Sideways markets are perfect for accumulating solid projects at massive discounts.

Gradually accumulate these cryptocurrencies over time, regardless of short-term price movements. DCA allows you to mitigate the impact of market volatility and build a position in quality assets.

However, it’s essential to keep some dry powder for emerging narratives and new investment opportunities that may arise. In bull markets, people are biased toward newer projects.

It looks like we might be moving sideways, at least until 2024. While others might squander their money by trading in this choppy market, you can make this an opportunity for growth.

Right now, I’m just positioning myself for a possible bullrun in 2024/2025.

And as always, none of this is financial advice. Just a random guy sharing his opinions.

Tornado Under Governance Attack

TornadoCash DAO was hijacked via a governance attack.

What is TornadoCash? It is a protocol that helps people keep their funds from being tracked on the blockchain. It does this by acting as a “mixer.” You can send $ETH (or other ERC-20s) to Tornado. It’ll mix your funds with others.

You can then withdraw your funds to a new address, and they won’t be traced back to your previous address. Interestingly, TornadoCash was blacklisted by the US government in August 2022.

What happened? A DAO manages Tornado Cash with the token $TORN. They created a legit-looking proposal contract that included a deceptive code. After the proposal contract was passed, they used the malicious code to deploy a new contract on the same proposal contract.

The new contract gave the attacker 1.2M new votes, outweighing the ~700k existing votes. That governance gave them control over 483,000 TORN. The attacker withdrew 10,000 TORN and sold it all. They also traded 379,000 TORN in exchange for $680,000 worth of Ether.

The attacker won’t be able to do anything drastic immediately.

Their governance has a 7-day implementation period.
Tornado’s smart contracts are immutable across all blockchains except the Gnosis chain. So the attacker cannot drain funds from pools.

However, there are some risks:

The attacker can modify protocol configurations such as IPFS content hash and Tornado Router.
The attacker can drain around$1 a million in Gnosis chain pools. It’ll take 7 days to get fully implemented. If you have funds there, you should withdraw.

On May 22, the attacker made an unexpected proposal. It will revert the attack and restore the previous governance state. However, the sold tokens cannot be retrieved. Even if it seems like the proposal will pass, the voting will be completed by tomorrow only.

The pessimists caution that proposal might be another way for the attacker to pump the prices so that he can sell TORN.

In the best case scenario, control will be restored to the DAO. The only loss would be a depleted treasury.

We’ll have to wait to see how this story unfolds.

🎙️ My Interview /w 0xSami from Redacted Cartel

I interviewed 0xSami, the founder of Redacted Cartel.

Here are two insights from him. (Disclaimer: The quotes are not verbatim.)

Can zk-EVMs overtake optimistic rollups?

“While zk-EVMs might be a more decentralized solution in the future, or they might just be a better solution for users. Optimistic rollups have the advantage right now in terms of user adoption and infrastructure dApps available.

And there’s no real reason, even for us as a protocol, to go to zkSync. Or go to another immature ecosystem when you have such mature ecosystems built on these other alternatives when both of them are centralized.

There is no real user benefit to using zkSync over Arbitrum because both of them depend on sequences and zero proofs and stuff like that.

It’s not that I’m bearish on zk-EVMs. I just don’t see how they can catch the attention right now when the optimistic roll ups have had such a head start.”

What area of DeFi are you the most excited about now?

“I’m feeling really confident about the comparison between the Ethereum staking rate and US interest rate.

As an industry, this has been like one particular vertical, that has never been cracked, that is so critical to the traditional economy. This was one Lego that power the whole traditional finance world that we were lacking, that we were still dependent on.

A lot of flows that exist in DeFi were dependent on what the interest rate is in the real world. We now have Ethereum staking rate. A lot of projects, including us, can build on top of it.”

You can listen to the rest of the highlights in this thread below.

🚀 DeFi Catalysts

Lido DAO is discussing introducing a $LDO staking module and buyback program. This proposal will increase the utility and value-accrual of $LDO.

BitDAO is going to merge with Mantle Network. Mantle will be the unified ecosystem brand with a product focus. $BIT will be converted to Mantle’s tokens.

Alchemix, a self-repaying loan protocol, is voting on Arbitrum deployment. This seems to be the beginning of Alechemix’s expansion to Layer 2s.

Dopex introduces a new service: Call options as incentives. This was available in TradFi, which Dopex is bringing to DeFi.

GMX v2 testnet is now publicly available. It has many improvements, such as low-latency oracles.

Balancer shipped concentrated liquidity. It was built by Gyroscope protocol in collaboration with Lido Finance.

dYdX is discussing the creation of more subDAOs ahead of its v4 upgrade. These are aimed at making the management of the ecosystem more decentralized.

Tokemak announced V2. They introduced dynamic Liquidity Management Pools (LMPs). Tokemak v2 will be subject to a sequenced release.

Gains Network introduced v6.3.2. Changes include overhauling the fee structure, removing funding fees, introducing borrowing fees, and lowering rollover fees.

TraderJoe is sunsetting the veJOE tokens. It will not be adapted for the Liquidity book. This is part of the transition to an emissionless operation.

🌎 What’s Happening?

📰 Industry News

Swaprum DEX team siphoned around $3 million in a rug pull. Merlin rug pull was a similar scam. Interestingly, both protocols were audited by Certik.

FTX 2.0 might be on its way. The new FTX CEO, John Ray, had hinted at a potential reboot. His recent billing report suggests that there is work underway.

Aave V2 had a bug in its Polygon deployment. Protocol was temporarily halted, and assets worth ~$110 million were impacted. The fix is already in governance.

ChainLink onboarded Coinbase Cloud as a node operator. This is expected to add capacity and security to the oracle network.

Tether is set to purchase Bitcoin on a regular basis from its profits. Up to 15% of its profits could be devoted to this. They are moving away from US government debt and towards Crypto.

Bancor DAO is targeted in a class-action lawsuit over impermanent loss protection promises. The DAO, BProtocol Foundation, and the founders are the defendants.

MakerDAO votes on forcing their delegates to hide their identities and whereabouts. There will be a “whistleblower bounty” for those who provide evidence that a delegate’s identity is made public.

Metamask supported staking and withdrawing $ETH through Lido or RocketPool. This can affect staking metrics since Metamask has a massive distribution.

Voyager Digital liquidation can start as early as this Friday. Customers are expected to initially recover almost 36% of their claims.

Pakistan announced a fresh ban on Crypto. The Financial Action Task Force (FATF) had set the ban as a condition for excluding Pakistan from the “Grey List.”

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🧠 Twitter Alpha

Offchain Labs

@OffchainLabs

In light of last week’s #Ethereum Mainnet Finality issues, our engineers put together a post-mortem analysis outlining the incident, what went wrong, where we got lucky, the fixes, & the lessons learned.

Read more 👉 offchain.medium.com/post-mortem-re… twitter.com/i/web/status/1…