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In this week's edition, Lucas Tcheyan analyzes the fallout from the KelpDAO heist; Will Owens looks at the convergence of prediction markets and perps trading; and Alex Thorn shares takeaways from a U.S. Navy admiral’s comments on Bitcoin in Congressional testimony.
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Market Update
The total crypto market cap stands at $2.67tn, down 0.99% from last week (when it stood at $2.70tn). Bitcoin's network value is 4.76% of gold's market cap. Over the last seven days, BTC is up 3.49%, ETH is down 1.53%, and SOL is down 2.31%. Bitcoin dominance is 58.43%, up 127 basis points from last week.
Kelp Needs Help (and So Might DeFi) After $290m Hack
On Saturday April 18, an attacker exploited KelpDAO's LayerZero bridge to drain ~$290m in rsETH from the Ethereum mainnet escrow, the largest DeFi exploit of 2026. Galaxy published a full breakdown of the exploit mechanics, DeFi contagion, resolution scenarios, and broader implications on Tuesday. Since then, the situation has continued to evolve rapidly.
Within hours of the Arbitrum Security Council's Monday freeze of 30,766 ETH (~$71m), the attacker moved the remaining 75,700 ETH (~$175m) off Ethereum, split the funds across three wallets and converted it to bitcoin primarily via THORChain. By Wednesday, the conversion was complete and less than 1 ETH remains in the original exploiter address.
Five days after the event, the fallout is still playing out. The stress on the DeFi markets is real. Aave's TVL has fallen 45% from $26 billion to less than $14 billion. The rsETH markets remain frozen, and ETH, USD, and USDT markets (which collectively account for nearly $9 billion in assets) are essentially frozen with utilization at 100%, meaning there is no liquidity for withdrawals. Traders who employed looping, a strategy in which depositors repeatedly borrow against collateral to juice yields, are struggling to unwind and are at risk of defaulting on their loans due to higher loan-to-value ratios and compounding interest.
The table below offers a sense of the magnitude of the crisis, highlighting the various amounts of rsETH-collateralized debt that are vulnerable to liquidation at various depeg scenarios. In the most dramatic case, where the loss is socialized across the entire rsETH supply, Aave could end up in a situation where upwards of $1.2 billion in collateral could be open to liquidation. Note: these values include all other assets that collateralize loans alongside rsETH (e.g. in a loan collateralized by cbBTC and rsETH, the full collateral USD value is the sum of both collateral assets). However, rsETH is, by and large, used as a primary asset collateralizing individual loans. Moreover, the collateral values do not represent the actual amounts of liquidations, but rather the size of the positions that would need to be liquidated per Aave protocol rules to restore loan health factors. For reference, more than 98% of the loans with rsETH enabled as collateral have a collateral mix made up of more than 99% rsETH.
Aggressive leverage taken on by rsETH depositors is partially to blame for the excessive liquidation risk. Loans collateralized by rsETH have a weighted average LTV of 91.2%, a health factor of just 1.04, and a debt-to-equity (D/E) ratio of 10.975. The D/E ratio is how many dollars a user has borrowed for each dollar of their net equity (collateral value less borrow value), so a higher D/E ratio means users are more leveraged on borrowed funds. This suggests rsETH suppliers have, in aggregate, looped their collateral 32.9 times.
Our Take
April 2026 has made clear that DeFi's risks are not fully understood, even by the protocols closest to them. A single bridge configuration choice cascaded into a $15 billion liquidity crisis. As AI tooling makes attack discovery faster and cheaper, the attack surface is expanding quicker than defenses can keep up, and regaining institutional trust will require more than patching individual vulnerabilities.
The exploit also reveals a recurring tension at the heart of how these systems are designed: The desire for infrastructure that no single party can control against the expectation that someone will step in when it breaks. The Arbitrum Security Council's intervention recovered $71m, but it did so by exercising the kind of intervention authority that decentralization is supposed to eliminate. THORChain may have facilitated $175m in illicit laundering, but it did so by functioning exactly as permissionless infrastructure is designed to function. Arbitrum’s intervention may show the upside of a bad thing (centralization), while THORChain’s lack of intervention may show the downside of a good thing (decentralization).
The complexity of fully resolving the ongoing situation should not be underestimated. A comprehensive solution has yet to materialize, in part because it requires coordination across multiple actors with conflicting interests. One of Aave's proposed solutions would see all L2 rsETH lose its backing at the expense of mainnet holders. Arbitrum, which now holds nearly 25% of the exploited supply, requires a governance process to determine distribution. KelpDAO and LayerZero are likely working through questions of their own legal liability they might face from the initial hack and any future action they may take. The result is that crypto's largest DeFi market, Aave, remains paralyzed while uncertainty compounds.
Ultimately, however, Aave's survival is in the interest of all of DeFi and Ethereum more broadly. In the coming days it would not be surprising to see affected parties come together to get the market clearing again. On Thursday afternoon the inklings of momentum started to appear, with Lido, Etherfi, and Ethena all offering to donate funds to begin reducing the rsETH backing deficit. The path to resolution is taking shape, but how long it will take to implement remains unclear. – Lucas Tcheyan
Everyone Will Trade Everything, Everywhere, All at Once
Rival prediction markets Kalshi and Polymarket are both planning to launch perpetual futures trading. Tech news site The Information reported on April 21, citing unnamed sources, that Kalshi plans to offer crypto perps in the U.S., entering direct competition with centralized exchanges like Coinbase and decentralized exchanges like Hyperliquid. Polymarket quickly followed with an official announcement on X, posting a teaser video showing positions on crypto, U.S. equities like NVDA, and commodities like gold and silver at up to 10x leverage, and opened an early-access waitlist.
Pushing into perps has become a popular theme in finance. Coinbase launched “perpetual-style futures” with five-year expiration dates last year, and recently Kraken announced its acquisition of Bitnomial, a U.S. crypto derivatives platform, for up to $550 million, a deal that could position it to offer true perpetuals domestically. CFTC Chairman Michael Selig said last month the agency plans to allow perps in the U.S. soon, specifically to attract trading volume back from offshore platforms.
Hyperliquid is the dominant decentralized perps exchange and processed nearly $500 billion in derivatives volume in Q1. It Is moving in on the prediction platforms’ turf. Its HIP-4 proposal (announced Feb. 2 and previously covered by Galaxy Research) introduces outcome contracts: binary instruments that trade between 0 and 1 and settle based on whether an event occurs. HIP-4 has been live on testnet, with a two-phase mainnet rollout planned. The first phase will allow curated markets, and then permissionless builder deployment will follow. No mainnet date has been confirmed, thought Polymarket’s own prediction market on the question prices it to launch by September at 100% (though the market has paltry volume).
Coinbase, Crypto.com, and Gemini have all enabled prediction markets trading. Robinhood added prediction markets last year. Nasdaq and Cboe have said they’re exploring binary bets on market direction. The silos that once defined these product categories are dissolving fast.
Our Take
The prediction market and derivatives industries are converging into one product category: trade everything, all the time, from one account. The more products they can offer, the more likely they are to retain traders, who might otherwise move from platform to platform depending on the instrument. This convergence is not surprising and it’s a strategy both onchain and offchain exchanges are pursuing aggressively. Coinbase aspires to be the “Everything Exchange,” while Robinhood is racing to become the “financial superapp.” Elon Musk is also positioning X as a superapp, stating in July 2023 that the social network would add “comprehensive communications and the ability to conduct your entire financial world.”
It’s worth noting too that regulators are aware of the trend. SEC Chairman Paul Atkins has endorsed superapps, primarily by altering regulations to streamline the process for registered intermediaries to offer instruments across asset classes. In July 2025, Atkins said “a key priority of my chairmanship is to allow market participants to innovate with superapps.”
Hyperliquid has a structural edge in terms of capital efficiency. Under HIP-4, outcome contracts live in the same margin system as perpetual futures. A trader can open a prediction markets position and a perp hedge in the same account, with both positions automatically offsetting. It’s unclear what architecture Polymarket and Kalshi will use, and whether collateral will be siloed, although most likely traders will also be able to use it across the different instruments. Unless the prediction platforms integrate with existing perps infrastructure (Hyperliquid’s builder codes being the obvious path), they’ll be building their own execution engines from scratch, competing against a platform that already does over $40 billion in weekly volume. Read more about Hyperliquid’s founder Jeff Yan here.
All these platforms are betting that the TAM expands dramatically once you stop drawing lines between prediction markets, derivatives, and equities. The risk is that regulators don’t see it the same way. The CFTC has been generally encouraging, with the commissioner publicly stating last month that a regulatory path forward for perps in the U.S. is coming in “weeks,” but we have yet to see any official agency guidance. The CFTC will be able to affect the change for perps without other agencies, but the turf war between the federal agency and state gambling authorities over who regulates prediction markets is ongoing without a clear end date in sight.
This is the same hyper-financialization trend we wrote about in our social trading report and last week’s piece on X turning the timeline into a trading terminal.
The walls between prediction markets, perps, equities, and social trading existed because of technology constraints and regulatory boundaries, not because users wanted them. As both constraints loosen, the destination is clear: one app, every instrument, one margin account. The platforms that get there first will win. –Will Owens
The U.S. Navy Is Running a Bitcoin Node
A U.S. Navy admiral told Congress that “Bitcoin is a powerful computer science tool for power projection” and that U.S. military runs its own bitcoin node. Speaking Tuesday before the Senate Armed Services Committee and in response to a question from Sen. Tommy Tuberville (R-AL), Admiral Samuel J. Paparo Jr. described bitcoin as a “peer-to-peer, zero-trust transfer of value,” said “Bitcoin shows incredible potential,” and characterized Bitcoin as an “instrument of national power for the United States of America.”
In testimony Wednesday before the House Armed Services Committee, Paparo disclosed that the U.S. military is “in experimentation… we have a node on the Bitcoin network right now.” He clarified that the military is “not mining Bitcoin.” Rather, “we’re using it to monitor, and we’re doing a number of operational tests to secure and protect networks using the Bitcoin protocol.”
Paparo commands INDOPACOM, the oldest and largest U.S. combatant command, which includes 380,000 soldiers, sailors, Marines, airmen, DoD civilians, and other personnel and is responsible for U.S. military activities across 36 nations, 14 time zones, and 60% of the world’s population. China is the priority in the region, with North Korea, Russia, and the Taiwan Strait as overlapping concerns. A naval aviator by training, Paparo is a TOPGUN graduate with 6,000+ flight hours and 1,100+ carrier landings, served in Afghanistan, and has previously overseen air wings, strike groups, and the Navy’s 5th Fleet.
Despite the fact that Tuberville framed his question as one of monetary competition with China, Paparo steered away from reserve-asset framing and toward protocol-level utility. Paparo’s framing was no doubt inspired by the work of Jason Lowery, an active-duty Major in the U.S. Space Force, who previously was a U.S. National Defense Fellow at MIT, where he was tasked with advising senior U.S. military leaders on the national strategic implications of Bitcoin. As part of his MIT studies, Lowery published a thesis called Softwar that argued Bitcoin could be utilized to project power in cyberspace. Lowery joined Admiral Paparo at INDOPACOM as Special Assistant to the Commander in August 2025.
Our Take
Admiral Paparo is one of the most decorated and important active-duty members of the U.S. military, and he is now the most senior non-elected, non-political figure in the U.S. government to express public positive support for Bitcoin.
But his framing is also materially different than most other executive branch commentary to date: Paparo frames Bitcoin as cryptographic infrastructure that supports power projection, not as a reserve asset or investment instrument.
That the U.S. military is running a Bitcoin node is not consequential for the network (and it’s quite easy to do with even cheap home computers), but the symbolic weight is substantial. To see this positive framing come from such a senior military official should fairly be considered a key moment in Bitcoin’s history of adoption. – Alex Thorn
Other News
🧊Tether freezes $344m of USDT on Tron network in largest compliance freeze to date
Ⓜ️MegaETH token generation event set for April 30
🍌Tron’s Justin Sun sues Trump family’s World Liberty Financial
🔬Core Scientific preps $3.3b bond sale to fund pivot to AI
🚗DoorDash to offer stablecoin payments to drivers using Tempo
🙄Kraken filed 56m client tax forms for 2025. One-third were below $1
Charts of the Week: Saylor Nips at Satoshi’s Heels
Michael Saylor’s Strategy (MSTR) acsquired 34,164 BTC (~$2.6bn) this week, pushing its total holdings to 815,061 BTC (~$63.5bn). This week’s buy pushed the company’s holdings above those of the iShares Bitcoin Trust (IBIT), BlackRock’s spot Bitcoin ETF, the world’s largest spot bitcoin fund. At 815,061 BTC, MSTR holds 8,017 more BTC than IBIT, which has 807,043 BTC.
Both vehicles are on their way to overtaking a major milestone: Satoshi Nakamoto’s suspected hoard of 1.096m BTC. Sergio Lerner first identified and published analysis about a pattern in bitcoin’s blockchain data in 2013 that has been widely accepted to have correctly identified blocks likely mined by Satoshi. His 2019 follow-up post identified three privacy flaws in Bitcoin’s v.01 Satoshi client that enable the pattern to be reconstructed: ExtraNonce not being reset between mined blocks, an ExtraNonce rate faster than “Patoshi’s” solved-block count, and ExtraNonce increments tied to receipt of external blocks. Lerner argues that the pattern cannot be explained as an early mining pool or synchronized multi-party operation. He published the data on SatoshiBlocks.info.
Using this pattern, we calculate that Satoshi possesses 1.096m BTC. Satoshi’s last mined block was block 49,973 on April 10, 2010. In total, Satoshi’s ~1.1m BTC are held across 21,953 addresses (Satoshi used a fresh address for every coinbase reward). In total, addresses in the Patoshi Pattern spent 1,457 BTC across 41 outbound transactions, with the first spend famously being a 10 BTC send on Jan. 12, 2009, to legendary cryptographer Hal Finney.
To exceed Satoshi’s likely holdings, Strategy would need to acquire another ~281k BTC. If Saylor keeps up his 2026 YTD pace (+142k BTC in 111 days), Strategy’s holdings will surpass Satoshi’s in November 2026 (~7 months). If we annualize its accumulation pace since August 2020 initiation, Strategy will surpass Satoshi in April 2028 (~24 months). – Alex Thorn
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