Migration to Derive V3 happens today. A few weeks ago, we covered what V3 does in detail in our newsletter at @castle_labs. In short: V3 is the next step to scale further and onboard more “sophisticated users and institutions” to Derive. What's new in V3? - Improved volume throughput - Faster development of products and features - Better wallet support for MPCs and multisigs - Easier integrations for builders, including custom bridge infrastructure - Path to e2e privacy - Risk isolation for RWA markets - Cross-currency margin V3 introduces a zero-knowledge component (ZK). As in v2, order matching happens offchain. However, the fills are handed to a sequencer whose every state transition (margin, risk, settlement) is executed inside a zkVM and verified on L1. Trades settle inside the zkVM, and only their proof is verified on Ethereum (allowing confirmation of multiple trade batches with a flat gas fee). Users’ funds are kept in escrow in L1 contracts and require a proof-committed withdrawal to redeem. Derive v3 uses Celestia for data availability, meaning processed states can be rebuilt and used to prove a batch. If the designated sequencer fails to process a withdrawal for a minimum pre-defined time period (initially set to two weeks), submissions can reopen, and anyone can take over settlement and withdrawals (even without Derive). Eventually, their goal is to reach L2beat stage 1 classification. 3 main roles are envisioned in Derive v3: - Sequencer: ordering in batches, submitting proofs and withdrawal outputs from the zkVM - Guardian: can refresh withdrawal throttles to speed up processing, or trigger a one-way block on withdrawals (only the Owner can unpause). - Owner: can update the state root, setVKey, update proxies and unpause withdrawals. At launch, it's a Derive subsidiary multisig with a timelock. As onchain options grow, we are incredibly excited for Derive v3, and we believe the additional features and role of ZK will help it scale further and become more appealing to institutional investors.

RWAs have now reached $39b in tokenised value. YTD, RWAs have grown at ~50x the velocity of stablecoins. However, over the same period, active DeFi RWA TVL fell from 12.5% of net RWA value to 10.9%. We need to match issuance pace with composability.

One problem that is being actively solved across the fixed-rate lending stack is the cold-start problem. You can now keep earning yield on your orders through a variable-rate pool and only commit capital once your order executes in the fixed-rate market. This removes the question of capital being "unproductive" while it is a resting order.

The ones with the most negative revenue correlation with other categories are RWAs, Prediction Markets, and Physical TCG. A new revenue class in crypto is forming irrespective of how others perform.