Recessionary Endgame. Markets have internalized the message from central bankers – the current rate of inflation cannot be tolerated and will not be tolerated. A recession isn’t the risk scenario any longer. It is the baseline necessity to tame inflation. A market fracture is a necessary casualty. For that reason, positive inflation surprises are not driving long-term inflation expectations higher. Market-based measures of medium-term inflation expectations, at 2.39%, are below cycle highs and on par with historical averages. Instead, the bond market is adamant that the Fed will have to do more tightening in the near term but will resume an easing bias after the onset of recession next year. Combined with the strengthening of the US dollar, these forces are culling weak links across markets, with the hyperactive digital ecosystem first in line. The maturity transformation and leverage in liquid staking is the latest victim, symbolic of challenges. Liquid staking tokens are fully reserved, dominated by ether deposited on the Beacon Chain. However, there is a resulting severe liquidity mismatch between liquid staking assets and liabilities, leaving it to trade like a closed-end fund. And as liquid staked eth moved to a significant discount of more than 5% over the weekend, it was a sign that asset owners, likely leveraged ones, needed liquidity from forced risk-reduction. It is not a failure of the protocol. It is not a signal on the future of the Merge. It is symbolic of the late stages of forced de-risking. Every bear market is punctuated with the brutal clearing of excess risk. This is one of them. The sharp rise in short-term US interest rates and the strengthening of the US dollar are the perfect storm. A weaker US dollar, catalyzed by visibility on the end of the Fed tightening cycle, is the most likely release valve for these bearish dynamics to end. As financial markets fracture and recession nears, so too does the endgame.