Fixed rates on Term ticked up slightly week over week, with the standard USDC/wstETH loan rising the most to converge towards the high-LTV variant. Overall demand to borrow USDC against wBTC continues to rise, crowding out demand to borrow against wstETH.  Consistent with the variable rate lending protocols, the action on Term has been centered around stablecoin lending. Given the current market environment it would not be surprising to see fixed rates on USDC enter the double-digits on Term.

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Variable Rate Markets

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Basis and Perpetuals Markets

Futures and perps basis implied funding rates continue to accelerate to the upside this week, rising +2.78% and +5.77% on a 30-day trailing basis for 3mo basis and perpetual funding, respectively. Zeroing in on spot rates, however, shows that spot rates are off from last week’s peak of 48.24% to close the week at a still elevated 33.01%.

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USDC Markets

In the variable rate DeFi markets, USDC rates continue to accelerate at a brisk pace in line with derivatives funding markets, rising +153bps from  9.34% to 10.86% on a 30-day trailing basis.  Aave USDC borrow rates close the week through cycle highs.

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Consistent with this dynamic of rapidly rising borrow rates, intraday volatility shows no sign of dampening over the past seven days.  To the contrary, intraday volatility increased suggesting that the market is far from finding an equilibrium.

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With DeFi rates lagging basis and perp rates, expect a continued grind up in the near future.

ETH Markets

Turning to ETH lending markets, rates on Aave V3 close the week relatively unchanged from the week prior. ETH borrow rates rose just +3bps over the past week to close at 2.63% on a 30-day trailing basis. Stabilization of ETH borrow rates is consistent with CESR staking rates up just +5bps on the week.

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Focusing on the 30-day moving average above obfuscates short term trends on Aave towards lower ETH rates, with borrow rates declining -15bps on the week.

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These lower rates are consistent with a continued decline in ETH borrow utilization on Aave as seen in the chart above.

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Looking forward

DeFi funding markets clearly exhibit a shortage of stablecoin supply in the current environment. With BTC and ETH testing all-time highs with short-lived pullbacks, it seems that this could persist for some time. Even if perp funding markets taper from recent extremes, given the lag that DeFi rates historically exhibit it would be not surprising to see DeFi rates continue to grind higher in the medium term.

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