Fixed rates for stablecoins on Term declined -100bps on the week to 11% fixed for a four-week term. This decline is much more muted than the sharp decline seen in perp funding rates, down -20%, given the steep selloff in BTC and ETH over the past week. In a surprise move, Maker DAO partially reversed course on their Accelerated Proposal on March 8  that raised rates by nearly +10%. Via an Executive Vote earlier this week, Maker announced that they would be cutting stability fees (borrow rates) by -200bps on all Maker vaults (and Spark), likely in response to this week’s sharp and sudden decline in funding rates.  With such volatile rates in DeFi, Maker governance is tasked with the unenvious job of trying to see into the future. Its precisely in times like these where Term’s market based approach of setting rates via auctions really shines.

‍

‍

Variable Rate Markets

‍

‍

Basis and Perpetuals Markets

Futures and perps basis implied funding rates continue rise on a 30-day trailing basis but at a muted clip, +2.07 and +0.11% for 3mo basis and perpetual funding, respectively. Spot perp funding rates are down sharply from a 30%-60% range the week prior to a significantly lower range of 10-25% this past week.

‍

‍

This abrupt and sharp drop in DeFi funding rates saw rates between DeFi and derivatives markets converge (though not in the expected direction).

‍

USDC Markets

In the variable rate DeFi markets, USDC rates continue to increase, rising +89bps from  12.11% to 13.00% on a 30-day trailing basis, albeit at a slower pace.  

‍

‍

Consistent with markets that are slowing down, intraday volatility in stablecoin borrow rates declined significantly over the past week.

‍

‍

For cues on how DeFi funding rates will move, keep an eye on the overall spot ETH market. Correlations are running high.

ETH Markets

Turning to ETH lending markets, rates on Aave V3 close the week down -7bps on the week. ETH borrow rates closed at 2.55% on a 30-day trailing basis, roughly consistent with CESR staking rates, which fell -2bp on the week.

‍

‍

Market internals show that ETH utilization continues to fall, though this dynamic seems to be bottoming out.  

‍

‍

Overall, ETH lending markets remain relatively stable and are likely to continue to remain so in the near and medium term.

‍

Looking forward

It is hard to say how long the recent market correction will last but if it is anything like the dip in late January this respite may be very short lived. One thing is for certain, given the rollercoaster rates seen over the past couple of months it may be worth locking in rates whether you’re a borrower or a lender for some peace of mind.

‍

‍

This communication is strictly confidential and is intended exclusively for the use of the person to whom it was delivered by Terminal 0, Ltd. ("Term"). It may not be reproduced or re-transmitted in whole or in part without authorization. The contents of this communication and any attachments are solely for information purposes and are for your internal use only. Nothing contained herein constitutes an offer, solicitation, or recommendation to sell, or an offer to buy any securities, investment products, or investment advisory services.

This document may contain forward-looking statements and projections that are based on Term's current beliefs and assumptions and on information currently available that Term believes to be reasonable. However, such statements necessarily involve risks, uncertainties, and assumptions, and recipients may not put undue reliance on any of these statements.

Although the information provided herein has been obtained from sources which Term believes to be reliable, Term does not guarantee its accuracy, and such information may be incomplete or condensed. The information is subject to change without notice. Since Term furnishes all information as part of a general information service and without regard to a recipient's particular circumstances, Term shall not be liable for any damages arising out of any inaccuracy in the information.

The information in this presentation is not intended to provide, and should not be relied upon for, accounting, legal, or tax advice, or investment recommendations. Each recipient should consult their own tax, legal, accounting, financial, or other advisors.

The front-end interface for the Term Protocol located at term.finance is not available to U.S. persons as well as persons located in certain other jurisdictions. Please see the Terms of Use.