Fixed rates for stablecoins on Term bounced +100bps on the week back to 12% fixed for a four-week term.  For the time being, DeFi lending markets appear to be finding a short-term equilibrium. This price action is consistent with spot ETH and BTC markets that appear to be taking breather near all time highs. Expect rates to rise again when BTC takes its next leg up but until then this two-way action in DeFi lending is good for the markets. Next week, look for Term to be introducing a new auction incentive program in collaboration with the Lido Liquidity Observatory Lab to boost lending USDC against wstETH collateral, see details here.

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Variable Rate Markets

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Basis and Perpetuals Markets

Futures and perps basis implied funding rates continue rise on a 30-day trailing basis but appears to be taking a pause. Perp funding rates rose +1.37% vs +1.85% for 3mo basis. Spot perp funding rates got as low as 12% late last week only to quickly rebound back to the 30-day moving average over the last few days.

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DeFi rates, which tend adjust slower, continue to converge toward derivatives funding rates, but at a very slow pace.

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USDC Markets

In the variable rate DeFi markets, USDC borrow rates continue to increase but at a decelerating pace, rising +58bps from  12.90% to 13.48% on a 30-day trailing basis.  

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Consistent with markets that are slowing down, volatility in stablecoin borrow rates have been muted relative to recent peaks but still exhibit occasional spikes through 20%.

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In the near term, correlations between perp funding rates and spot ETH markets continues to be the primary driver of DeFi rates.

ETH Markets

Turning to ETH lending markets, rates on Aave V3 continue to fall, closing -5bps on the week. ETH borrow rates closed at 2.50% down from 2.55% the week prior on a 30-day trailing basis. CESR staking rates fell -4bp on the week consistent with ETH borrow rates on Aave.

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Market internals show that ETH utilization remains relatively stable.

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Overall, keep an eye on CESR staking rates to determine the forward path of ETH borrow rates. Over the past month ETH staking has increased by roughly 900,000 ETH or +2.98%. while ETH staking rates have fallen by roughly the same proportion (-3.6%).  

Stablecoin Flows

Stablecoin inflows over the past month increased at a rapid pace with +9.7bn in inflows split between USDT and USDC. Other stablecoins chopped the remainder with notable inflows into Ethena’s USDe, which seemingly came at the expense of TUSD and FDUSD.

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Looking forward

Spot ETH and BTC markets continue to hesitate near all-time highs. The next major catalyst is the BTC halving on April 19th. It’s unclear whether this will be a “buy the rumor, sell the fact” trade or trigger the next leg of the rally. Reasonable players may disagree. What is certain is that whichever way the market goes, so will DeFi rates. For those who don’t want to play the guessing game, lock in your rates on Term!

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