Overall, fixed rates on Term remain robust relative to variable rate lending markets and TVL continues to pick up. Stablecoin rates on Term held steady this week at 7.50% for four-week loans, same as the week prior. A re-opening of the sUSDe 3mo loan on Thursday cleared at 10.00%, up +50bps from last week. In ETH markets, Term held the first of its “e-mode” wETH/weETH auctions, clearing 1000+ ETH at just under 4.00% and its standard wETH/weETH auction cleared just a tad higher at 4.25%. In all cases, lenders are earning a decent term premium for lending for term.
In derivatives markets, week over week implied funding rates for 3mo basis and perps were down to flat on a 30-day trailing basis, with 3mo basis falling by -6bps and perp funding reversing last week’s gain of +13bps, falling by -14 bps on the week.
In a slight change from weeks prior, 3mo basis funding rates are beginning to show signs of turning with spot rates declining into the high single digits over the past two days - the first such two day single-digit rates since early July.
This decline in 3mo basis is despite a pickup in per funding rates back into the low double digits over the latter half of this week. Overall, signals appear mixed.
Focusing in on the DeFi variable rate market, USDC borrow rates continued to decline, falling by -55bp on the week to close at 7.41% on a 30-day trailing basis. Spot rates, however, show signs of stabilization rising +13bps from 6.14% to 6.27% week over week.
Utilization saw brief spike above the 90% kink only to decline to close roughly unchanged at 85% down just 1.27% from the week prior.
Intraday charts show some evidence instability with intraday spikes up to 13-14% in the early half of the week due to excess utilization. What is surprising is that USDC supply continues to increase despite supply rates at the lowest since January of this year and trading just below U.S. Tbill rates.
With utilization back into the mid 80%s as is optimal, supply / borrow spreads have continued to normalize back down toward 100bps.
Turning to ETH rates markets, ETH rates are finally taking a breather falling by -6bps on a 30-day trailing basis over the week.
No signs of excess utilization occurred for relatively stable rates throughout the week.
Consistent with the above, utilization remains relatively stable in the mid to high 80s, just under the 90% kink level.
While it may be too early to say, ETH markets on Aave appear to be finding an equilibrium.
The market was slightly disappointed by the Fed this week, who was expected to revise forward guidance to hint at a reduction in future meetings but left forward guidance unch’ed from the previous meeting. The majors (ETH and BTC) were down roughly -8% week over week, though surprisingly spot perp funding rates increased. With the presidential election still months away and few known catalysts expect markets to continue to meander within range over the next few weeks into the next FOMC meeting in September (where a cut is expected) and DeFi rates to do the same.
