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Rates on Term were relatively steady this week, with stablecoin rates ranging between 6-7%, continuing to offer a slight premium compared to variable rate borrow/lend protocols. Bids to borrow against USD0++ remains elevated, with $1.3mm cleared against $2mm in total demand at a 13.05% rate. ETH markets remain quiet.
In derivatives markets, 3-month basis accelerated to the downside by -130 basis points and perpetual funding by -117 basis points over a 30-day trailing period. Spot perpetual funding rates remain highly volatile, ranging from a low of 1.86% to a high of 7.87% with an average of 3.61% in the past seven days.
DeFi rates continue to act as the less volatile cousin of derivatives rates, showing signs of stabilization with less day to day volatility.
With perpetual funding rates continue to jump around and 3-mo basis — the more stable proxy of leveraged demand — continuing to decline -50bps on a week over week basis, it appears that the market still has some wood to chop, though the Jackson Hole pivot today may help put some wind behind the sails in coming days.
Turning to DeFi variable rate markets, USDC borrow rates fell another -50bp on the week to close at 5.77% on a 30-day trailing basis, but rose +46bp to 5.82% on a spot basis in a sign of stabilization.
Consistent with this story, utilization ticked up by +2% from the week prior to 78% on account of recovering borrow demand.
While this slight uptick is good news for suppliers, it hasn’t been sufficient to have a material effect on narrowing borrow / lend spreads on Aave.
Until markets take a turn up, expect stablecoin rates and stablecoin rate volatility to remain subdued in DeFi.
Turning to ETH rates markets, ETH rates held steady, with rates falling by just -1bps to 2.67% on a 30-day trailing basis, week over the week.
Intraday volatility show no signs of stress or instability,
Muted change in the 30-day trailing average disguises a sharp drop in utilization, which can be seen in the chart below. This decline is attributed to an increase in ETH supply rather than a decrease in ETH borrow demand.
Lastly, turning to our monthly stablecoin flow report, stablecoin supply increased by a robust +$4.6bn month-over-month. The vast majority of this was driven by Tether at a little over +$3.3bn, followed by FDUSD at +$800mm and USDC at a close third with +$600mm. Ethena’s USDe saw the largest decline on the month with -$400mm in outflows, which is consistent with sharply declining basis yields as discussed in length above.
DeFi markets are showing signs of stabilization, but still far from reigniting the “animal spirits” of Q1, 2024. With Fed Chair Powell signaling a strong pivot toward rate cuts starting next month and markets returning after the long summer holiday, expect rates to begin rising in the medium term as the final remnants of deleveraging from two weeks ago are absorbed by the markets.
