Markets were relatively stable this week, with the majority of recurring loans against the majors rolling / extending into the next maturity. Stablecoin clearing rates saw small uptick to ~7.5% this week, up from 7% the week prior and continuing to offer a premium compared to variable rate borrow/lend protocols. ETH markets remained quiet and saw a decline in loans outstanding as longer term airdrop driven loans against ezETH and weETH rolled off.
In derivatives markets, 3-month basis declined by -58 basis points and perpetual funding by -141 basis points over a 30-day trailing period. However, in a positive sign of life, 3-month basis saw a roughly +2% week over week increase suggesting that markets may be starting to price in some medium term upside.
Turning to a comparison between DeFi and derivatives rates, the spread between the two has widened to historical extremes. DeFi rates are now >150% of 3-month basis on a 30-day trailing basis.
With the spread between DeFi and derivatives rates reaching historical wides, expect the two to converge in coming weeks. While its hard to predict whether its DeFi rates that will decline or derivatives rates that will rise to collapse the spread, given the recent uptick in 3-month basis and Fed cuts coming next month the balance of risks leans in favor of the latter.
Turning to DeFi variable rate markets, USDC borrow rates fell just -12 bp on the week to close at 5.65% on a 30-day trailing basis, showing continued signs of stabilization.
Consistent with this story, total USDC borrow remained flat to slightly higher on the week and well off from the lows seen just after the deleveraging event a few weeks ago.
Given lower rates and stable utilization, the borrow/lend spread remains steady at 150bps.
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 -3bps to 2.64% on a 30-day trailing basis, week over the week. This decline was largely in line with CESR’s staking index, which fell by -4bps over the same period.
Intraday volatility show no signs of stress or instability,
In a further sign of stabilization, ETH utilization rebounded sharply from the previous week's lows, with total borrowings increasing by 37,000 ETH (approximately $92 million USD) to take utilization back to ~84% consistent with recent averages.
DeFi markets continue to show signs of stabilization, but is still far from showing any signs of an imminent return to double digit yields. Medium term, the outlook remains unchanged with positive tailwinds going into Q4.
