Stablecoin volumes against wBTC returned this week after a bit of a hiatus earlier this month. Rates otherwise remain relatively stable, though evidence from derivatives market on since the 50bp rate cut this week suggest that at turn is just around the corner.
Derivatives markets are beginning to perk up coming out of the highly anticipated 50bp rate cut this week. 3-month basis rate rose by +13 bps while perpetual funding rates rose by +101 bps over a 30-day trailing period. This surge in perp rates is even more impressive when looking at spot rates, which rose by a full +3.24% to close above 10% for the first time since early August.
Consistent with this dynamic, the spread between derivatives and DeFi rates is beginning to narrow back toward historical norms, much faster than anticipated.
As mentioned last week, the first sign to look for in anticipating a bounce back in crypto money markets would be a sharp spike in perpetual funding rates. If the late week surge persists, it would be a good sign both for money markets and broader crypotoassets as well.
Turning to DeFi variable rate markets, rates remain steady and generally capped by Aave’s decision to cut the target uop rate by 50bps last week, see here. Nevertheless, while USDC borrow rates fell -18bp on the week to close at 5.35% on a 30-day trailing basis, week-over-week spot rates reversed much of last week’s decline to rise by +36bps to close at 5.15%, as of the time of writing.
As is unavoidable with governance determined rates in fast moving DeFi money markets, Aave is likely going to have to reverse course in the near term. Utilization (at 86% up from 81% last week) is fast approaching the 90% utilization kink where rates begin to spike. Such is the pitfall of a model that requires slow moving governance parameters to keep up with fast moving DeFi money markets.
If this dynamic plays out, expect supply/borrow spreads to narrow once again and replaced with the extreme volatility associated with utilization kink driven spikes.
For now, rates remain calm. Only time will tell if the market returns to the jumpy markets that have been the norm over much of the past 12 months.
Turning to ETH rates markets, ETH rates held steady, with rates rising +2bps to 2.57% on a 30-day trailing basis over the past week. This decline was consistent with CESR’s staking index, which rose by +3bp over the same period to 3.12% on a 30-day trailing basis.
Intraday volatility show no signs of stress or instability,
And supply/demand dynamics remain relatively steady.
Turning to the monthly stablecoin flows overview, total stablecoin supply rose by $3bn over the past month. The majority of this came from USDT (+$1bn) and USDC (+$900mm), with pyUSD and USDe giving the most ground. With basis rates substantially lower (and even negative) for much of August and September, it is not surprising to see USDe lose market share. To the contrary, the fact that it only lost about -$400mm is quite impressive given that yields were roughly equal to or less than Aave supply rates for most of this period.
The FOMC delivered a dovish surprise this week with a 50bp rate cut. Cryptoassets responded bullishly on the news and DeFi derivatives and money markets followed suit. The Fed is expected to continue to deliver further 25bp rate cuts over the next few meetings to bring rates down to 3.5% by the end of 2025 and 3.0% by the end of 2026. With TradFi rates trending lower and DeFi rates beginning to show signs of upward pressure, expect inflows into crypto and DeFi in the medium term.
