Fixed rates on Term where unchanged to slightly down this week with USDC stablecoin rates holding steady at 3.245% while ETH rates declined -27bps to 2.295% consistent with variable rate markets.  Healthy wETH borrow demand for ETH staking arbitrage continues to show for auctions with ETH staking yields on the climb.  

Historical ETH and USDC clearing rates on Term

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Variable Rate Markets

USDC Markets

In the variable rate markets, USDC rates continue to rise with the 30-day trailing average borrow rate continuing to accelerate to the upside. Week-on-week rates rose +103bps (!) from 5.81% to 6.84% on a 30-day trailing basis.

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Volatility in variable rate USDC markets continue remain elevated across the board, with intraday highs exceeding 20% on more than one occasion in the past week.

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In the past week. Aave V2 resumed normal operations, which should help alleviate some pressure in the near term.

ETH Markets

Turning to ETH markets for the first time in this newsletter, ETH borrow rates on Aave V3 declined -10bps from 3.05% to 2.95% on a 30 day trailing basis. This is despite a +17bp rise in ETH staking yields from 3.89% to 4.06% week-on-week as measured by the CESR Composite ETH Staking Yield on the same 30 day trailing basis.

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Diving into market internals, the continued decline in ETH borrow rates appears to be supply driven, rather than demand driven. Since September, borrow demand has remained flat between 295k-300k ETH while supply has risen by +100k ETH from 328k ETH to 428k ETH over the same period.

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The recent uptick in utilization seems to suggest that some savvy users DeFi farmers are beginning to pick up on the trade. Given that borrowers can now "pick" +1% on the spread between staking yields and Aave V3 borrow rates, expect utilization to continue to rise as users get smart to the trade.

To lock in the funding leg of this carry trade, Term will be hosting another wETH/wstETH auction scheduled to close next Wednesday at app.term.finance.  

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