Stablecoin rates held steady this week at elevated levels, with the bulk of the volume against the majors clearing around 12%. In ETH markets, rates remained unchanged on the week with solid demand as weETH and tETH borrowers rolled their positions through year-end.
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In derivatives markets, funding rates are accelerating to the downside, with 3-month basis falling -15bps to 15.44% and perpetual funding rates declining by -231bps to 20.81% on a 30-day trailing basis. Anecdotal evidence suggests that this decline in funding rates was triggered by a “sell the news” trade coming out of a “hawkish” FOMC meeting that flushed out levered long positions.
Consistent with this decline, DeFi rates are beginning to pick up on a relative basis coming off cycle lows.
As expected last week, funding rates are beginning to decline into year-end. Whether the trigger was the FOMC or something else, the market was clearly getting over its skis with perp funding rates exceeding 30%+ — a level that is not sustainable over the long run.
Turning to DeFi variable rate markets, floating rates rose slightly by +61bps on the week to close at 12.40% on a 30-day trailing basis. On a shorter lookback period (just seven days), however, Aave rates averaged just 11.37% on the week, foreshadowing lower rates ahead.
As highlighted last week, Aave governance proposals to hike rates typically serve as key turning points in the DeFi rate market. It appears this time will be no different.
For the first time in almost two months, Aave rates did NOT spike above 60% during the course of the prior week due to excess utilization.
It appears the combination of a higher base rate and declining perp funding rates are finally bringing Aave rates back into equilibrium. That said, with rates elevated, there is nothing anyone can do to get the supply/borrow spread, which stands above 200bps wide, lower in the near term.
With derivatives markets cooling down expect DeFi lending rates to remain quiet into year-end.
Turning now to ETH markets, ETH rates followed through on last week’s gains, with rates rising another +8bps to 2.86% on a 30-day trailing basis. This rise continues to diverge from the CESR staking index, which is down another -4bps over the same period, closing the week at 3.18% on a 30-day trailing basis.
Overall, utilization continues to press up against 90% utilization kink.
Similar to last week, ETH rates temporarily spiked up to 10%+ at one point , suggesting continued market imbalance within Aave ETH markets.
Given continued divergence in Aave ETH rates relative to staking rates, keep an eye on this market as it appears that change is underway.
Lastly, we take a look at our monthly stablecoin money flows chart. Stablecoins saw a massive +19BN in inflows this past month. This is the highest inflow in stablecoin liquidity since May of 2021 in the middle of the bull run last cycle. The vast majority of the inflows came in the form of USDT with +$11BN and USDC with +$5BN making up the majority of the gains. Ethena’s sUSDE came in a close third with +$2.5BN on the month.
With the FOMC taking a hawkish tone and a government shutdown looming, risk assets are consolidating into year end. Crypto assets and DeFi funding rates are following suit, normalizing from recent highs. Expect markets to be thin and choppy through the holiday period. The regulatory landscape will be a key focus in 2025, particularly regarding potential policy shifts and their implications for the DeFi space. In the meantime, lock in your rates on Term and enjoy the holidays!
