Term cleared well over $10M this week, with close to$7.5M in stablecoins spread across deUSD and wBTC collateral, and close to $7M in wETH against tETH collateral. Rates on Term held steady relative to December levels, even as basis rates and Aave supply rates continue to lag.
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In derivatives markets, funding rates continued its decline, with 3-month basis falling -83bps to 12.06% and perpetual funding rates declining by -75bps to 8.85% on a 30-day trailing basis.
As is common with these sharp perp funding rate declines, DeFi rates remain elevated relative to perpetual funding rates.
With a sharp late week bounce in crypto assets on a softer than expect CPI print midweek, expect some leverage demand to re-enter the market in the near term.
Turning to DeFi variable rate markets, floating rates continue to grind lower, but at a much slower pace than in derivatives markets. Rates on Aave closed down -43bps on the week to 10.79% on a 30-day trailing basis. Over a shorter lookback period (just seven days), Aave rates averaged 10.85% on the week, foreshadowing consolidation ahead.
Diving in the microstructure of Aave USDC markets, utilization continues to decline rapidly, but the chart shows that this was entirely due to increase supply rather than reduced demand. Indeed, demand actually increased by 71M on the week.
With utilization below 80%, intraday volatility remain non-existent in recent days.
With more and more supply chasing yield against a fixed borrow base, Aave suppliers are cannibalizing each others’ yields. The spread between supply and borrow rates remain elevated around 275bp wide.
With perp rates continuing to trade below Aave borrow rates and supply continuing to marginally outpace demand, expect rates to remain stable in the near term.
Turning now to ETH markets, ETH rates continue to accelerateto the downside, with borrow rates declining -16bps to 2.67% on a 30-day trailing basis. This decline far exceeds the decline in the CESR index, which closes the week down -2bps to 3.11% on a 30-day trailing basis.
Much like in stablecoin markets, total demand is marginally higher with increased supply far outstripping new demand.
Intraday charts are consistent with this dynamic, showing that ETH rates remained stable throughout the week.
Lower rates have helped to widen the staking rate arbitrage spread out o ~45bps, but still remains far below the 77bp average of 2024. Expect this spread to continue to widen in the near term.
With cryptoasset markets popping on a dovish CPI print this week, expect some levered longs to jump back into the water. With Trump’s inauguration scheduled for next Monday, expected some volatility as the market prepares to learn more about the new administration’s approach to crypto policy.
