Term cleared around $6M this week, split roughly equally across USDC and ETH loans, with focus around PT-sUSDE-Mar 2025 and tETH collateral. Rates were steady with a slight downward bias on the week.
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In derivatives markets, funding rates were mixed, with 3-month basis falling -25bps to 11.82% while perpetual funding rates rose by +35bps to 9.19% on a 30-day trailing basis.
Relatively speaking, DeFi rates remain elevated as compared to derivatives funding rates, though passthrough rate appears to be leveling out.
With a crypto-friendly administration now in office and short-term signs of a pickup in leveraged demand, expect funding rates to begin to turn the corner in the near and medium term.
Turning to DeFi variable rate markets, floating rates continue to grind lower, closing down -36bps on the week to 11.40% on a 30-day trailing basis. Over a shorter lookback period (just seven days), Aave rates averaged 10.98% on the week, foreshadowing consolidation ahead.
Diving in the microstructure of Aave USDC markets, utilization continues to decline rapidly, hitting a new post-election low of 76% as of the time of writing. This decline was driven by a combination of both (i) increased supply of +$96M and (ii) decreased demand of about -$85M 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 continue to dilute each others’ yields. The spread between supply and borrow rates remain elevated around 275bp wide.
Its hard to determine where this additional supply is coming from but until this supply starts to level out, expect utilization to continue to decline in the near term.
Turning now to ETH markets, ETH rates continue to grind lower, with borrow rates declining -13bps to 2.54% on a 30-day trailing basis. This decline is in stark contrast to a rise in the CESR index, which closes the week up +3bps to 3.14% on a 30-day trailing basis.
This decline, however, masks a short term uptick in demand that has taken utilization back up towards the mid to high 80s.
With utilization still well below the kink, intraday volatility remains nonexistant.
Given the late week surge in ETH borrow demand, look for ETH funding rates to stabilize in the near term.
For the first time in well over a year, USDC took market share from USDT, gaining ~$9B in inflows versus just $450M for USDT. Overall, stablecoin inflows increased by $10.8BN, with the majority coming from USDC. Maker’s Sky Dollar also saw a notable increase of $1.35B.
With the Trump administration now back in office and crypto-friendly policies being put in place, expect overall sentiment to improve markedly as headlines roll out. While it's hard to prove definitively, it seems likely that the increase in USDC inflows could be driven, at least in part, by anticipation of a much more crypto-friendly regulatory environment. If USDC can be seen as a proxy for U.S. institutional money, this is a good sign.
