Fixed rates on Term shot up on the week, with both stablecoin auctions clearing at 12% fixed for a four-week term. The announcement of Maker’s Accelerated Proposal late last week to raise stability fees (borrow rates) to 16%+ on all Maker vaults (and Spark) was a warning shot across the bow for DeFi lending markets. For most of the year, DAI rates on Maker were offered at below market rates, artificially suppressing DeFi borrow rates across the ecosystem. With this announcement the dam finally broke and rates sharply re-rated across the board. Its times like these, where the market can reprice by 10%+ within a matter of days where the value proposition of fixed-rate DeFi borrows really stands out.
Futures and perps basis implied funding rates continue rise at a rapid clip, +2.78% and +5.77% on a 30-day trailing basis for 3mo basis and perpetual funding, respectively. Spot rates continue to fluctuate in a wide range between 33% to 61% throughout the week with no sign of slowing down.
With the sharp hiking of DAI borrow rates on Maker platforms, DeFi rates were free to reprice over the past week and are quickly converging to its derivatives funding counterparts. While this is hard to see in the 30-day trailing average shown below, expect this chart to rise quickly in the coming weeks.
In the variable rate DeFi markets, USDC rates continue to accelerate at a brisk pace in a bid to converge towards its derivatives funding market counterparts, rising +127bps from 10.86% to 12.13% on a 30-day trailing basis.
The disruption caused by Maker’s sudden announcement registered clearly on the intraday volatility charts. Intraday spikes on Aave reached levels not seen since the CRV Vyper episode from late last summer.
With the heavy hand of Maker DAO now lifted, expect rates to begin to converge higher.
Turning to ETH lending markets, rates on Aave V3 close the week unchanged on the week. ETH borrow rates fell just -2bps over the past week to close at 2.62% on a 30-day trailing basis, consistent with CESR staking rates, which fell -1bp on the week.
Market internals show that ETH utilization continues to fall, though this dynamic seems primarily supply driven. ETH borrow demand remains relatively stable.
With the Eigenlayer farming craze beginning to reach its apex, it will be interesting to see how the market evolves once Eigenlayer goes live.
Rune made an interesting observation in a recent AMA with MakerDAO. In contrast with the previous cycle, where the likes of BlockFi and Celsius sourced billions of liquidity from retail to feed DeFi borrow demand, this cycle is notably missing meaningful sources of “real-world” liquidity. If DeFi rates, however, continue to remain at such elevated levels it is only a matter of time before TradFi capital finds its way into DeFi. Until then lock in your rates where possible!
