Stablecoin rates dipped on Term this week, with USDC rates clearing around 8.50% for four weeks fixed, down -50bps from the week prior. On the ETH side, rates were mixed with weETH rates ticking down to 6% and rates against wstETH collateral flat at 2.25%. Longer term ETH loans against weETH termed to match maturities with the first batch of pendle PT tokens also rolled off this week consistent with diminishing expectations of LRT forward airdrop returns.
In derivatives markets, implied funding rates on a 30-day trailing basis for 3mo basis and perps continued to decline, falling -77bps and -103bps week over week, respectively.
DeFi rates also dropped this week, albeit at a more tepid pace of -31bps with the result that the DeFi money market passthrough rate ticked up a notch to close the week at 82%.
Focusing in on the DeFi variable rate market, USDC borrow rates reversed course for a -31bp decline to close at 9.17% on a 30-day trailing basis.
Intraday volatility has been relatively muted, though saw a few spikes with some large flows in both directions impacted intraday rates. On net, total USDC supply increased by +30mm and borrow demand decreased by -30mm for a net change of +60mm in unutilized supply.
Turning to ETH rates on Aave V3 , ETH rates saw some unexpected volatility on Aave, with the 30-day trailing rate up just +12bps week over week at 2.54% up from 2.42% the week prior. This uptick is at odds with CESR index rates, which declined by -3bps on the week.
ETH borrow utilization on Aave closes the week at 89.3%, just under the 90% kink and saw rates spike as high at 6.78% intraday (Friday, June 28)! This dynamic, however, seems isolated to Aave for the time being. Compound ETH borrow rates remain steady at just 2.15% and well below the optimal utilization kink.
A late day announcement hit the tapes on Friday that the SEC is suing Consensys for engaging in unregistered brokering activity for offering ETH staking services via Metamask. This was not bullish for markets and will likely exert downward pressure on DeFi funding markets near term. Despite the negative sentiment, the market remains rangebound within the 2.8k - 4k range established over the past quarter. Until the market sees a decisive break above or below these levels, a base case of continued sideways action through the summer months of Q3 remains reasonable forecast. For rates markets, the fact that 3mo basis holds steady in the low double digits despite sharply declining spot perp rates in the single digits is bullish and suggests that the market, like this newsletter, expect the bull market to resume in Q4 and that rates are likely to follow.
