Stablecoin rates held steady on Term this week, with USDC rates clearing around 8.50% for four weeks fixed, roughly unchanged from the week prior. On the ETH side, rates were flat to slightly lower with weETH rates ticking down to 5.74% and rates against wstETH collateral flat at 2.23%. Consistent with the leading variable rate lending protocols, overall borrow volume declined with about $1mm in loans rolling off the protocol. Next week, keep an eye out for some announcements from Term. Term will be announcing a new program as well as bringing back a bomb-pot auction in partnership with Redacted.

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Variable Rate Markets

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Basis and Perpetuals Markets

In derivatives markets, implied funding rates for 3mo basis and perps accelerated to the downside, falling -109bps and -151bps week over week to close at 10.67% and 9.66% on a 30-day trailing basis, respectively.

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DeFi rates also dropped this week, albeit at a more tepid pace of -30bps causing the DeFi <> Derivatives rates to converge. The current DeFi passthrough rate stands at an above average 91.9%.

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USDC Markets

Focusing in on the DeFi variable rate market, USDC borrow rates continued to declined, falling by -30bp on the week to close at 8.87% on a 30-day trailing basis.  

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Intraday volatility has been relatively muted in the stablecoin markets with no meaningful utilization spikes over the past week.

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Market internals show that the recent decline in rates is driven by both (i) an increase of +60mm deposits combined with a -58mm decline in borrow demand driving utilization down below 80%.

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ETH Markets

Turning to ETH rates markets, ETH rates continue rise on Aave, with the 30-day trailing rate up +14bps week over week at 2.66% up from 2.52% the week prior.  This uptick continues to diverge from CESR index rates, which declined by -4bps on the week.

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What is notable is that that intraday volatility continues to exhibit extreme short term dislocations with the intraday rate rising as high as 53% on July 4!

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Market internals show that borrow utilization continues to rise while deposits remain steady. Given that ETH rates on Compound remains rangebound, this behavior appears isolated to Aave ETH borrow markets.

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Looking forward

The last two days saw a sharp break of medium term support levels on BTC and ETH. This correction has driven perp funding rates down into the mid single digits and is pressuring DeFi rates lower as well. When the majors correct, project tokens tend to do so at twice the speed. This dynamic further pressures DeFi funding rates as points/token farming APRs drive a large part of on-chain borrow demand. Given that derivatives funding rates have not yet reached the extremes of the early Q2 correction, there appears further room to the downside in the near term for both prices and rates.

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