Rates were mixed this week on Term. Stablecoin rates against wBTC fell -100bps to 7.50% on Term this week, down from 8.50% the week prior. On the flip side, demand to borrow USDC against weETH resurfaced this week with a total of 1.78mm cleared at a healthy 9.5% fixed for a four-week term. On the ETH side, rates ticked up slightly to 2.38% against wstETH and 6.13% against weETH. Total demand to borrow ETH against LRTs, however, remains depressed and significantly off from the peak. With the points program announced, attention now turns towards onboarding new collateral types. Keep an eye out for some new auctions in the coming weeks.
In derivatives markets, implied funding rates for 3mo basis and perps continued to slide at a rapid pace, falling -84bps and -123bps week over week to close at 10.24% and 8.43% on a 30-day trailing basis, respectively.
DeFi rates also dropped this week by -46bps or about half the rate by which 3mo basis declined. DeFi rates and derivatives rates close the week at parity.
Focusing in on the DeFi variable rate market, USDC borrow rates continued to decline, falling by -46bp on the week to close at 8.42% on a 30-day trailing basis.
Intraday volatility remains muted in the stablecoin markets with utilization far off from the kink.
Market internals show that supply continues to increase despite declining borrow demand and utilization has declined down to cycle lows.
With increasing supply and declining borrow demand, dilution of the borrow rate across increasing supply has cause the borrow/supply spread to widen out to close at 222bps on a 30-day trailing basis.
Turning to ETH rates markets, ETH rates continue rise on Aave, with the 30-day trailing rate up +12bps week over week at 2.78% up from 2.66% the week prior. This uptick continues to diverge from CESR index rates, which declined by -7bps on the week.
What is notable is that that intraday volatility continues to exhibit extreme short term dislocations though less so than the week prior. Rates peaked at +16.46% on Wednesday, which is an “improvement” from prior week highs (+43.22% peak).
Market internals are relatively unchanged from the week prior with both suppy and borrow demand increasing by 22k and 51k ETH, respectively.
While USDC utilization on Aave is back down toward cycle lows, derivatives funding rates have yet to reach their April/May troughs. Crypto Twitter sentiment, however, seems much more bearish than it was during the Q2 correction. Overall, mixed signals make it hard to predict how the market and rates will shake out in the medium term. Absent new information, the thesis remains sidesways until Q4 then a Santa Claus rally into year-end.
