Rates on Term remain steady around 7.50% for USDC on Ethereum L1 and dipped to 5.50% on Avalanche with close to 500k in supply available for the taking. ETH rates remain steady at recent levels.

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Variable Rate Markets

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Basis and Perpetuals Markets

Derivatives markets held steady at elevated levels (relative to recent history) this past week. 3-month basis rate reversed last week’s gin to fall by a mere -9 bps while perpetual funding rates continue to rally, rising by an impressive +111 bps over a 30-day trailing period.

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Consistent with this dynamic, the spread between derivatives and DeFi rates continues to narrow back toward historical norms as DeFi rates (constrained by governance target rates) lag in the upswing.

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With perpetual funding rates averaging 7.5% over the past seven days and 3-month basis ticking back up toward recent highs around ~7%, it seems that a rebound in DeFi lending rates may be in the cards in the near term future.

USDC Markets

Turning to DeFi variable rate markets, rates remain steady and generally capped by Aave’s decision to cut the target uop rate by 50bps two weeks ago, see here.  Nevertheless, while USDC borrow rates fell another -11bp on the week to close at 5.24% on a 30-day trailing basis, week-over-week spot rates accelerated to the upside to rise by +57bps to close at 5.72% following a +36bp rise the week earlier.

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For the first time in the past couple of months, utilization also hit the 90% utilization kink with borrow demand swinging sharply to the upside over the past seven days.

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Spreads have narrowed as expected in times of high utilization

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And the market twice high intraday spikes above 10% in each of the last two days due to excess borrow demand.

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ETH Markets

Turning to ETH rates markets, ETH rates rose slightly, with rates rising +3bps to 2.60% on a 30-day trailing basis over the past week. This rise lagged the CESR staking index, which rose by a full +11bp over the same period to 3.23% on a 30-day trailing basis.

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Intraday volatility show no signs of stress or instability,

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And supply/demand dynamics remain relatively steady but inching close to the 90% utilization kink.

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Looking forward

Bitcoin closes the week above key resistance levels to have the first “higher-low” and “higher-high” of the correction zone the market has been oscillating in since early summer. With the tailwinds of twin stimulus from the Fed in the U.S. and the PBOC in China price action is very bullish in the medium term. Coupled with signs that the market is beginning to leverage up once again from derivatives markets it seems that DeFi lending rates will soon follow suit.

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