Relatively quiet week on Term. Rates remain unchanged week-on-week with an early runup in spot perp rates counterbalanced by a midweek risk-off trade due to escalating tensions in the Middle East.

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Variable Rate Markets

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Basis and Perpetuals Markets

Derivatives markets were volatile this past week, with an early week runup short-circuited by risk-off sentiment due to an expanding war in the Middle-East. Despite this late week drop in funding rates, 3-month basis rose a slight +5bps while perpetual funding rates clocked a +22bps gain over a 30-day trailing period, down from +111bps the week prior.

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With perpetual funding rates decelerating from the rapid pace of the last couple of weeks, the DeFi / CeFi spread is beginning to stabilize near historical averages.

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Competing tailwinds from global monetary stimulus and rising geopolitical risk appears to have the market in a deadlock in the near term.

USDC Markets

Turning to DeFi variable rate markets, rates are beginning to rise with USDC borrow rates rising +12bps on the week to close at 5.36% on a 30-day trailing basis.

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Utilization also exceeded the 90% kink on three days this past week, taking intraday rates above 13%+ on each of those trading days.

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This pickup in intraday volatility is clearly seen in the chart below, though remains modest relative to the frenzy seen earlier this year.

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The bright side of elevated utilization levels is that lenders have benefitted from tighter borrow/lend spreads (100bps vs 150bp average).

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ETH Markets

Turning to ETH rates markets, ETH rates accelerated to the upside, with rates rising +6bps vs. +3bps the week prior to 2.66% on a 30-day trailing basis over the past week. This rise matched the CESR staking index, which rose by a full +6bp over the same period to 3.29% 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 continues to press close to the 90% utilization kink.

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Looking forward

Rising geopolitical risks short-circuited the monetary stimulus driven rally of the past two weeks. Its unclear, however, whether this knee-jerk reaction will be temporary or more lasting.
Traditionally, assets like gold and bitcoin tend to be correlated with rising geopolitical tension as safe-haven assets. With four weeks until elections in the U.S. and rising tensions in the Middle-East expect uncertainty to remain high in the near term, capping any potential for a near term breakout in crypto assets and DeFi rates.

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