Term saw a notable uptick in activity this week across both stablecoin and Ethereum markets. In stablecoins, $2.4 million USDC cleared against deUSD collateral at an interest rate of 11.5%. Meanwhile, ETH markets crossed a significant milestone as Term set a new single-auction record with 1,310 ETH cleared against weETH collateral from EtherFi. This uptick in activity is consistent with an increase in utilization kink driven interest spikes on floating rate lending protocols and rising derivative funding rates.
Derivatives funding rates rebounded from a late week correction the week prior to close out the week at 3-month highs. 3-month basis rose +13bps to 6.76 % on a 30-day trailing basis and +126bps to 8.36% on a spot basis. Perpetual funding rates also accelerated to the upside, rising by +91bps to 7.39% on a 30-day trailing basis.
With perpetual funding rates accelerating to the upside, the DeFi / CeFi spread continues to converge back down toward historical averages.
Overall, derivatives funding rate continue to heat up, suggesting that “fast money” leveraged accounts maintain a constructive view on crypto markets in the near and medium term in an otherwise directionless market.
Turning to DeFi variable rate markets, rates continue to march upward with USDC borrow rates rising +12bps on the week to close at 5.46% on a 30-day trailing basis.
Utilization also exceeded the 90% kink on five of seven days over the past week, taking intraday rates 20%+ on each of those trading days.
This pickup in intraday volatility is clearly seen in the chart below, though remains modest relative to the frenzy seen earlier this year.
The bright side of elevated utilization levels is that lenders have benefitted from tighter borrow/lend spreads (100bps vs 150bp average).
Turning to ETH markets, ETH rates continue to accelerate to the upside, with rates rising +9bps vs. +6bps the week prior, closing at 2.76% on a 30-day trailing basis as of the time of writing. This rise outpaced the CESR staking index, which rose by just +6bp over the same period to 3.34% on a 30-day trailing basis.
Of particular note is the fact that ETH utilization rates significantly exceed the utilization kink for the first time in months, taking the borrow rate as high as 9.85% intraday on Wednesday.
With utilization consistently hovering just under the 90% utilization kink and borrow rates picking up in derivatives markets, expect the frequency of intraday spikes to continue in the near term.
The outlook in the near term is largely unchanged from last week. With less than 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. What is surprising, however, is that DeFi and derivatives funding rates continue to rise despite an uninspiring sideways market that appears indecisive. If you believe the “fast money” leveraged accounts have superior insight, it suggests that this market will ultimately resolve itself toward the upside once the market gains some clarity.
