Volumes and activity on Term were relatively stable this week. Borrowers rolled/extended outstanding loans but was otherwise quiet.

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Variable Rate Markets

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Basis and Perpetuals Markets

In derivatives markets, derivatives funding rates continue to march to the upside, with 3-month basis rising +38bps to 7.12% on a 30-day trailing basis and perpetual funding rates rising by +49bps to 7.88% on a 30-day trailing basis.  

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With floating rate lending protocols slow to reset their target rates, DeFi continues to lag behind.

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BTC closes the week approaching all-time highs and the election is just around the corner. Expect derivatives funding rates to remain elevated in the near term.

USDC Markets

Turning to DeFi variable rate markets, rates continue to march upward, albeit at a more measured pace, with USDC borrow rates rising +23bps on the week to close at 5.70% on a 30-day trailing basis.

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Utilization also exceeded the 90% kink on four of seven days over the past week, taking intraday rates 30%+ on two occasions.

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This pickup in intraday volatility has increased in intensity over the past week, suggesting that Aave is due for a rate hike.

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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 markets, ETH rates continue to climb, with rates rising +4bps, closing at 2.80% on a 30-day trailing basis as of the time of writing. This rise is consistent with the CESR staking index, which rose by +4bp over the same period to 3.38% on a 30-day trailing basis.

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Utilization remains closely managed just underneath the 90% utilization kink. This is about as close to goldilocks as an interest rate curve mechanism can get.

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As a result, the market has managed to avoid any meaningful utilization driven rate spikes.

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Looking forward

The market is expect to see a year-end rally come Election Day and follow-through into the new year based on recent analysis we did for the Edge Newsletter. As markets go up, so do derivative funding rates and DeFi funding markets. With stablecoin rates showing signs of upward pressure for the third week in a row, now may be a good time to lock in fixed borrow rates on Term before its too late.

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