Total loans outstanding rose slightly to $5.5mm this past week with ETH and USDC rates rising just 5-10bps to 2.325% and 3.49% , respectively. Overall, USDC rates on Term continue to remain below the 7d trailing average Aave V3 borrow rate (currently 4.56%), while ETH rates continue to clear close to the mid point between Aave V3 supply and borrow rates.  

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Variable Rate Markets

In the variable rate markets, USDC rates fell 10-15bps on the week with the 7-day average Aave V3 supply rates closing at 3.70% (supply) and 4.56% (borrow) vs. 3.79% and 4.68% the week prior. We quote moving averages rather than point-in-time snapshots given how volatile intraday, and even daily averages, have been in recent weeks.

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Much of this volatility arises from the fact that utilization on Aave continues to hover around the 90% kink. Consistent with this observation, intraday volatility this week remained high and even ticked up slightly from the week prior (see chart below).

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On net, Aave saw net inflows of $15.7mm in USDC supply vs. net outflows of -$14.6mm in USDC borrows.

As utilization constraints continue to bind on Aave, the market is beginning to see overflow demand turn to other platforms. On Compound, for example, similar dynamics are beginning to emerge. The current Compound utilization rate lies far beyond the 90% kink at 95.45% utilization and supply and borrow rates stand at 6.72% and 7.66%, respectively, at time of writing!

It is unclear how long elevated rate volatility will continue, but so long as there remains a significant spread between DeFi and TradFi rates, and RWAs like sDAI,  MatrixDocks STBT and Ondo's OUSG are able to pass through 4.5-5% rates to DeFi users, this dynamic is likely remain until that arbitrage is narrowed.

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