Demand to borrow ETH on Term remains robust. Term cleared another 1,000 ETH this week against weETH at 4.00% for a four-week term — capturing market share from Morpho in the ETH/weETH market, where Morpho’s total borrow has decreased to $2.27M.
In derivatives markets, funding rates continue to march upward, with 3-month basis rising +69bps to 8.84% on a 30-day trailing basis and perpetual funding rates rising by +48bps to 8.97% on a 30-day trailing basis.
DeFi rates continue to lag but hold near long-run averages relative to derivatives funding rates.
With the election is just around the corner, expect derivatives funding rates to remain elevated in the near term.
Turning to DeFi variable rate markets, rates continue to march upward in-line with derivatives, with USDC borrow rates rising +31bps on the week to close at 6.52% on a 30-day trailing basis. On a shorter lookback period (just seven days) Aave rates averaged 7.60%.
With the seven-day average at 7.60% (and significant intraday volatility), the minor base rate adjustment of just 50bps to 6.25% was far too small to reach the true market clearing rate, which remains in motion.
Indeed, a close look into the internals shows that demand far outstrips supply at the 6.25% base rate, with intraday rates peaking above 50% on six out of seven days over the past week.
The bright side of elevated utilization levels is that borrow/lend spreads remain below long-run averages (100bps vs 150bp average).
Turning to ETH markets, ETH rates appear to be taking a breather, with rates holding steady at 2.83% on a 30-day trailing basis. This pause is consistent with the CESR staking index, which fell by -3bp over the same period to 3.28% on a 30-day trailing basis.
Despite the market taking a breather, total ETH borrow remains at all time highs around 1.235M ETH borrowed.
And utilization remains just a few borrows away from a kink-driven spike as was the case on Wednesday when rates briefly touched 10%.
Stablecoins continue to show inflows, albeit at a significantly reduced pace from prior months. Total stablecoin inflows stood at just $840M, down from $2.4B last month. Tether continues to gain, while USDC loses market share (-$740M) to USDS, Sky and others.
Crypto markets hover around all-time highs waiting for the results of the presidential election next week. Historical analysis suggests that markets will rally into year-end regardless of who wins and this dynamic should be constructive for DeFi rates.
