Term saw another record breaking week on the stablecoin side with nearly $8.5M USDC cleared against wBTC, BTC.b and PT-sUSDE-Mar 2025 collateral. Out of the $8.5M USDC cleared, $7.5M was in net new loans bringing TVL on Term to an all-time high of $42M. This volume only scratches the surface of user demand to lock in fixed-rates on Term that couldn't be filled due to insufficient supply. ETH borrowing volumes, on the other hand, were muted, partly due to Term’s regular ETH borrowers traveling to DevCon Bangkok this week.
In derivatives markets, funding rates accelerated to the upside, with 3-month basis rising +118bps to 10.16% on a 30-day trailing basis and perpetual funding rates rising by +270bps to 12.35% on a 30-day trailing basis.
This rapid acceleration in derivatives funding rates leaves DeFi rates trailing, due to Aave governance's slowness to update its interest rate curve.
With no signs of any significant correction in the near term, expect derivatives rates to remain elevated in the near term.
Turning to DeFi variable rate markets, floating rates fell behind its derivative counterparts, with USDC borrow rates rising just +52bps on the week to close at 7.56% on a 30-day trailing basis. On a shorter lookback period (just seven days) Aave rates averaged 8.29% on the week.
The 7-day average, however, masks significant intraday volatility throughout the week with utilization oscillating wildly about the kink.
The frequency, duration and magnitude of intraday swings continues to trade unlike anything seen in recent history with no signs of slowing down.
While it should be clear to anyone watching closely that Aave’s interest rates parameters need updating, competing market forces may be delaying a much needed update. MakerDAO / Sky continues to hold the savings rate at 6.5%, well below prevailing market rates, likely in a bid to encourage the minting of USDS supply to protect its share of the stablecoin market. So long as Aave looks to the USDS savings rate as reference rate, the market will continue to oscillate wildly in the near term.
With Ethena’s sUSDE token being onboarded to Aave V3 this week, it will be interesting to see how market driven (but volatile) derivatives yields in Ethena mesh with slow-moving governance controlled borrow rates on Aave.
Turning to ETH markets, ETH rates continue to languish, with rates declining -3bps to 2.70% on a 30-day trailing basis. This is in contrast to the CESR staking index, which rose by +1bp to 3.25% on a 30-day trailing basis.
This decline in borrow rates coincides with the first week in some time where ETH borrow demand grow has flatlined week over week.
Overall, ETH markets remain relatively stable with supply and demand relatively balanced.
The massive BTC rally of the past two weeks is beginning to show signs of stabilization. The rapid rise in derivatives rates over the past week shows signs that price action driven by leveraged traders may be starting to get ahead of real money inflows. History shows, however, that markets can stay overly levered far longer than one might expect. In the meantime, betting that rates will continue to rise over the medium term is likely a safe bet.
