Term printed record TVL for a second week in a row, with over 57M in total value locked against at-risk collateral backing active loans. USDC volume was boosted, in part, by the onboarding of two new collateral assets this week, tETH from Treehouse and LBTC from Lombard Finance.
For those that missed this week’s auction, head over to the Blue Sheets - simple earn page (app.term.finance/earn) for a second bite at the apple - not available to U.S. persons.
In derivatives markets, funding rates accelerate to the upside, with 3-month basis rising +161bps to 11.78% on a 30-day trailing basis and perpetual funding rates rising by +326bps to 15.61% on a 30-day trailing basis.
As a result of this rapid acceleration in derivatives funding rates and the lack of adjustment in the Aave base rate, the spread between DeFi rates and derivatives rates fell towards recent lows.
Unless the market sees a large correction in the near term, expect derivatives rates to remain elevated.
Turning to DeFi variable rate markets, floating rates fall behind its derivative counterparts, with USDC borrow rates rising “just” +41bps on the week to close at 7.98% on a 30-day trailing basis. On a shorter lookback period (just seven days) Aave rates averaged 9.10% on the week.
Utilization continues to oscillate wildly around the kink as users struggle to navigate the extreme rate volatility on Aave.
And intraday rates, continue to spike up to 60% on a daily basis.
Interestingly, the spread between borrow and lending rates have been rising despite heavy utilization.
ETH Markets
Turning to ETH markets, ETH rates continue to bleed to the downside, with rates dipping -3bps to 2.67% on a 30-day trailing basis. This decline is inconsistent with the CESR staking index, which is flat to slightly up over the same period, rising by +1bp to 3.26% on a 30-day trailing basis.
Consistent with falling rates, ETH utilization is beginning to dip. The decline, however, is mostly driven by increasing supply rather than decreasing demand, which remains relatively stable.
With utilization coming off the kink, intraday volatility remained well behaved throughout the week.
So long as implied funding rates on perpetual swaps/fixed-date futures continue to remain elevated, expect demand for levered long exposure to continue find its way into DeFi lending markets. With the derivatives - DeFi funding spread nearing recent peaks and intraday volatility on Aave at historic highs, this dynamic is not sustainable for much longer. Expect an adjustment in the near to medium term absent a large correction in the market.
