Term slightly increased total loans outstanding last week on account of newly minted loans against tETH from Treehouse. USDC rates ticked up slightly while ETH held steady in-line with rates on variable rate lending protocols .
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In derivatives markets, funding rates continue to rally to the upside, with 3-month basis rising +161bps to 14.15% on a 30-day trailing basis and perpetual funding rates rising by +290bps to 20.09% on a 30-day trailing basis.
Despite this outsized rally, DeFi rates managed to keep up this week with the result that the DeFi passthrough rate remained stable near cycle lows.
While its hard to say when derivatives funding rates will be begin to take a breather, rates are beginning to reach levels that typically see a correction in the medium term.
Turning to DeFi variable rate markets, floating rates picked up with week, with USDC borrow rates rising +111bps on the week to close at 9.38% on a 30-day trailing basis. On a shorter lookback period (just seven days) Aave rates averaged 12.51% on the week. Must of this acceleration to the upside is attributable to Aave governance’s long awaited adjustment to the base rate from 6.25% —> 9.25% last week.
While this adjustment was welcome news for volatility, utilization remains above the kink, albeit to a lesser degree.
And intraday rates, continue to spike though the moves are not as extreme as past few few weeks.
As a natural consequence of higher rates and fixed utilization cap, the spread between borrow and lend rates rose to close the week at a full 200bps over a 30-day trailing period. To drive that home, lenders are earning a full 2 percentage-points less than the rate paid by borrowers, leaving significant surplus on the table.
Turning to ETH markets, ETH rates continue to bleed to the downside, with rates dipping -3bps to 2.63% on a 30-day trailing basis. This decline is consistent with the CESR staking index, which is flat to slightly down over the same period, falling by -1bp to 3.25% on a 30-day trailing basis.
Overall, utilization remains healthy just under the 90% utilization kink — as high as possible without triggering volatile intraday rate movements.
And with utilization well behaved just beneath the kink, intraday volatility is non-existant.
With the increase in Aave base rates, we expect this change to help alleviate some of the pressure on overall borrow utilization. However, evidence of excess demand persists at 9.25%, as utilization remains consistently above the 90% kink. As long as derivatives markets continue to rise, this trend is likely to persist in the near and medium term.
