Stablecoin rates rose across the board this week, with the bulk of the volume against the majors clearing around 12% consistent with Skay (formerly Maker’s) hike in the Dai savings rate to 12.5% last week. In ETH markets, rates remained unchanged on the week.
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In derivatives markets, funding rates are beginning to decelerate, with 3-month basis rising just +41bps to 15.59% and perpetual funding rates rising by just +21bps to 23.13% on a 30-day trailing basis — significantly lower than the sharp increases of +151bp and +387bp increase in 3-month basis and perp rates, observed the week prior.
Consistent with this deceleration, DeFi rates are beginning to pick up on a relative basis coming off cycle lows.
With these funding rate metrics near historical turning points, it would not be surprising to see rates cool down as we head into year-end.
Turning to DeFi variable rate markets, floating rates kept outpaced 3-month basis rates, rising +145bps on the week to close at 12.06% on a 30-day trailing basis. On a shorter lookback period (just seven days) Aave rates averaged 14.28% on the week, down from 16.72% the week prior.
As predicted last week, Aave followed in Spark’s footsteps by voting to raise its base rate from 5.5% to 12.5%.
This proposal has yet to be implemented but should help relieve daily interest rates spikes to upwards of 60%+ from the excess demand at current base rate settings.
It is in times like these, where funding is precious that the downside of floating rate protocols becomes most apparent. The fixed 10% spread that accrues to Aave, on top of the partial utilization models targets around 92% means that lenders are leaving a full 250bps on the table.
With derivatives markets showing signs of taking a breather and Aave’s base rates set to rise, expect DeFi interest rate volatility to begin to normalize towards year end.
Turning now to ETH markets, ETH rates followed through on last week’s gains, with rates rising +10bps to 2.77% on a 30-day trailing basis. This rise is in stark contrast to the CESR staking index, which is down -4bps over the same period, closing the week at 3.23% on a 30-day trailing basis.
Overall, utilization remains just a hair’s breadth below the 90% utilization kink.
However, more cracks around the edges are beginning to emerge. On five out of seven days over the past week, intraday highs on ETH borrow rates exceeded 5%, and on the week ETH borrow rates averaged 3.14% — effectively eliminating the historical spread between Aave ETH borrow rates and the ETH staking rate
Derivatives funding rates are beginning to show signs of slowing, with early indications of a potential market shift emerging across various metrics. Historically, rate hikes by Aave and Spark have served as key turning points , often acting as lagging indicators of market trends. While its too early to draw conclusions, keep a close eye on lending markets for further signs of change.
